Understanding a Powerful Private Foundation Tool: The Cash Set-Aside

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Generally, private foundations (“PFs”) are required to expend at least 5 percent of their assets each year on grantmaking, charitable activities, and certain other qualifying expenditures. Regardless of their accounting method, a PF normally is required to satisfy its minimum distribution requirement (“MDR”) to avoid penalties with funds that have actually been expended, not merely pledged or promised. However, PFs can avail themselves of a powerful tool, known as a set-aside, to treat amounts merely set aside for payment in a future year toward satisfying the current year’s MDR. This can be especially helpful when a PF is engaged in a long-term charitable project because it enables a PF to save up amounts (that otherwise would need to be distributed to avoid penalties) for projects that will not be completed by the end of the set-aside year.

Read the full article featured in Taxation of Exempts authored by Foundation Source’s Chief Legal Officer Jeffrey Haskell and Deputy Legal Officer Jennifer Bruckman-Gorak.