Yes. According to federal tax law, reasonable administrative expenses related to a foundation’s charitable activities can count toward the 5% requirement. This includes:
Examples of Qualifying Expenses:
- Staff salaries, insurance, training, travel, rent
- Reasonable site visit expenses
Other Qualifying Distributions:
- Most grants for charitable purposes (to public charities, noncharities, and eligible individuals like scholarships) if IRS rules are followed. Note: Grants to certain supporting organizations have exceptions.
- Direct charitable activities (e.g., providing technical assistance, research, publishing reports)
- Qualified set-asides (with IRS approval) for long-term charitable projects (e.g., building construction, research programs)
- Program-Related Investments (PRIs) aimed at achieving charitable goals (e.g., below-market loans, stock investments in minority-owned banks)
Non-Qualifying Expenses:
- Ongoing investment management costs (e.g., consultant fees, custodial fees, or investment conference fees)
- Portions of salaries or meeting costs related to overseeing investments
- Purchases for managing investments (e.g., new computers, office space)
- Expenditures to fix past deficiencies
- Grants to certain supporting organizations (even with expenditure responsibility, these don’t count as qualifying distributions)
Disclaimer: While we pride ourselves on our advice, please realize Exponent Philanthropy is not a law or accounting firm. This information contained in this Q&A is being provided for informational purposes only and not as part of an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code. It is our advice that you seek independent counsel, for any tax, accounting or legal issues you may have, related to matters that are of a material concern to you or your organization.
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