The Nonprofit FAQ

Is there some legal requirement to spend a certain percentage of funds

Stephen C. Nill provided this explanation in the CHARITYLAW discussion on June 1, 1999: If the organization is a private foundation (private foundations comprise about 5% of all US nonprofits), it must annually spend a minimum amount for grants and other charitable disbursements. The required amount of the charitable payments, called qualifying distributions, is 5% of the average fair market value of the private foundation's investment assets for the preceding year. IRC Sec. 4942. (Note that if the organization is a private operating foundation, it must expend 3 1/3% of the fair market value for investment assets.) The vast majority of tax exempt organizations (about 95%) qualify as a public charity. For these, there is no annual minimum distribution amount. Posted 6/1/99 -- PB