Private Operating Foundations
Private Operating Foundation - Endowment Test
A foundation will meet the endowment test if it normally makes
qualifying distributions directly for the active conduct of its exempt
activities of at least two-thirds of its minimum investment return..
In determining whether the amount of qualifying distributions is
at least two-thirds of the organization's minimum investment return, the
organization is not required to trace the source of the expenditures to
determine whether they were received from investment income or from
contributions.
Example. X Foundation, created after May 26,1969, has
$400,000 of endowment funds and other assets not directly used for its exempt
purpose. X makes qualifying distributions of $20,000 during the year directly
for the active conduct of its exempt function. Two-thirds of X's minimum
investment return is $13,333.33 (5% X $400,000 = $20,000; 2/3 X $20,000 =
$13,333.33). Because the $20,000 distribution is greater than $13,333.33, X
meets the endowment test.
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