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Abstract: 

The Internal Revenue Code rule that requires an annual minimum distribution is one of the the most familiar to nonspecialists, and yet one of the most poorly understood. For most foundation administrators, it means that the foundation needs to distribute an amount equal to about 5% of assets each year; but that simple formula misses one of the lesser-known nuances of IRC §4942: the option to set aside (rather than distribute) amounts without IRS approval by using the “cash distribution test.” This article explores the mechanics of §4942 cash distributions, and how to treat cash set asides as qualifying distributions.

Keywords: IRC §4942; minimum distribution rule

Affiliations:  1: Strasburger & Price, LLP.