# Domestic Private Foundations and Charitable Trusts,

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- **Document type:** Agency decision

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Domestic Private Foundations and Charitable Trusts,
2001
by Melissa Ludlum

P

rivate foundations contribute billions of dollars
to the charitable sector each year, often by
providing financial support to charitable
organizations and initiatives. Foundations’ outlays,
which are generally grants awarded to charitable
organizations, communities, or individuals, contribute
to the operation of charitable programs in such areas
as education, arts and humanities, health, human
services, and environmental protection. Foundations,
which are tax-exempt under Internal Revenue Code
(IRC) section 501(c)(3), are annually required to file
the information return, Form 990-PF. Foundations
file these returns for the reporting year in which
financial activities occurred. The data presented in
this article are from Forms 990-PF filed by domestic
private foundations, defined as those foundations
organized in the United States, for Reporting Year
2001 [1]. This reporting year includes all accounting
periods beginning in Calendar Year 2001 and thus
ending between December 2001 and November
2002. Consequently, the returns reflect financial
activity that occurred in either Calendar Year 2001
or 2002, or some portion of both (see the Data
Sources and Limitations section for further information). Between Reporting Years 2000 and 2001,
the total number of Forms 990-PF filed by private
foundations increased by 6 percent to 70,787.
The aggregate fair market value of total assets
held by domestic private foundations fell by 3 percent
between Reporting Years 2000 and 2001, with the
value of investment assets, which comprise the
majority of total assets, decreasing nearly 7 percent.
Total revenue earned by private foundations fell by
38 percent, largely the result of an 87-percent decrease in net gain (or loss) from sale of assets.
Contributions received by private foundations for
Reporting Year 2001, at $27.7 billion, fell for the
second consecutive year and represented a 13percent decrease from the previous year. Domestic
private foundations also disbursed slightly fewer
charitable dollars in contributions, gifts, and grants
than for Reporting Year 2000 [2]. Various financial
data, including private foundation asset, revenue, and

Melissa Ludlum is an economist with the Special Studies
Branch Special Projects Section, This article was
prepared under the direction of Barry Johnson, Chief.

expense items for 2000 and 2001, are shown in
Figure A.
Certain nonexempt charitable trusts, as described
in IRC section 4947(a)(1), are also annually required
to file Form 990-PF. Unlike private foundations,
these organizations are not exempt from income
taxes, but are otherwise treated as private foundations for tax purposes. For Reporting Year 2001,
some 2,944 nonexempt charitable trusts treated as
private foundations filed Form 990-PF, only 22 fewer
than had filed the return for the previous year. These
trusts reported aggregate fair market value of total
assets of $4.6 billion, revenue totaling $0.3 billion, and
distributions of $0.2 billion in contributions, gifts, and
grants [3].

Statistics of Income Studies
The statistics presented in this article for both private
foundations and charitable trusts are based on sample
data from Form 990-PF, Return of Private Foundation (or Section 4947(a)(1) Charitable Trust
Treated as a Private Foundation), the annual
information return filed by these organizations.
Statistics of Income studies on private foundations
have been conducted for Reporting Years 1974,
1979, 1982, 1983, and annually since 1985. Studies
on 4947(a)(1) charitable trusts that are treated as
private foundations have been conducted for Reporting Year 1979 and annually since 1989.

Private Foundations
LegalandTaxDefinitions
IRC section 501(c)(3) grants exemption from the
income taxes described in IRC, Title 26, Subtitle A to
private foundations and other organizations that
conduct activities or provide financial support for
charitable purposes. In most cases, a private foundation is a corporation, association, or trust, which
provides some type of charitable support or conducts
charitable activities [4]. A foundation is distinguished
from other tax-exempt organizations by several
characteristics; the most notable difference is its
narrow sphere of support and control, which is
generally limited to an individual, family, or corporation. As they generally receive financial support
from a small number of sources and are not dependent on public contributions, foundations are not
directly accountable to the public, and are thus
141

Domestic Private Foundations and Charitable Trusts, 2001

Figure A
Domestic Private Foundations: Selected Financial Items and Percentage Changes, Reporting Years
2000-2001
[Money amounts are in millions of dollars]

Item

2000

2001

Percentage change,
2000-2001

(1)

(2)

(3)

Number of foundations......................................................................................................................
66,738
Total assets (fair market value)......................................................................................................................
471,645.7
Cash (non-interest bearing accounts)......................................................................................................................
4,071.7
Investments, total......................................................................................................................
447,437.0
Savings and temporary cash investments.................................................................................................................
32,989.3
Investments in securities, total.................................................................................................................
361,417.5
Government obligations..........................................................................................................
46,131.7
Corporate stock..........................................................................................................
270,444.8
Corporate bonds..........................................................................................................
44,841.0
Other investments ¹.................................................................................................................
53,030.2

70,787
455,423.0
3,863.3
416,715.2
32,971.1
329,352.7
42,854.9
240,353.7
46,144.1
54,391.5

6.1
-3.4
-5.1
-6.9
-0.1
-8.9
-7.1
-11.1
2.9
2.6

Total revenue......................................................................................................................
72,780.0
Contributions, gifts, and grants received......................................................................................................................
31,798.2
Net gain (less loss) from sales of assets......................................................................................................................
24,601.9
Dividends and interest from securities......................................................................................................................
10,187.7
Total expenses......................................................................................................................
37,433.9
Disbursements for charitable purposes......................................................................................................................
31,874.1
Contributions, gifts, and grants paid ......................................................................................................................
27,563.6

45,263.8
27,746.0
3,163.7
9,211.3
36,661.5
31,698.0
27,383.3

-37.8
-12.7
-87.1
-9.6
-2.1
-0.6
-0.7

¹ Sum of "Investments in land, buildings, and equipment (less accumulated depreciation)," "Investments in mortgage loans," and "Other investments," as reported on Form 990-PF.
"Other investments" includes items such as advances; certificates of investment; and investments in art, coins, gold, and gems.

142

142

subject to greater Federal regulation than other taxexempt organizations.
An organization must submit an application to the
Internal Revenue Service in order to obtain taxexemption under IRC section 501(c)(3). Initially, all
tax-exempt organizations are presumed to be private
foundations. However, certain organizations, such as
hospitals, schools, and organizations that receive
broad support from the general public, are further
granted automatic “non-private foundation” status at
the time that their applications for tax-exemption are
approved. These organizations file Form 990, Return
of Organization Exempt From Income Tax, or
Form 990-EZ, the short version of this information
return (see “Private Foundation” in the Explanation
of Selected Terms section of this article for a detailed description of the requirements for Form 990
versus Form 990-PF filers). Some of these organizations, including churches and organizations with
minimal asset holdings and revenue, are exempted
from filing any information return. Form 990-PF is
filed by organizations that receive tax-exemption
under 501(c)(3), but do not receive “non-private
foundation” status. Returns filed by private foundations accounted for nearly one-fourth of all Forms
990, 990-EZ, and 990-PF filed by tax-exempt organizations for Reporting Year 2001. Additionally, they
held approximately one-fifth of total assets, which are

reported, in book value only, by both Form 990 and
990-EZ filers. Private foundations earned only 5
percent of all revenue reported on the three forms [5].
Depending on the type of charitable support that
a private foundation provides, it may be classified as
either “nonoperating” or “operating.” A nonoperating
foundation is defined as such because it generally
supports charitable programs indirectly, providing
grants to other nonprofit organizations, rather than
operating programs of its own. These foundations,
which represented 90 percent of Form 990-PF filers
for Reporting Year 2001, are legally required to
distribute a minimum amount for charitable purposes
each year. In contrast, an operating foundation is
directly involved in the operation of its own charitable
activities. In order to qualify as operating, a foundation must meet certain financial criteria (see “Operating Foundations (and Charitable Trusts)” in the Explanation of Selected Terms section for information
on operating foundations). Common examples of
such organizations include museums, facilities providing housing or health care, or organizations conducting scientific research. Few private foundations are
characterized as operating; these types of organizations filed just 10 percent of Forms 990-PF for Reporting Year 2001. While many foundations that
qualify as operating also contribute to other organizations’ charitable programs, such distributions are not

Domestic Private Foundations and Charitable Trusts, 2001

legally required of them. In the event that a foundation fails to meet the operating foundation requirements for a reporting year, it is treated as nonoperating and is subject to the rules that govern nonoperating foundations.
Most nonoperating, and many operating, private
foundations are characterized as “grantmaking,”
meaning that they provide financial support to other
charitable organizations. However, for a given reporting year, a minority of foundations may not distribute grants for a variety of reasons. For example,
a newly-organized nonoperating foundation may not
have a distribution requirement for a given year. In
some cases, foundations defined as nonoperating may
conduct substantial operating activities, meeting their
distribution requirements through means other than
traditional grantmaking. Some 17 percent of all
private foundations and 12 percent of all nonoperating
foundations made no grants for Reporting Year 2001.
While private foundations are granted exemption
from Subtitle A income tax, they may be subject to
certain other Federal taxes. All organizations exempt
under IRC section 501(c)(3) are required to pay
taxes on income earned in a manner that is not substantially related to the organization’s exempt purpose. Exempt organizations report such income
separately on Form 990-T, Exempt Organization
Business Income Tax Return. The Tax Reform Act
of 1969 (TRA69) established additional taxes specific
to private foundations and was the basis for sections
4940-4945 of the Internal Revenue Code. Section
4940 includes an excise tax on “net investment income,” which consists of income received only from
investments. This tax applies to all nonoperating and
most operating foundations and is reported annually
on Form 990-PF. Sections 4941-4945 define activities that are considered to be contrary to the public
interest and outline the taxes imposed on foundations
that engage in such “prohibited activities.” Business
ventures or investments that in some way jeopardize
the foundation’s charitable purpose, or acts of “selfdealing,” which are defined as financial transactions
with foundation officers, directors, trustees, substantial contributors, or “other disqualified persons,” are
considered to be contrary to the public interest and
taxable under IRC section 4941 (see “Disqualified
Person” in the Explanation of Selected Terms
section). IRC section 4942 describes the excise tax

