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Minimum Distribution Requirements for Foundations: Proposal to Disallow Administrative Costs , Record No.: RS21603, Date: September 05, 2003 (tax incentives) 1 (September 5, 2003)

handle is hein.tera/crstax0536 and id is 1 raw text is: Order Code RS21603 Updated September 5, 2003 CRS Report for Congress Received through the CRS Web Minimum Distribution Requirements for Foundations: Proposal to Disallow Administrative Costs Jane G. Gravelle Senior Specialist in Economic Policy Government and Finance Summary Legislation introduced in the House (H.R. 7) to provide tax incentives for charitable giving includes provisions disallowing the counting of administrative costs as part of a minimum distribution requirement for private foundations. The issue of administrative costs and minimum distributions has been the subject of a series of changes in the past, but currently there are no restrictions other than that administrative expenses be reasonable. The principal arguments for adopting the provision are to discourage excessive administrative costs and increase the level of grants. The principal objections are that the restriction would increase the tendency of current requirements to erode real asset values and that the restriction would be especially harmful for those grant objectives that require a significant amount of monitoring. The Senate has passed legislation, S. 476, that provides for a series of tax benefits designed to encourage charitable contributions. The House had passed its own version of this legislation in the 107th Congress, H.R. 7. The House-passed version included a provision beneficial to private foundations, which would reduce a small excise tax applied to investment earnings; this issue was not addressed in the Senate bill.1 The current version of H.R. 7, introduced by Congressman Blunt, added a provision to the bill to disallow the counting of administrative costs in determining the minimum distribution costs of private foundations that make grants. This report explains the current minimum distribution requirements in the tax law and the history of this provision, and discusses the issues. A planned markup of the bill by the Ways and Means Committee on September 4 has been postponed to consider this provision further. Current Tax Treatment of Private Foundations Congressional Research Service A+ The Library of Congress ' See CRS Report RS21144, Tax Incentives for Charity: An Overview of Legislative Proposals, by Jane G. Gravelle for an overview of the provisions in these bills.

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