Organizations exempt under IRC Section 501(c)(3), and classified as a Private Foundation, have a 5% distribution requirement to meet annually. The 5% amount is based on the average value of assets throughout the fiscal year. As revenue at the end of a fiscal year could require that amount to be larger than was realized within the fiscal year, the IRS does allow that to be made up in the subsequent year without penalty. Further, the IRS does allow administrative expenses incurred to accomplish the exempt activity expenses which can be included in the 5% amount. These expenses “must be reasonable and necessary for the accomplishment of the private foundation’s exempt purposes.”
Failure to distribute the required amount will result in excise taxes.
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