on nonoperating foundations that fail to distribute a
minimum amount for charitable purposes. Taxation
of excess business holdings, certain high-risk investments, and various prohibited expenditures, such as
participation by a foundation on behalf of, or in opposition to, a candidate for public office, or efforts to
influence legislation by contacting legislators, or
encouraging the public to do so, are taxable under
IRC sections 4943-4945. Taxes on the activities
described in IRC sections 4941-4945 are reported
separately on Form 4720, Return of Certain Excise
Taxes on Charities and Other Persons Under
Chapters 41 and 42 of the Internal Revenue
Code, and are not included in this article.
Asset-SizeClassProfileofPrivateFoundations
For Reporting Year 2001, private foundations held
assets with an aggregate fair market value of $455.4
billion and earned aggregate revenue totaling $45.3
billion. Nonoperating foundations, which represented
90 percent of private foundations, reported 92
percent of the aggregate fair market value of total
assets and 91 percent of revenue.
Large organizations accounted for the majority of
financial activity by private foundations for Reporting
Year 2001, but represented a minority of Form 990PF filers. Small foundations, defined for purposes of
this article as those holding less than $1 million in fair
market value of total assets, accounted for 68 percent of the 70,787 Forms 990-PF filed for 2001, but
held only 3 percent of assets, as shown in Figure B.
In contrast, large foundations, those with $50 million
or more in fair market value of total assets, represented fewer than 2 percent of all returns filed, but
accounted for 68 percent of overall asset holdings,
with more than 60 percent of all foundation assets
held by those foundations with fair market value of
total assets of $100 million or more. Large foundations also dominated the revenue category, with those
holding $100 million or more in fair market value of
total assets reporting nearly half of total revenue.
Medium foundations, which each held between $1
million and $50 million in fair market value of total
assets, held 29 percent of all assets and earned 38
percent of all revenue, while accounting for nearly
one-third of all Forms 990-PF filed by private foundations for 2001.
143

Domestic Private Foundations and Charitable Trusts, 2001

Figure B
Domestic Private Foundations: Selected Financial Items, by Size of Fair Market Value of Total Assets,
Reporting Year 2001
[Money amounts are in millions of dollars]

All foundations
Asset size

Number of
returns

Total FMV
assets

(1)
(2)
70,787
455,423.0
Total....................................................................................
Small foundations:
Less than $100,000 ¹....................................................................................
22,215
704.0
11,208.7
$100,000 under $1,000,000....................................................................................
25,757
Medium foundations:
$1,000,000 under $10,000,000....................................................................................
18,305
59,609.7
73,623.6
$10,000,000 under $50,000,000....................................................................................
3,482
Large foundations:
$50,000,000 under $100,000,000....................................................................................
513
35,530.8
$100,000,000 or more....................................................................................
515
274,746.2
Percentage of total
Total....................................................................................
100.0
100.0
Small foundations:
Less than $100,000 ¹....................................................................................
31.4
0.2
$100,000 under $1,000,000....................................................................................
36.4
2.5
Medium foundations:
$1,000,000 under $10,000,000....................................................................................
25.9
13.1
$10,000,000 under $50,000,000....................................................................................
4.9
16.2
Large foundations:
$50,000,000 under $100,000,000....................................................................................
0.7
7.8
$100,000,000 or more....................................................................................
0.7
60.3

Nonoperating foundations
Total
revenue

Number of
returns

Total FMV
assets

Total
revenue

(3)
45,263.8

(4)
63,650

(5)
416,809.5

(6)
41,213.9

436.7
2,543.9

19,225
23,514

616.7
10,269.0

413.2
2,356.7

9,047.4
8,282.6

16,754
3,216

52,015.4
68,102.4

7,520.8
7,339.4

3,566.9
21,386.3

470
472

100.0

100.0

100.0

100.0

1.0
5.6

30.2
36.9

0.1
2.5

1.0
5.7

20.0
18.3

26.3
5.1

12.5
16.3

18.2
17.8

7.9
47.2

0.7
0.7

7.8
60.8

7.7
49.5

32,564.3
253,241.7
Percentage of total

3,186.7
20,397.1

¹ Includes returns with zero assets or assets not reported.
NOTES: Detail may not add to totals because of rounding and processing tolerances. "FMV" is an abbreviation for fair market value.

144

144

FoundationAssetsandInvestments,ConstantDollar
Analysis
Investments, which account for the majority of total
foundation asset values, are most precisely measured
over time when adjusted for inflation to obtain “real”
changes [6]. Figure C shows inflation-adjusted
changes in total and selected types of investments,
between Reporting Years 2000 and 2001. Investments represented 92 percent of the aggregate fair
market value of total assets for Reporting Year 2001.
The value of investments, which totaled $416.7
billion, decreased by 9 percent from Reporting Year
2000. Investment assets include savings and temporary cash investments, securities (corporate stocks
and bonds and Government obligations), and “other
investments.” The “other investments” category
represents an aggregation of several items, including investments in land, buildings, and equipment
(less accumulated depreciation); mortgage loans;
and additional items such as advances, certificates
of investment, and investments in art, gold, coins,
and gems.
As in Reporting Year 2000, the values of investment assets of large foundations declined more

dramatically in Reporting Year 2001 than did those of
smaller foundations. While total investment values
fell by more than 11 percent for large foundations,
investment values of small organizations experienced
a modest 6-percent increase.
The total value of corporate stocks held by private foundations declined for the second consecutive
year, registering a real decrease of more than 13
percent between Reporting Years 2000 and 2001.
These investments represented the majority of total
securities; their dramatic decrease, along with a 9percent drop in the total value of Government obligations, accounted for the 11-percent decline in security
values overall. The value of holdings in corporate
bonds remained stable between Reporting Years
2000 and 2001.
Overall, investment values fared better for small
foundations than for their larger counterparts. While
medium foundations reported modest gains in the
values of several investments, values declined in
every investment category for large foundations.
The total value of securities, which increased by
nearly 5 percent for small foundations, decreased for
both of the larger asset-size classes. For small foun-

Domestic Private Foundations and Charitable Trusts, 2001

Figure C
Domestic Private Foundations: Investments and Percentage Changes, by Asset-Size Class, in
Constant Dollars, Reporting Years 2000-2001
[Money amounts are in millions of dollars]

All foundations
Item

Small foundations

2000

2001

Percentage
change,

2000

2001

Percentage
change,

(1)

(2)

2000-2001
(3)

(4)

(5)

2000-2001
(6)

Investments, total (fair market value)...............................................................................................
458,175.5
416,715.2
Savings and temporary cash investments...............................................................................................
33,781.1
32,971.1
Investments in securities, total...............................................................................................
370,091.6
329,352.7
Government obligations...............................................................................................
47,238.9
42,854.9
Corporate stock...............................................................................................
276,935.5
240,353.7
Corporate bonds...............................................................................................
45,917.2
46,144.1
4
Other investments ...............................................................................................
54,302.9
54,391.5
Medium foundations
Item

1

2000

2001

(7)

(8)

-9.0
-2.4
-11.0
-9.3
-13.2
0.5
0.2

10,265.0
2,072.2
7,164.5
771.7
5,488.0
904.8
1,028.3

2

10,875.7
2,203.4
7,487.6
497.6
5,737.4
1,252.6
1,184.6
Large foundations

Percentage
change,
2000-2001
(9)

Investments, total (fair market value)...............................................................................................
127,342.4
122,161.1
Savings and temporary cash investments...............................................................................................
13,301.9
13,428.4
Investments in securities, total...............................................................................................
100,205.8
94,633.8
Government obligations...............................................................................................
12,886.0
11,737.3
Corporate stock...............................................................................................
74,546.5
69,395.2
Corporate bonds...............................................................................................
12,773.4
13,501.3
4
Other investments ...............................................................................................
13,834.8
14,098.9

-4.1
1.0
-5.6
-8.9
-6.9
5.7
1.9

5.9
6.3
4.5
-35.5
4.5
38.4
15.2
3

(10)

(11)

Percentage
change,
2000-2001
(12)

320,568.1
18,407.0
262,721.2
33,581.2
196,901.1
32,239.0
39,439.9

283,678.4
17,339.2
227,231.2
30,619.9
165,221.1
31,390.2
39,108.0

-11.5
-5.8
-13.5
-8.8
-16.1
-2.6
-0.8

2000

2001

¹ Small foundations are those holding from zero (including unreported) to less than $1,000,000 in fair market value of total assets.
² Medium foundations are those holding from $1,000,000 to less than $50,000,000 in fair market value of total assets.
³ Large foundations are those holding $50,000,000 or more in fair market value of total assets.
4
Sum of "Investments in land, buildings, and equipment (less accumulated depreciation)," "Investments in mortgage loans," and "Other investments," as reported on Form 990-PF.
"Other investments" includes such items as advances; certificates of investment; and investments in art, coins, gold, and gems.
NOTE: Amounts have been adjusted for inflation based on the 2000 chain-type price index for Gross Domestic Product, as published by the U.S. Department of Commerce,
Bureau of Economic Analysis and may differ from investment amounts in other tables and figures. Reporting Year 2001 is the base year. Detail may not add to totals because
of rounding and processing tolerances. "FMV" is an abbreviation for fair market value.

dations, increased values of corporate stocks and
corporate bonds of 5 percent and 38 percent, respectively, offset a 36-percent decrease in the total value
of Government obligations.
CompositionofInvestmentAssetsbySizeofFoundation
Since foundations, in varying degrees, use income
from investments to finance their grants and disbursements, investments figure prominently in
creating the financial basis for private-foundation
charitable giving. Foundations may alter their management and investment strategies to best suit their
long- and short-term goals. Investments in corporate
stock are considered to be high-risk, but also provide
higher returns in the long run, while short-term
investments, such as temporary cash investments,
have little risk but less return. Large foundations
generally invest extensively in securities and other
long-term investments and relatively little in shortterm investments, while small and medium

foundations, though still holding large portions of
assets in securities, are more likely than large foundations to hold a significant share of their portfolios in
short-term investments.
Figure D shows the composition of investment
assets for all foundations, by asset-size class. Corporate stock was the major investment asset for each
size category of foundation for 2001. Small foundations held 53 percent of their investment assets in
corporate stock; this category represented 57 percent
and 58 percent of investment assets for medium and
large foundations, respectively. Savings and temporary cash investments, the category representing
short-term investments, represented 20 percent of
investment assets for small foundations but only 6
percent for large foundations.
IncomeYieldsandRatesofTotalReturn
The “net investment income yield” and “rate of total
return” formulas provide measures of the performances of foundations’ investment assets. Figure E

