From a tax law perspective, a private foundation may pay “reasonable and necessary” administrative expenses. These also count toward its annual distribution requirement, without subjecting the foundation or its managers to a penalty tax.
Administrative expenses must be (a) related to the accomplishment of the foundation’s charitable purposes, (b) related to its investments, or (c) payments of taxes.
Typically, administrative expenses are costs associated with grants, direct charitable activities, and program related investments. They include salaries, rent, travel, training, photocopying, and so on.
Foundation expenses related to ongoing investment management cannot be included. For example, investment consultant fees, custodial fees, and attendance at investment conferences. However, the initial cost of purchasing an asset can be included. Foundations should also exclude the portion of salaries and other administrative expenses that are related to ongoing investment management.
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