Reasonable Cash Balance - Private Foundation Assets Used for Exempt Purposes

The reasonable cash balances that a private foundation needs to have on hand to cover current administrative expenses and other normal and current distributions for exempt purposes generally will be considered to be an amount figured on an annual basis equal to 1-1/2 percent of the combined fair market value of all foundation assets used in figuring minimum investment return (reduced by any acquisition indebtedness for those assets but without reduction for the reasonable cash balance).  A foundation may exclude 1-1/2 percent under this rule even if it is more than the average cash balance of the foundation.  However, if an additional amount is necessary to pay expenses and make disbursements, that amount does not have to be included in figuring minimum investment return.  All remaining cash balances will be included in the computation.

If an amount in excess of the 1-1/2 percent figure is claimed for any year, a statement must be attached to Form 990-PF for that year explaining the reasons for the larger amount.

 

 


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