145

Domestic Private Foundations and Charitable Trusts, 2001

Figure D
Composition of Domestic Private Foundation Investment Assets, by Asset-Size Class, Reporting
Year 2001
All Foundations

13%

8%

$416.7 Billion
11%
58%

10%

Small Foundations¹

Medium Foundations²

Large Foundations³

146

$10.9 Billion

$283.7 Billion

$122.2 Billion

Corporate stock

Government obligations

Savings and temporary cash
investments

Corporate bonds

Other investments

4

¹ Small foundations are those holding from zero (including unreported) to less than $1,000,000 in fair market value of total assets.
² Medium foundations are those holding from $1,000,000 to less than $50,000,000 in fair market value of total assets.
³ Large foundations are those holding $50,000,000 or more in fair market value of total assets.
4

146

Sum of "Investments in land, buildings, and equipment (less accumulated depreciation)," "Investments in mortgage loans," and "Other
investments," as reported on the Form 990-PF. "Other investments" includes items such as advances; certificates of investment; and
investments in art, coins, gold, and gems.
NOTE: Amounts and percentages of investment assets are shown using fair market value.

Domestic Private Foundations and Charitable Trusts, 2001

Figure E
Domestic Private Foundation Net Investment Income Yields and Rates of Total Return on Assets, by
Size of Fair Market Value of Total Assets and Foundation Type, Reporting Year 2001
Asset size

Nonoperating private foundations
Net investment income
Rates of total return
yields (percentages)
(percentages)

Operating private foundations
Net investment income
Rates of total return
yields (percentages)
(percentages)

Median

Mean

Median

Mean

Median

Mean

Median

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

6.6

-2.6

-1.6

1.8

4.0

-2.3

-0.1

Total....................................................................................
3.3

Small foundations:
Less than $100,000 ¹....................................................................................
1.3
1.8

Mean

-1.8

-2.9

3.1

3.1

-2.3

-2.1

$100,000 under $1,000,000....................................................................................
3.8
8.5
-3.2
Medium foundations:

2.0

1.7

3.0

-0.8

-5.9

$1,000,000 under $10,000,000....................................................................................
3.8
7.9
-5.2
$10,000,000 under $50,000,000....................................................................................
3.7
6.9
-5.2
Large foundations:

-4.8
-4.1

3.2
3.4

5.6
7.1

-2.3
-1.7

10.1
5.4

$50,000,000 under $100,000,000....................................................................................
3.3
6.3
-4.8

-2.1

3.7

4.8

-1.4

-1.8

$100,000,000 or more....................................................................................
3.1
6.2

-4.8

3.5

5.4

-3.9

14.8

-5.5

¹ Includes returns with zero assets or assets not reported.
NOTES: Net investment income yield is equal to total net investment income divided by the end-of-year fair market value of investment assets. The rate of total return formula used
here measures the change in the value of the entire asset base, excluding inflows and outflows of money, such as contributions received and grants paid. See footnote 8 in the "Notes
and References" section for the rate of total return formula.

shows median “net investment income yields” and
“rates of total return on assets” for domestic nonoperating and operating foundations, by size, for 2001.
Both the mean and the median, which minimizes
the influences of large outliers in the data and may
therefore better represent a typical foundation
than the mean value, are calculated. In addition,
both formulas exclude organizations that were not
included in the sample for each of Reporting
Years 2000 and 2001.
An income yield is a measure of the realized
investment income that a foundation earns on its
investment assets. The net investment income (NII)
yield was calculated by dividing net investment income by the end-of-year fair market value of investment assets [7]. For nonoperating foundations,
median income yields for Reporting Year 2001 were
notably lower for all asset-size classes than in recent
years, with the smallest foundations, those with less
than $100,000 in fair market value of total assets,
earning the smallest median yields. For operating
foundations, median income yields were also lower
for small foundations; however, the smallest foundations earned higher median income yields than foundations with between $100,000 and $1,000,000 in fair
market value of total assets.
Further insight into foundation investment return
can be gained by examining data for the rate of total
return on assets. This measure, which represents the

total capital appreciation of a foundation’s endowment, is a more comprehensive indication of total
investment performance than the NII yield. It measures the realized income from investments and other
assets, as well as the unrealized appreciation or
depreciation in the fair market value of assets. The
rate-of-total-return formula used here measures the
change in the value of the entire asset base excluding
inflows and outflows of money, such as contributions
received and grants paid [8]. Median rates of total
return dropped for foundations in all asset-sizes
classes from Reporting Year 2000. Median rates of
return dropped more sharply for medium and large
foundations than for small foundations, indicating that
organizations with larger asset holdings suffered the
effects of decreased investment values more
strongly. For 2001, median rates of return were
lower than net investment income yields for foundations in all asset-size classes.
SourcesofFoundationRevenue
Income derived from assets and investments, including dividends and interest from securities and net gain
(or loss) from sale of assets, combined with contributions received, was the major source of revenue for
Reporting Year 2001. Contributions, gifts, and grants
received and dividends and interest from securities
were the two primary sources of revenue for the
reporting year. While the total amount of contribu-

147

Domestic Private Foundations and Charitable Trusts, 2001

148

148

tions received by private foundations decreased
between Reporting Years 2000 and 2001, this source
of revenue, at 61 percent for 2001, remained the
largest component of overall revenue. Dividends and
interest from securities accounted for 20 percent of
total revenue, with all of the additional revenue
categories constituting much smaller amounts of the
total. Net gain (or loss) from sale of assets represented just 7 percent of total revenue, far less than
the 34 percent for the previous year. Figure F shows
revenue sources for 2001 for all foundations, by
asset-size class.
In addition to accounting for the largest portion of
aggregate foundation revenue, contributions received
were the major revenue source for foundations in
each of the three asset-size classes. Small and
medium foundations reported contributions as 82
percent and 65 percent, respectively, of total revenue. For Reporting Year 2001, large foundations
earned far less from net gain (or loss) from sale of
assets than in the previous year and reported a
greater dependence on revenue received from contributions. These organizations reported contributions
as 56 percent of revenue, with dividends and interest
from securities, at 24 percent, as the next-largest
component, and net gain (or loss) from sale of assets
accounting for only 9 percent of the total. In contrast,
for Reporting Year 2000, contributions made up only
35 percent of large foundations’ revenues; net gain
(or loss) from sale of assets, at 40 percent, represented the largest revenue source.
Income-ProducingActivities
In addition to identifying revenue sources, a foundation must specify the manner in which it produced
income each reporting year. All foundations are
required to characterize any revenue items reported,
other than contributions, on the “Analysis of Income
Producing Activities” schedule. Foundations use this
schedule to divide income into three categories:
unrelated business income, excluded income, and
exempt function income. In some cases, a foundation may be required to pay income taxes on those
portions of revenue drawn from income-producing
activities that are unrelated to its exempt purposes.
The first category, “unrelated business income,”
is taxable income from a trade or business that is
regularly carried on by the organization but is not
substantially related to the organization’s exempt

purpose or function, other than to provide income to
the organization.
Organizations with unrelated business income
must file Form 990-T. Private foundations reported
$101 million in unrelated business income for 2001,
far less than 1 percent of total revenue [9]. Fewer
than 6 percent of all private foundations reported
unrelated business income.
Revenue categorized as “excluded income,”
although not directly related to the tax-exempt, charitable function of the foundation, is exempted or
excluded from the tax on unrelated business income
by IRC sections 512, 513, or 514. Included in this
category are dividends, interest, rental income, and
gains from sales of investment assets. Excluded
income totaled $15.6 billion for 2001, 34 percent of
total revenue, and 90 percent of total income as
reported on the “Analysis of Income-Producing
Activities” schedule.
Income that is directly related to the function or
purpose for which an organization has received taxexemption is classified as “related or exempt function
income.” Just over 3 percent, or $1.6 billion, of total
revenue was categorized as exempt income.

Excise Tax on Net Investment Income
Interest, dividends, net income from realized capital
gains, and other income earned outside of a
foundation’s charitable purpose, are known collectively as net investment income. Although treated as
“excluded income” and thus exempt from the unrelated business income tax, net investment income is
subject to an excise tax each year under IRC section
4940. This tax is intended to cover expenses incurred by the Internal Revenue Service in the
oversight of foundation activities and the enforcement
of laws governing their exempt status. Generally,
domestic foundations are taxed at a rate equal to 2
percent of their worldwide net investment incomes [10].
Domestic private foundations that meet certain
requirements may be eligible for a reduction or exemption from the excise tax on net investment income. A domestic nonoperating foundation that is
able to show a certain degree of improvement in the
rate of its charitable distributions may be eligible to
pay the tax at a reduced 1-percent rate. Specifically,
if certain distributions made for charitable purposes,
known as “qualifying distributions,” exceeded a 5year average of qualifying distributions plus 1 percent

Domestic Private Foundations and Charitable Trusts, 2001

Figure F
Sources of Domestic Private Foundation Revenue, by Asset-Size Class, Reporting Year 2001
All Foundations
5%
6%
7%

$45.3 Billion

61%
20%

Small Foundations¹

$3.0 Billion

1

Large Foundations³

Medium Foundations²

$17.3 Billion

$25.0 Billion

Contributions, gifts, and grants
received

Dividends and interest from securities

Net gain (less loss) from sales
of assets

Other interest 4

Other income 5

Small foundations are those holding from zero (including unreported) to less than $1,000,000 in fair market value of total assets.

2

Medium foundations are those holding from $1,000,000 to less than $50,000,000 in fair market value of total assets.

