Minimum Distribution Requirements for Foundations: Proposal to Disallow Administrative Costs

RS21603 -- Minimum Distribution Requirements for Foundations: Proposal to Disallow Administrative Costs

Updated April 29, 2005

Summary

Legislation introduced in the House (H.R. 7) to provide tax incentives for charitable giving includes provisions disallowing the counting of administrative costs as part of a minimum distribution requirement for private foundations. The Ways and Means Committee has modified this provision in reporting out the bill by restricting the types of administrative costs eligible. H.R. 7 was passed by the House on September 17, 2003. The issue of administrative costs and minimum distributions has been the subject of a series of changes in the past, but currently there are no restrictions other than that administrative expenses be reasonable. The principal arguments for disallowing administrative costs in the minimum distribution requirement are to discourage excessive administrative costs and increase the level of grants. The principal objections are that the restriction would increase the tendency of current requirements to erode real asset values and that the restriction would be especially harmful for those grant objectives that require a significant amount of monitoring. The revision may deal in part with that last objection.