July 6, 2010
Authored by: Erika Labelle
Corporate and family sponsored charitable organizations typically qualify as private foundations because most of their support is provided by the sponsoring corporation or family. Under these circumstances, sponsoring corporations and individuals often limit their donations to cash contributions since the deduction for contributions of appreciated property to a private foundation is generally limited to the cost basis in the property. If the private foundation can qualify as a “conduit” foundation in the year of contribution, however, the amount of the charitable deduction with respect to a donation of appreciated property may equal the fair market value of such property, assuming there is no depreciation recapture with respect to the property.
A private foundation can qualify as a conduit foundation if it (a) satisfies the minimum distribution requirements for the current and all prior years and (b) makes additional distributions in an amount equal to the contributions received (excluding cash) for the year. These requirements may seem difficult to satisfy in light of the large required distribution, however, these requirements may be satisfied by making actual current distributions and/or by electing to treat as current distributions any excess distribution carryovers from the prior five taxable years. See Treas. Reg. § 53.4942(a)-3(c)(2)(iv). Many corporate and family foundations have thousands, possibly millions, of excess distribution carryovers that expire unused each year. The governing body of a private foundation should explore possible uses of such excess distribution carryovers.