3

Large foundations are those holding $50,000,000 or more in fair market value of total assets.

4

Represents "Interest on savings and temporary cash investments," as reported on Form 990-PF.

5

Includes "Gross rents and royalties" and "Gross profit (or loss) from business activities" as reported on Form 990-PF, as well as items such as imputed interest on
deferred payments and program-related investment income.
NOTE: Detail may not add to totals because of rounding and processing tolerances.

149

Domestic Private Foundations and Charitable Trusts, 2001

150

of current net investment income, a foundation was
eligible for the reduced tax rate for Reporting Year
2001. A total exemption from this excise tax is
available to certain domestic operating foundations.
Operating foundations that are eligible for this exemption must maintain public support in the form of
income or contributions received for a 10-year period. Additionally, they must have boards of trustees
or other governing bodies that are representative of
the general public and consist of no more than 25percent disqualified persons for the reporting year.
Further, no disqualified person is allowed to have
served as an officer during the year. For 2001, 19
percent of all operating foundations reported that they
had met these requirements and were not liable for
the excise tax on net investment income [11].
As shown in Figure G, foundations reported $305
million in excise tax on net investment income for
Reporting Year 2001, less than half of the liability
that these organizations reported for 2000. Only
$25.0 billion in net investment income were subject to
the tax for Reporting Year 2001, down from the
$47.4 billion of taxable net investment income for
2000. Total net investment income for all foundations, including those exempt from the tax, suffered a
decrease of nearly 90 percent from Reporting Year
2000, dropping to $25.7 billion. The majority of
domestic foundations, 52 percent, reported eligibility
for the reduced 1-percent rate.
Large foundations qualified for the reduced tax
rate at a greater percentage than smaller foundations,
but were responsible for a much larger percentage of
total tax liability. Some 72 percent of large private

foundations reported that they qualified for the reduced 1-percent rate. In contrast, a minority of small
foundations, 45 percent, reported that they qualified
for the reduced rate. Large foundations, however,
reported $186 million in excise tax liability, more than
half of the total reported.

The Charitable Distribution Requirement
In addition to the excise tax on net investment
income, nonoperating foundations are also subject to
an annual minimum distribution requirement. This
amount is based on the values of a foundation’s
assets throughout a given reporting year. Foundations may hold two types of assets, “charitable-use”
and “noncharitable-use.” The former category
includes assets that are used directly for conducting
charitable activities, such as office buildings, art held
by museums, and computers. Noncharitable-use
assets are those assets held for investment purposes
only and may include such items as securities,
investments in art, coins, or other collectables, and
investments in real estate. Nonoperating foundations
determine their minimum distribution requirements for
each reporting year, by calculating a “distributable
amount,” based on the value of their noncharitableuse assets. Noncharitable-use cash and securities
are valued based on their average monthly values
throughout the reporting year. Other noncharitableuse assets are valued annually, although not
necessarily at year’s end. Based on the total value
of noncharitable-use assets, the organization must
calculate its “minimum investment return,” which
equals 5 percent of noncharitable-use assets. The

Figure G
Domestic Private Foundations Reporting Excise Tax on Investment Income, by Asset-Size Class,
Reporting Year 2001
[Money amounts are in millions of dollars]

Item

All foundations

Small foundations¹

Medium foundations²

Large foundations ³

(1)

(2)

(3)

(4)

Number of foundations....................................................................................

55,584

Percentage of all foundations.......................................................................................................................
78.5
4
Net investment income (NII) ....................................................................................25,000.5
Excise tax......................................................................................................................305.3
Percentage of all foundations reporting:
1-percent tax.......................................................................................................................
51.6
2-percent tax.......................................................................................................................
48.4

150

33,932

20,691

961

70.7
846.7
12.1

95.0
8,005.3
107.5

93.5
16,148.5
185.7

45.4
54.6

60.8
39.2

71.5
28.5

¹ Small foundations are those holding from zero (including unreported) to less than $1,000,000 in fair market value of total assets.
² Medium foundations are those holding from $1,000,000 to less than $50,000,000 in fair market value of total assets.
³ Large foundations are those holding $50,000,000 or more in fair market value of total assets.
4
Represents net investment income of foundations reporting excise tax. Total net investment income for all foundations was $25.7 billion.

Domestic Private Foundations and Charitable Trusts, 2001

minimum investment return is then adjusted by
incorporating certain required or allowed deductions,
to arrive at the distributable amount (see Distributable
(Payout) Amount, Minimum Investment Return, Net
Adjustments to Distributable Amount, and
Noncharitable-Use Assets in the Explanation of
Selected Terms section).
Both “qualifying distributions” from the current
year and carryovers (distributions paid in excess of
the minimum required amount) from the previous 5
years can be combined to meet the current year’s
distribution requirement. Qualifying distributions are
those made for charitable purposes and consist primarily of contributions, gifts, and grants disbursed
throughout the year. However, qualifying distributions may also include operating and administrative
expenses related to conducting its charitable operations; “set-asides,” which are amounts earmarked for
future charitable distributions; program-related investments, such as loans to other 501(c)(3) organizations;
and amounts paid to acquire buildings, equipment,
supplies or other assets for charitable use. For Report-

ing Year 2001, qualifying distributions for nonoperating foundations totaled $29.8 billion, virtually unchanged from 2000. Qualifying distributions made by
nonoperating foundations again outpaced the required
distributable amount, which fell by 4 percent to $19.7
billion. The majority of distributions were contributions and grants, which represented 89 percent of
qualifying distributions, followed by operating and
administrative expenses, at 8 percent. Additionally,
set-asides, program-related investments, and amounts
paid to acquire assets for charitable use, each accounted for 1 percent of total qualifying distributions.
Qualifying distributions and their components,
along with distributable amounts, are shown for
foundations by asset-class, in Figure H. Small foundations, which generally concentrate their efforts on
current rather than long-term charitable giving, exceeded the distributable amount to the greatest degree. Large foundations increased their qualifying
distributions by just 2 percent from 2000, while both
small and medium foundations decreased these
distributions slightly during the period.

Figure Hre H
Domestic Nonoperating Private Foundations Qualifying Distributions and Distributable Amount,
by Size of Fair Market Value of Total Assets, Reporting Year 2001
[Money amounts are in millions of dollars]

Qualifying distributions
Asset size

Operating
expenses

Set-asides

(1)

(2)

(3)

(4)

(5)

(6)

233.6

260.4

408.7

19,736.4

---

3.6
--

-5.2

31.0
485.0

12.3
11.6

67.4
37.7

11.3
23.5

2,538.4
3,296.5

5.0
204.7

6.8
144.8

23.2
345.4

1,562.6
11,822.8

Total....................................................................................
29,785.2
26,526.4
2,356.1
Small foundations:
Less than $100,000 ¹....................................................................................
398.3
342.0
52.6
$100,000 under $1,000,000....................................................................................
1,814.5
1,713.9
95.4
Medium foundations:
$1,000,000 under $10,000,000....................................................................................
4,710.8
4,328.9
290.8
$10,000,000 under $50,000,000....................................................................................
5,723.2
5,289.2
361.2
Large foundations:
$50,000,000 under $100,000,000....................................................................................
2,708.2
2,467.0
206.2
$100,000,000 or more....................................................................................
14,430.2
12,385.4
1,349.9

Program-related Amounts paid to
investments
acquire assets

Distributable
amount

Total

Charitable
grants

(7)

Percentage of total
Total....................................................................................100.0
89.1
Small foundations:
Less than $100,000 ¹....................................................................................
100.0
85.9
$100,000 under $1,000,000....................................................................................
100.0
94.5
Medium foundations:
$1,000,000 under $10,000,000....................................................................................
100.0
91.9
$10,000,000 under $50,000,000....................................................................................
100.0
92.4
Large foundations:
$50,000,000 under $100,000,000....................................................................................
100.0
91.1
$100,000,000 or more....................................................................................
100.0
85.8
¹ Includes returns with zero assets or assets not reported
N/A -- Not applicable.
NOTE: Detail may not add to totals because of rounding and processing tolerances.

7.9

0.8

0.9

1.4

N/A

13.2
5.3

---

0.9
--

-0.3

N/A
N/A

6.2
6.3

0.3
0.2

1.4
0.7

0.2
0.4

N/A
N/A

7.6
9.4

0.2
1.4

0.3
1.0

0.9
2.4

N/A
N/A

151

Domestic Private Foundations and Charitable Trusts, 2001

Operating and administrative expenses, at $2.4
billion, represented 8 percent of the qualifying distributions reported by private foundations for 2001 and
were the largest component of qualifying distributions
other than grants. Components of operating and
administrative expenses, by asset-size class, are
shown in Figure I [12]. Other expenses, which
included taxes, interest, and miscellaneous items,

such as advertising expenses, return filing fees, and
office supplies and equipment, accounted for the
largest portion of these types of expenses, representing 28 percent overall. Employee compensation,
which included pension plans and other employee
benefits, as well as salaries and wages for employees
other than officers, directors, and trustees, was the
second-largest of these expenses for foundations,

Figure I
Components of Nonoperating Domestic Private Foundation Operating and Administrative
Expenses, by Asset-Size Class, Reporting Year 2001
100%

80%

60%

152
40%

20%

0%
All foundations

Small foundations

1

Medium foundations

2

Large foundations

3

Asset-size Class
Compensation of officers
Printing & publications

Other employee compensation
Travel, conferences & meetings

Occupancy

Professional fees

Other expenses
1
2
3
4
5
6

152

4

5

6

Small foundations are those holding from zero (including unreported) to less than $1,000,000 in fair market value of total assets.
Medium foundations are those holding from $1,000,000 to less than $50,000,000 in fair market value of total assets.
Large foundations are those holding $50,000,000 or more in fair market value of total assets.
Includes "Other employee salaries and wages" and "Pension plans, employee benefits" as reported on Form 990-PF.
Includes "Legal fees," "Accounting fees," and "Other professional fees" as reported on Form 990-PF.

