[oldalum]

Mick is correct -- foundations are required to disburse a certain amount every year; idea is to avoid ... just this sort of situation: trustees/whomever enriching themselves without staying true to their cause.

I don't see how the 5% distribution requirement would prevent a foundation's officers from unjustly enriching themselves. Another view of the purpose of the requirement:

In general, Section 4942 of the Internal Revenue Code requires private foundations to distribute 5% of the fair market value of their assets each year. The intent of this requirement is to ensure that private foundations are serving legitimate charitable purposes and not merely acting as a means for the foundation’s contributors to avoid taxes on their investment earnings. Since private foundations are, by definition, supported by only a few donors, and private foundations pay only a small excise tax of 1% or 2% on investment earnings, it is conceivable that, absent a requirement for private foundations to make annual grant distributions, private foundations could be misused by wealthy individuals as a way to hold investments in a nearly tax-free environment.

http://www.rubinbrown.com/article/3338/F...group=1117

[oldalum]

Mick is correct -- foundations are required to disburse a certain amount every year; idea is to avoid ... just this sort of situation: trustees/whomever enriching themselves without staying true to their cause.

I don't see how the 5% distribution requirement would prevent a foundation's officers from unjustly enriching themselves. Another view of the purpose of the requirement:

In general, Section 4942 of the Internal Revenue Code requires private foundations to distribute 5% of the fair market value of their assets each year. The intent of this requirement is to ensure that private foundations are serving legitimate charitable purposes and not merely acting as a means for the foundation’s contributors to avoid taxes on their investment earnings. Since private foundations are, by definition, supported by only a few donors, and private foundations pay only a small excise tax of 1% or 2% on investment earnings, it is conceivable that, absent a requirement for private foundations to make annual grant distributions, private foundations could be misused by wealthy individuals as a way to hold investments in a nearly tax-free environment.

http://www.rubinbrown.com/article/3338/F...group=1117