Includes "Interest," "Taxes," and "Other expenses," which includes items such as as advertising expenses, return filing fees, office supplies and equipment, and
equipment rentals and maintenance.

Domestic Private Foundations and Charitable Trusts, 2001

representing 25 percent of total operating and administrative expenses. Professional fees, which represented amounts paid for accounting, legal, and other
services, accounted for an additional 21 percent of
operating and administrative expenses. Compensation of officers, directors, and trustees accounted for
13 percent of operating and administrative expenses
for all foundations.
The components of operating and administrative
expenses varied in proportion to the total value of
those expenses among the three asset-size classes.
No small foundation reported employee compensation, excluding that paid to officers, directors, and
trustees, while medium foundations outlaid 17 percent
and large foundations 31 percent of their total operating and administrative expenses for such compensation. Small foundations allocated 7 percent of such
expenses to compensation for officers, directors, and
trustees, while medium and large foundations allocated 19 percent and 11 percent, respectively.
All of the qualifying distributions made by a
private foundation are included in the calculation of
its payout rate, which measures the relationship
between an organization’s qualifying distributions and
its investment assets. This formula is used to provide
insight into the degree to which foundations meet
their charitable payout requirements and is calculated
by dividing the amount of (adjusted) qualifying distributions by the total value of noncharitable-use assets
[13]. Median and mean payout rates for 2001, by
size of foundation, are displayed in Figure J. The
mean payout rates, which are notably larger than the
required amounts for small foundations, illustrate the
degree to which many smaller foundations exceeded
the payout requirement. In some cases, mean payout
rates may be somewhat exaggerated by the presence
of “pass-through organizations,” foundations that
receive large contributions from other foundations
and subsequently redistribute the entire contribution
to another charitable entity. Median payout rates,
which may be more reflective of the activities of
typical private foundations, were slightly higher than
the required 5 percent for most asset-size classes,
while the smallest foundations, with a median rate of
13.3 percent, more than doubled the required rate.

Undistributed Income
Foundations must meet the distributable amount
requirement for the current reporting year by the end

Figure J
Domestic Nonoperating Private Foundation
Payout Rates, by Size of Fair Market Value of
Total Assets, Reporting Year 2001
Payout rates (percentages)
Asset size

Median

Mean

Total....................................................................................
6.3

91.0

Small foundations:
Less than $100,000 ¹....................................................................................
13.3
255.7
$100,000 under $1,000,000....................................................................................
6.2
48.5
Medium foundations:
$1,000,000 under $10,000,000....................................................................................
5.6
10.1
$10,000,000 under $50,000,000....................................................................................
5.5
9.4
Large foundations:
$50,000,000 under $100,000,000....................................................................................
5.5
9.5
$100,000,000 or more....................................................................................
5.4
7.1
¹ Includes returns with zero assets or assets not reported.
NOTE: The payout rate measures the relationship between an organization's
qualifying distributions and the total value of its noncharitable-use assets. See
footnote 13 in the Notes and References section for detailed information.

of the next reporting year or pay the excise tax on
the undistributed amount. For example, a foundation
must have disbursed the required amount for Reporting Year 2001 before the end of Reporting Year
2002 in order to avoid paying the excise tax. As the
required distributable amount is not calculated until
the end of the reporting year and is based on the
monthly average of investment assets, foundations
may choose to take advantage of the 1-year tax-free
“grace period” for making these distributions and
report all or part of their current-year required
distributions as “undistributed income.” Of those
foundations with a minimum distribution requirement
for Reporting Year 2001, 35 percent reported “undistributed income” for that year, while the majority of
foundations met or exceeded their distribution requirements in the reporting year.
Generally, foundations in smaller asset-size
classes were more likely to meet the Reporting Year
2001 distribution requirement in that year. Some 71
percent of small foundations and 56 percent of medium foundations made distributions equal to or larger
than the minimum required amount for Reporting
Year 2001. Large foundations were the least likely
of the three asset-size classes to meet the requirement in the 2001 reporting year, with 48 percent of
these organizations electing to defer the distribution
requirement until 2002; 44 percent of medium and 29
percent of small foundations also elected to meet the
2001 requirement in the following year.

153

Domestic Private Foundations and Charitable Trusts, 2001

Figure K
Domestic Nonoperating Private Foundations: Reporting Year 2000 Undistributed Income Remaining
Undistributed in Reporting Year 2001, by Size of Fair Market Value of Total Assets
[Money amounts are in millions of dollars]

2000 Undistributed income
Asset size

2000 return
Number of returns
(1)

2001 return
Amount
(2)

Number of returns
(3)

Total......................................................................................................................
20,535
6,483.7
Small foundations:
Less than $100,000 ¹......................................................................................................................
2,990
4.5
$100,000 under $1,000,000......................................................................................................................
8,402
112.4
Medium foundations:
$1,000,000 under $10,000,000......................................................................................................................
7,136
783.2
$10,000,000 under $50,000,000......................................................................................................................
1,533
1,055.5
Large foundations:
$50,000,000 under $100,000,000......................................................................................................................
215
515.2
$100,000,000 or more......................................................................................................................
258
4,013.0

Amount
(4)

1,580

64.7

427
874

0.3
8.3

234
38

8.5
7.1

4
3

1.7
38.8

¹ Includes returns with zero assets or assets not reported.
NOTE: Amounts for Reporting Years 2000 and 2001 are based on all returns included in the SOI sample for the respective Reporting Year.

154

Undistributed income for 2000 was generally
taxed at a rate of 15 percent at the end of Reporting
Year 2001 [14]. In some cases, including 5-year
“startup” periods for new foundations and certain
types of organizational transitions or terminations,
Reporting Year 2000 undistributed income was not
subject to the excise tax. Figure K shows undistributed income for 2000, as reported on both the 2000
and 2001 returns, by foundation size. Of the $6.5
billion in undistributed income reported for 2000, only
$65 million, or 1 percent, still had not been distributed
by the end of the 1-year grace period. In cases
where undistributed income was subject to the excise
tax, private foundations used Form 4720 to report and
pay any amounts due. These amounts are not included in this article.

Ten Largest Domestic Foundations

154

The largest foundations, those holding $100 million or
more in fair market value of total assets, held 60
percent of all such assets, but accounted for less than
1 percent of all foundations. Additionally, the largest
organizations were responsible for 46 percent of all
grants paid. Ten foundations alone accounted for
more than one-third of the total assets held by the
largest domestic foundations. These foundations,
along with data on total assets and grants paid for
2001, are shown in Figure L. Forms 990-PF differ
from most other IRS return data, since individual return
information may be published. They are available for
public review under IRC section 6104(b).
As in the previous year, the Bill and Melinda
Gates Foundation, which reported $32.8 billion in fair

market value of total assets, was the largest domestic
private foundation in Reporting Year 2001. Additionally, the J. Paul Getty Trust was the only operating
foundation included in the top ten [15].

Figure L
Top Ten Domestic Private Foundations, by
Size of Fair Market Value of Total Assets,
Reporting Year 2001
[Money amounts are in millions of dollars]

Name and ranking

State

Total
assets ¹

Total
grants
paid

(1)

(2)

(3)

Total........................................................................................
N/A
99,428.9
3,683.7
1. Bill & Melinda Gates Foundation........................................................................................
WA
32,751.5
1,147.0
2. Lilly Endowment, Inc.........................................................................................
IN
12,814.4
598.0
3. Ford Foundation........................................................................................
NY
9,345.0
509.7
4. Robert Wood Johnson Foundation........................................................................................
NJ
9,051.3
270.7
5. J. Paul Getty Trust ²........................................................................................
CA
8,623.8
21.0
6. David & Lucile Packard Foundation........................................................................................
CA
6,200.1
428.9
7. William & Flora Hewlett Foundation........................................................................................
NY
6,082.7
120.0
8. W.K. Kellogg Foundation Trust
and W.K. Kellogg Foundation ³........................................................................................
5,530.5
200.7
NY/MI
9. Starr Foundation........................................................................................
NY
4,813.7
219.8
10. John D. and Catherine T.
Macarthur Foundation........................................................................................
IL
4,215.9
167.9
N/A -- Not applicable.
¹ Fair market value.
² The J. Paul Getty Trust is an operating foundation. All other organizations listed
are nonoperating foundations.
³ The W.K. Kellogg Foundation Trust (classified as a private foundation and not
as a section 4947(a)(1) charitable trust) is located in New York and has a
"pass-through" relationship with the W.K. Kellogg Foundation, located in Michigan.
Typically, the entire amount of the annual qualifying (charitable) distributions of the
W.K. Kellogg Foundation Trust is made in the form of a grant to the W.K. Kellogg
Foundation, which then redistributes the grant for charitable purposes. The
combined total assets of the two organizations are shown in the "Total assets"
column, but, in order to avoid duplication, only the grants paid by the W.K. Kellogg
Foundation are shown in the "Total grants paid" column.
NOTE: Detail may not add to totals due to rounding.

Domestic Private Foundations and Charitable Trusts, 2001

Large Nonoperating Domestic Foundations
In light of the substantial impact of the largest
foundations on the statistics presented in this article,
their behaviors and financial information provide a
wealth of data on factors affecting private foundations. Nonoperating foundations represent most
financial activity by foundations and are responsible
for all of the required grants and expenditures made
by foundations each year. For Reporting Years 2000
and 2001, the 50 largest nonoperating foundations
were examined to determine their financial activities
over a 2-year period. They represent the 50 largest
nonoperating private foundations that appeared in the
Statistics of Income samples for both 2000 and 2001.
Since private foundations that are in termination
status are subject to regulations that differ from the
majority of other private foundations, which potentially affects their grantmaking practices and financial
composition, none of the organizations selected
indicated that it was terminating its private foundation
status under IRC section 507(b)(1)(A) or
507(b)(1)(B). Together, these 50 foundations
represented more than one-third of the aggregate fair
market value of total assets held and one-quarter of
all contributions, gifts, and grants distributed by
private nonoperating foundations for Reporting Year
2001. Financial data for the 50 largest organizations
that filed returns in each of Reporting Years 2000

and 2001 are shown in Figure M. The fair market
value of total assets for this group of foundations fell
2 percent between Reporting Years 2000 and 2001.
Additionally, qualifying distributions increased by
nearly 3 percent, despite no substantial change in the
total contributions, gifts, and grants paid for charitable
purposes by this group. Operating and administrative expenses, however, increased 16 percent from
Reporting Year 2000. In response to the decline in
the net value of noncharitable-use assets, combined
with the stability of contributions, gifts, and grants
disbursed, the mean payout rate rose between
Reporting Years 2000 and 2001. Notably, total net
investment income reported by these organizations
decreased by 49 percent from 2000, leading to a
nearly 60-percent decrease in reported liability for the
excise tax on net investment income.

Section 4947(a)(1) Nonexempt Charitable
Trusts
DefinitionandOverview
Unlike IRC section 501(c)(3) organizations such as
private foundations, charitable trusts described under
section 4947(a)(1) are not formally recognized by the
Internal Revenue Service as tax-exempt. These
organizations resemble private foundations in that
they have exclusively charitable purposes, have

Figure M
Fifty Largest Domestic Nonoperating Private Foundations: Selected Financial Items and Percentage
Changes, Reporting Years 2000-2001
[Money amounts are in millions of dollars]

Item

2000

2001

Percentage change,
2000-2001

(1)

(2)

(3)

155,246.4
117,361.2
18,297.9
83,491.5
15,571.8
8,722.1
91.7
142,426.9
7,102.5
7,978.0
6,886.3
701.0
5.2
6.0

-2.3
-12.4
-2.4
-15.5
-4.7
-48.8
-57.3
-8.5
-6.5
2.5
0.6
15.5
4.0
16.9

Total assets (fair market value)......................................................................................................................
158,837.2
Investments in securities, total............................................................................................................................
133,914.4
Government obligations............................................................................................................................
18,739.8
Corporate stock............................................................................................................................ 98,835.6
Corporate bonds............................................................................................................................16,339.0
Net investment income...................................................................................................................... 17,034.0
Excise tax on net investment income......................................................................................................................
214.8
Net value of noncharitable-use assets......................................................................................................................
155,615.0
Distributable amount......................................................................................................................
7,596.2
Qualifying distributions......................................................................................................................
7,782.2
Contributions, gifts, and grants paid ............................................................................................... 6,846.2
Operating expenses............................................................................................................................ 607.0
Median payout rate (percentages)......................................................................................................................
5.0
Mean payout rate (percentages)......................................................................................................................
5.1

NOTE: The fifty largest foundations are based on size of fair market value of total assets for 2001. Only data from returns that were selected for the SOI studies
of both Reporting Years 2000 and 2001 are included in this figure.

155

Domestic Private Foundations and Charitable Trusts, 2001

narrow bases of support and control, and are required
to file Form 990-PF. Generally, these types of
organizations are supported and controlled by an
individual or family. Any income, which is not
distributed for charitable purposes, is annually subject
to tax that is reported on Form 1041, Fiduciary
Income Tax Return; no data on income taxes are
included in this article [16].
IRC section 4947(a)(1) charitable trusts represented only 4 percent of Forms 990-PF filed for
2001. These organizations filed 2,944 returns, just 22
fewer than for 2000. Data on the number of returns
filed, as well as asset, revenue, and expense items for
2000 and 2001, are shown in Figure N. The majority
of these organizations, 94 percent, were classified as
nonoperating. Additionally, 91 percent made contributions, gifts, or grants for 2001 and were thus categorized as grantmaking.

Charitable Trusts Assets and Revenue

charitable trusts,” defined as those holding less than
$1 million in fair market value of total assets, accounted for 76 percent of returns filed, but held only
14 percent of the aggregate fair market value of total
assets. In contrast, nearly 46 percent of the aggregate fair market value of total assets were reported
by large trusts, defined as organizations holding $10
million or more in fair market value of total assets.
However, large charitable trusts represented less
than 3 percent of returns filed.
Like private foundations, charitable trusts hold
the majority of assets as investments. Investments
represented 98 percent of the aggregate fair market
value of total assets held by charitable trusts for
2001; stocks, in turn, represented the majority of
these investments. The composition of charitable
trust investment assets is shown in Figure O. Corporate bonds, at 17 percent, was the second-largest
investment category.

For 2001, assets held by charitable trusts totaled $4.6
billion, an 8-percent decrease from 2000. “Small

Figure O

Figure N

Composition of Domestic Section 4947(a)(1)
Charitable Trust Investment Assets, Reporting
Year 2001

156

12%

Domestic Section 4947(a)(1) Charitable Trusts:
Selected Financial Items and Percentage
Changes, Reporting Years 2000-2001

6%

[Money amounts are in millions of dollars]

Percentage
Item

2000

2001

change,
2000-2001

(1)

(2)

10%
$4.6 Billion

(3)

55%

Number of trusts.......................................................................................................................
2,966
2,944
-0.7
Total assets (fair market value).......................................................................................................................
4,990.5
4,592.7
-8.0
Cash (non-interest bearing accounts).......................................................................................................................
31.3
31.2
-0.4
Investments, total.......................................................................................................................
4,860.9
4,493.5
-7.6
17%
Savings and temporary cash investments.......................................................................................................................
287.6
273.9
-4.7
Investments in securities, total.......................................................................................................................
4,009.7
3,675.2
-8.3
Government obligations.......................................................................................................................
523.6
465.0
-11.2
Corporate stock.......................................................................................................................
2,727.7
2,455.4
-10.0
Corporate bonds.......................................................................................................................
758.4
754.9
-0.5
Other investments ¹.......................................................................................................................
563.6
544.3
-3.4
Corporate stock
Total revenue.......................................................................................................................
595.0
272.5
-54.2
Government
Contributions, gifts, and grants received.......................................................................................................................
123.3
81.3
-34.1
obligations
Net gain (less loss) from sales of assets.......................................................................................................................
281.4
22.8
-91.9
Dividends and interest from securities.......................................................................................................................
149.7
132.1
-11.7

Other investments¹

156

Corporate bonds
Savings and temporary cash
investments

Total expenses.......................................................................................................................
327.2
282.8
-13.6
Disbursements for charitable purposes.......................................................................................................................
289.8
251.9
-13.1
¹ Sum of "Investments in land, buildings, and equipment (less
Contributions, gifts, and grants paid .......................................................................................................................
270.6
233.7
-13.6
accumulated depreciation)," "Investments in mortgage loans," and "Other
¹ Sum of "Investments in land, buildings, and equipment (less accumulated
investments," as reported on the Form 990-PF. "Other investments"
depreciation)," "Investments in mortgage loans," and "Other investments," as reported
includes items such as advances and certificates of investment.
on Form 990-PF. "Other investments" includes items such as advances, and
NOTE: Amounts and percentages of investment assets are shown
certificates of investment.
using fair market value.

Domestic Private Foundations and Charitable Trusts, 2001

Decreasing asset values and reduced contributions received led to a large decrease in the revenue
earned by nonexempt charitable trusts, which fell 54
percent from Reporting Year 2000 to $273 million.
This decline resulted from substantial decreases in
net gain (or loss) from the sale of assets and contributions received, categories that fell by 92 percent
and 34 percent, respectively. Revenue earned from
dividends and interest from securities decreased by
12 percent.
Despite dropping between Reporting Years 2000
and 2001, dividends and interest from securities
became the largest component of charitable trust
revenue, accounting for nearly half of total revenue
reported by charitable trusts for 2001. Figure P
shows information on revenue, and its various components. At 30 percent, contributions received also
represented a substantial portion of reported revenue.
Net gain (or loss) from the sale of assets, which had

Figure P
Sources of Domestic Section 4947(a)(1) Charitable
Trust Revenue, 2001
7%
6%

30%

Charitable Trust Distributions
There were $234 million in contributions, gifts, and
grants paid by section 4947(a)(1) trusts for 2001, 14
percent less than for 2000. This amount represented
94 percent of the $250 million in qualifying distributions that charitable trusts reported for 2001. In each
of the three asset-size classes, charitable trusts
distributed more than the required minimum amounts,
with medium trusts, those holding more than $1
million and less than $10 million in fair market value
of total assets, at 14 percent, exceeding the required
amount by the largest percentage.

Data Sources and Limitations

8%
$272.5 Million

49%
Contributions, gifts, and grants
received

Net gain (less loss)
from sales of assets

Dividends and interest
from securities

Other interest

Other income

represented nearly half of all revenue reported by
charitable trusts for Reporting Year 2000, accounted
for only 8 precent of total revenue reported for 2001.
The total net investment income reported by
nonexempt charitable trusts was $482 million for
2001. Like foundations, most charitable trusts are
required to pay an excise tax on their net investment
incomes. For 2001, charitable trusts filing Form 990PF reported $3 million of this excise tax, half of the
excise tax liability that these organizations had reported the previous year. Of the charitable trusts
that reported this tax, 48 percent qualified for the
reduced rate of 1 percent, while the majority paid tax
of 2 percent on net investment income.

1

2

¹ Represents "Interest on savings and temporary cash investments," as
reported on Form 990-PF.
² Includes "Gross rents and roylaties" and "Gross profit (or loss) from
business activities" as reported on Form 990-PF, as well as items such as
imputed interest on deferred payments and program-related investments.

The statistics in this article are based on a sample of
Reporting Year 2001 Forms 990-PF that were filed
with the Internal Revenue Service. Organizations
having accounting periods beginning in 2001 (and
therefore ending between December 2001 and
November 2002) were required by IRS to file Form
990-PF. Some part-year returns were included in the
samples for organizations that changed their accounting periods, or filed initial or final returns. Some 68
percent of the domestic private foundations in the
sample had accounting periods covering Calendar
Year 2001 or, in some cases, part-year periods that
ended in December 2001. For domestic charitable
trusts, 63 percent filed calendar year returns. The
2001 sample was stratified based on both the size of
fair market value of total assets and the type of
organization (either a private foundation or an IRC
section 4947(a)(1) charitable trust).
Foundation returns were selected at rates that
ranged from approximately 0.2 percent (for the more

157

Domestic Private Foundations and Charitable Trusts, 2001

for each asset-size category were: 0.2 percent for
returns with total assets of zero, unreported, or less
than $125,000; 0.4 percent for returns with assets of
$125,000 to less than $400,000; 0.9 percent for returns with assets of $400,000 to less than $1 million;
1.8 percent for returns with assets of $1 million to
less than $2.5 million; and 8.5 percent for returns
with assets of $2.5 million to less than $10 million.
Approximately 24 percent of all 4947(a)(1)
Figure Q
charitable trusts reported $1 million or more in fair
market value of total assets for 2001. While these
Coefficients of Variation for Selected Items, by
trusts were selected at a rate of 100 percent, the
Type of Organization, 2001
remaining trust population was randomly selected for
Private
Charitable
the sample at various rates of less than 100 percent
Item
foundations
trusts
depending on asset size. The realized sampling rates
Coefficients of variation
(percentages)
were 0.6 percent for returns with total assets of zero,
Total assets (fair market value).......................................................................................................................
0.91
0.87
unreported, or less than $100,000; and 5.7 percent for
Total revenue.......................................................................................................................
2.16
3.12
returns with assets of $100,000 to less than $1 million.
Total expenses.......................................................................................................................
2.43
1.08
The 6,465 returns in the sample (5,644 foundations and 821 trusts) were drawn from an estimated
population of 72,644 foundations and 2,999 trusts.
The samples were designed to provide reliable
The differences between these counts and the estiestimates of total assets and total revenue. To acmates published in this article result from sample
complish this, 100 percent of returns filed for foundacode changes and the effects of returns that were
tions with fair market asset value of $10 million or
“rejected” from the sample as part of statistical
more and 100 percent of returns filed for charitable
processing. The population from which the 2001
trusts with fair market asset value of $1 million or
sample was drawn consisted of Form 990-PF records
more were included in the samples, since these
posted to the IRS Business Master File during 2001
organizations represented the vast majority of finanand 2002. Some of the records designated were for
cial activity. Efforts were made to verify that organiorganizations that were deemed inactive or termizations selected for the sample were properly classinated and are not reflected in the estimates. The
fied as foundations or trusts. The relatively few
data presented were obtained from returns as origifoundations in the sample that were incorrectly selected
nally filed with IRS. In most cases, changes made to
as trusts were ultimately reclassified as foundations (for
the original return because of administrative processthe statistics) using identification codes from the IRS
ing, audit procedures, or a taxpayer amendment were
Exempt Organization Master File. However, the
not captured in the statistics. The data were subject
weights used for these organizations were based on the
to comprehensive testing and correction procedures
original sample selection classification. These same
in order to ensure statistical reliability and validity.
methods were used for the trusts that were incorrectly
Some returns, though initially included in the sample,
sampled as foundations.
were “rejected” during the data entry process for
Approximately 6 percent of all foundations,
various reasons, such as duplicate filing or
including those reclassified as foundations, reported
uncorrectable taxpayer error. A general discussion
$10 million or more in fair market value of total
of the reliability of estimates based on samples,
assets for 2001. While these foundations were
methods for evaluating both the magnitude of samselected at a rate of 100 percent, the remaining
pling and nonsampling error, and the precision of
foundation population was randomly selected for the
sample estimates can be found in the general Appensample at various rates of less than 100 percent
dix to this issue of the SOI Bulletin.
depending on asset size. The realized sampling rates
numerous but very small asset-size foundations) to
100 percent (for the relatively few foundations with
large amounts of assets). Charitable trust returns
were selected at rates that ranged from 0.6 percent
to 100 percent. The magnitude of sampling error for
selected items, measured by coefficients of variation,
is shown in Figure Q.

158

158

Domestic Private Foundations and Charitable Trusts, 2001

Explanation of Selected Terms
The following explanations describe terms as they
applied to both private foundations and charitable
trusts for 2001. Unless otherwise indicated, all
references to foundations also apply to trusts.
Assets Zero or Unreported.--This asset-size
category included: (1) final returns of liquidating or
dissolving foundations that had disposed of all assets;
(2) returns of those foundations reporting zero endof-year assets that had apparently distributed (or
disposed of) all assets received during the year; and
(3) returns of those foundations that did not report
assets. A liquidating or dissolving foundation is
required to transfer its assets on to another foundation or other tax-exempt organization.
Capital Gain Net Income.--This is the amount
of net gains from sales or dispositions of property
used for investment purposes (property used for
charitable purposes was excluded). Capital losses
from the sale or other disposition of property could be
subtracted from capital gains only to the extent of
such gains. Capital gain net income was used in the
computation of “net investment income” (on which
an excise tax generally had to be paid). In contrast,
the net gain (or loss) per the books from the sale of
all assets (other than inventory), including those used
for both investment and charitable purposes, was
reported as “net gain (or loss) from sale of assets” on
Form 990-PF, Part I, line 6, column (a). This item,
capital gain net income, was reported on Form 990PF, Part I, line 7, column (b).
Charitable Trust.--A charitable trust, also referred to as a “nonexempt” charitable trust, is defined in Internal Revenue Code section 4947(a)(1) as
an organization (1) that is not considered tax-exempt
under section 501(a); (2) that has exclusively charitable interests; and (3) that has amounts in trust for
which donors are allowed to claim a tax deduction for
charitable contributions. Nonexempt charitable trusts
that are not publicly supported are subject to the
excise tax provisions that apply to private foundations
and are required to file the same Form 990 PF.
(“Publicly supported” nonexempt charitable trusts are
required to file Form 990, Return of Organization
Exempt From Income Tax, and are, therefore, not
included in the statistics presented in this article.)
Nonexempt charitable trusts that are treated as
private foundations must pay an annual tax on income

(usually from investments) that is not distributed for
charitable purposes, and they must report such income and tax on Form 1041, U.S. Fiduciary Income
Tax Return. Data from this form are not included in
this article.
Disbursements for Charitable Purposes.-These disbursements comprised the largest component of “qualifying distributions” and included grants
paid, operating expenses, and necessary and reasonable administrative expenses for activities that were
directly related to the ta- exempt purposes of the
foundation. These amounts were determined solely
based on the cash receipts and disbursements method
of accounting, as required by law and regulations.
This item was reported on Form 990 PF, Part I, line
26, column (d).
Disqualified Person.--In general, a disqualified
person is a substantial contributor; a foundation
manager; a person who owns more than 20 percent
of a corporation, partnership, trust, or unincorporated
enterprise that is itself a substantial contributor; or a
family member of one of the types of disqualified
persons described above.
Distributable (Payout) Amount.--This is the
minimum payout amount that was required to be
distributed by nonoperating foundations or charitable
trusts by the end of the year following the year for
which the return was filed. Failure to distribute
income within this period resulted in a 15-percent
excise tax on the undistributed portion. The distributable amount was computed as 5 percent of
noncharitable-use assets, called the “minimum investment return,” minus the excise tax on net investment
income and the income tax under Subtitle A where
applicable to nonexempt charitable trusts, plus or minus
other adjustments, either allowed or required (see Net
Adjustments to Distributable Amount in this section).
Excess Distributions Carryover.--This is the
amount distributed, after fulfilling the charitable
payout requirement, which equaled the excess of
qualifying distributions for 2001 over the distributable
amount. If necessary, excess amounts from the current year could be carried forward to be applied to the
distributable amount for the 5 subsequent years. This
item was reported on Form 990 PF, Part XIII, line 9.
Grantmaking Foundations (and Charitable
Trusts).-- For the statistics in this article, grantmaking
foundations and trusts are those organizations that
159

Domestic Private Foundations and Charitable Trusts, 2001

160

160

reported $1 or more in contributions, gifts, and grants
paid for charitable purposes on Form 990-PF, Part I,
line 25, column (d).
Land, Buildings, and Equipment, CharitableUse.--This represents either the book value (less
accumulated depreciation) or fair market value of all
land, buildings, and equipment not held for investment
purposes and used by the organization in conducting
its charitable activities. This item was reported on
Form 990 PF, Part II, line 14, columns (a) beginningof-year book value, (b) end-of-year book value, and
(c) end-of-year fair market value.
Land, Buildings, and Equipment, Investmentuse.--This represents either the book value (less
accumulated depreciation) or fair market value of all
land, buildings, and equipment held for investment
purposes, such as rental properties. This item was
reported on Form 990 PF, Part II, line 11, columns
(a) beginning of year book value, (b) end of year
book value, and (c) end of year fair market value.
Minimum Investment Return.--The minimum
investment return was used as the base for calculating the “distributable amount.” This is the aggregate
fair market value of assets not used for charitable
purposes, less both the indebtedness incurred to
acquire these assets and the cash held for charitable
activities, multiplied by 5 percent. This item was
reported on Form 990 PF, Part X, line 6.
Net Adjustments to Distributable Amount.-Adjustments that increased the “distributable
amount” were attributable to the income portion (as
distinct from the principal portion) of distributions
from split-interest trusts on amounts placed in trust
after May 26, 1969. Trusts with “split-interests” are
those that have both charitable and noncharitable
beneficiaries. These organizations file Form 5227,
Split-Interest Trust Information Return. Recoveries of amounts previously treated as qualifying distributions also had to be added back to the distributable
amount. Adjustments that decreased the distributable
amount were the result of income required to be
accumulated by the terms of an organization’s governing instrument. These adjustments were allowed
only for foundations or trusts organized before May
27, 1969, whose governing instrument continued to
require such accumulation, because State Courts
would not allow the organization to change its governing instrument. These items were reported on
Form 990 PF, Part XI, lines 4a, 4b, and 6.

Net Gain (or Loss) from Sale of Assets.-Profits and losses from sales of items such as securities, land, buildings, or equipment are included in this
item. Gain or loss reflected the amount shown on the
books of the foundation and included any amount
from the sale of property used for either investment
or tax-exempt charitable purposes. Most of the gain
or loss was from sales of stocks and bonds. Profit or
loss from the sale of inventory items was not included
in this item, but was rather included in gross profit (or
loss) from business activities, which in turn is included as part of “other income” in these statistics.
Net gain (or loss) from sale of assets was reported
on Form 990 PF, Part I, line 6, column (a).
Net Investment Income.--This is the amount by
which the sum of gross investment income plus
realized capital gain net income exceeds allowable
deductions. Included in investment income were
interest, dividends, capital gain net income, rents,
payments with respect to securities loans (as defined
in Code section 512(a)(5)), and royalties. Any investment income derived from unrelated trade or
business activities that were subject to the “unrelated
business income” tax reported on Form 990 T, Exempt Organization Business Income Tax Return,
was excluded. This item was reported on Form 990
PF, Part I, line 27b, column (b).
Noncharitable-Use Assets.--This item was
reported on Form 990 PF, Part X, line 5 and is the
basis for “minimum investment return.” For purposes
of calculating the “minimum investment return,”
valuation methods for noncharitable-use assets reported in this section differ from those used to report
the end-of-year fair market values for all assets in
Part II. The monthly average, rather than end-ofyear, fair market values of cash and securities that
were not used or held for use for charitable purposes,
is used in this calculation. With certain exceptions,
other assets included in this calculation are valued
annually, but not necessarily based on the end-ofyear value. An asset was considered a
noncharitable-use asset if it was not used in carrying
out a charitable, educational, or other similar function
which gave rise to the tax-exempt status of the
foundation. Examples include the fair market values
of securities and rental property owned by the foundation for investment purposes. This item differs
from the asset amounts reported on the balance
sheet in Part II of Form 990-PF, which included

Domestic Private Foundations and Charitable Trusts, 2001

end-of-year values for both investment and charitable-use assets.
Nonoperating Foundations (and Charitable
Trusts).--These are organizations that generally
carried on their charitable activities in an indirect
manner by making grants to other organizations
directly engaged in charitable activities, in contrast to
operating foundations and trusts that engaged in
charitable activities themselves. However, some
nonoperating foundations and trusts may have been
actively involved in charitable programs of their own,
in addition to making grants. For example, a foundation organized as operating that was unable to meet
the operating foundation requirements for Reporting
Year 2001 could have continued its direct charitable
activities, in addition to making the required charitable
expenditures. An organization’s status as a nonoperating foundation or trust was indicated on Form 990PF, Part VII, line 9.
Operating Foundations (and Charitable
Trusts).--These organizations generally expended
their incomes for direct, active involvement in a taxexempt activity, such as operating a library or museum, or conducting scientific research. Operating
foundations and trusts were exempted from the
income distribution requirement and related excise
taxes that were applicable to their nonoperating
counterparts. To qualify as an operating foundation
or trust for 2001, the organization had to meet both an
“income test” and one of three other tests: an “assets
test,” an “endowment test,” or a “support test.”
A foundation or trust could qualify as operating
under the income requirement if it spent at least 85
percent of the lesser of its “adjusted net income” or
“minimum investment return” on the direct, active
conduct of tax-exempt, charitable activities (as opposed to the payout of grants in support of such
programs). To meet the assets test, a foundation or
trust had to directly use 65 percent or more of its
assets for the active conduct of charitable activities.
To meet the endowment test, a foundation or trust
had to regularly make distributions for the active
conduct of charitable activities in an amount not less
than two thirds of its “minimum investment return.”
To meet the support test, a foundation or trust had to
regularly receive substantially all of its support (other
than from gross investment income) from the public or
from five or more qualifying exempt organizations, and
(a) no more than 25 percent of its support (other than

from gross investment income) from any one such
qualifying exempt organization; and (b) no more than 50
percent of its support from gross investment income.
Individual taxpayers could deduct contributions to
operating foundations or trusts on their individual
income tax returns; the deduction could not exceed
50 percent of a donor’s “adjusted gross income” (as
opposed to 30 percent for contributions to nonoperating foundations).
While most operating foundations paid the excise
tax on net investment income, 15 percent of operating
foundations were exempt from this tax for 2001
under section 4940(d)(2) of the Internal Revenue
Code. In order to be exempt, an operating foundation
was required to meet the following requirements in
any given year: (1) maintain public support for a
minimum of 10 taxable years; (2) maintain a governing body at all times that is broadly representative of
the general public and that is comprised of no more
than 25 percent disqualified individuals; and (3) at no
time during the year include a disqualified individual
as an officer of the foundation. An organization’s
status as an operating foundation or trust was indicated on Form 990-PF, Part VII, line 9.
Other Assets.--This category includes: (1) those
assets not allocable to a specific asset item on the
Form 990 PF balance sheet or not included elsewhere on the return; and (2) certain amounts given
special treatment in the course of statistical processing. The first category included such items as dividends receivable, escrow deposits, income tax refunds, interest discounts, interest-free loans, overdraft
protection, and program-related investments. The
second category included atypical amounts reported
by the return filer as “negative liabilities.” These
items were reported on Form 990 PF, Part II, line 15,
columns (a) beginning-of-year book value, (b) end-ofyear book value, and (c) end-of-year fair market value.
Other Investments.--Investments reported as
“other” include such items as advances, bank certificates of deposit, cash values of life insurance, certificates of investment, miscellaneous loan income, and
holdings in art, coins, gold, and gems. These items
were reported on Form 990 PF, Part II, line 13, columns
(a) beginning-of-year book value, (b) end of year book
value, and (c) end-of-year fair market value.
Private Foundation.--A private foundation is
defined in Internal Revenue Code section 501(c)(3)
as a nonprofit organization with a narrow source of

161

Domestic Private Foundations and Charitable Trusts, 2001

162

162

funds that operated or supported educational, scientific, charitable, religious, and other programs dedicated to improving the general welfare of society. A
private foundation qualified for tax-exempt status
under Code section 501(c)(3) but was not (1) a
church, school, hospital, or medical research organization; (2) an organization with broad public support
in the form of contributions or income from tax exempt activities; (3) an organization that was operated
by, or in connection with, any of the above described
organizations; or (4) an organization that conducted
tests for public safety. The primary difference between a private foundation and other organizations
exempt under section 501(c)(3) was the source of
the organization’s funding. Foundations were typically funded by an individual, a family, or a corporation, while most other tax-exempt organizations
received funds from a large number of sources
among the general public.
Qualifying Distributions.--Qualifying distributions include disbursements for charitable purposes
(grants, direct expenditures to accomplish charitable
purposes, and charitable purpose operating and administrative expenses); amounts paid to acquire
assets used directly to accomplish tax-exempt functions; charitable program-related investments; and
amounts set aside for future charitable projects.
Qualifying distributions could be credited against the
foundation’s or trust’s obligation to pay out its “distributable amount.” This item was reported on Form
990 PF, Part XII, line 4.
Set-Asides.--Amounts set aside for specific
charitable purposes can be treated as qualifying
distributions only if the foundation or charitable trust
establishes to the satisfaction of IRS that the amount
will be paid for the specific project within 60 months
from the date of the first set-aside and if the foundation meets either the suitability test or the cash distribution test. To meet the suitability test, a foundation
must receive prior approval from IRS and must
demonstrate that the project can be better accomplished by a set-aside than by an immediate payment
of funds. To meet the cash distribution test under IR
Code section 4942(g)(2)(B)(ii), a foundation need not
receive prior approval from IRS. Instead, the foundation must show that (a) the specific project to
which the set-aside will be contributed was not completed within the current reporting year and (b) the

foundation has distributed, in cash, an amount equal
to the current year’s distributable amount. A foundation that wishes to qualify for the cash distribution
test must attach a schedule with its annual return
showing that it meets these requirements for the year
of the set-aside and for each subsequent year until
the set-aside amount has been distributed. Set-asides
were reported on Form 990-PF, Part XII, lines 3a
and 3b.
Total Assets.--This is the sum of all assets reported in the foundation’s balance sheet, shown at
both book value and fair market value. Total assets
were reported on Form 990 PF, Part II, line 16, columns
(a) beginning-of-year book value, (b) end-of-year book
value, and (c) end-of-year fair market value.
Total Expenses.--This is the sum of contributions, gifts, and grants paid, plus various operating and
administrative expenses related to both investment
and charitable purpose activities. Total expense
items were reported as shown on the books and
records of the foundation and were based on either
the cash receipts and disbursement method or the
accrual method of accounting. Total expenses were
reported on Form 990 PF, Part I, line 26, column (a).
Total Revenue.--This is the sum of gross contributions, gifts, and grants received; interest on savings
and temporary cash investments; dividends and
interest from securities; net gain (or loss) from sale
of assets (mostly investment assets, but also charitable-use assets); gross rents and royalties; gross
profit (or loss) from business activities; and other
income (such as royalty income, program-related
investment income, interest earned on assets used for
charitable purposes, and imputed interest on certain
deferred payments). These other income items were
reported on Form 990-PF, Part I, line 11, column (a).
Total revenue items, which included both investment
and charitable-use items, were reported as shown on
the books and records of the foundation, and were
based on either the cash receipts and disbursements
method or the accrual method of accounting. Total
revenues were reported on Form 990 PF, Part I, line
12, column (a).
Undistributed Income.--This is the portion of
the required “distributable amount” still undistributed
after applying against it the sum of current-year
qualifying distributions and any excess distributions
carried over from prior years. This item was re-

Domestic Private Foundations and Charitable Trusts, 2001

ported on Form 990 PF, Part XIII, line 6f, column (d).
Sanctions were imposed in the form of excise taxes
on nonoperating private foundations that did not pay
out an amount equal to the “distributable amount”
before the end of the following reporting year. The
tax on undistributed income, imposed on the initial
undistributed amount at the 15-percent rate, is reported
on Form 4720 and is not included in these statistics.
Unrelated Business Income (UBI).--This is an
exempt organization’s income from a trade or business that was regularly carried on by the organization
and that was not substantially related to the performance of the organization’s exempt purpose or
function (other than that the organization needed the
profits derived from the unrelated activity). The term
“trade or business” generally comprised any activity
carried on for the production of income from selling
goods or performing services. A tax, as reported on
Form 990-T, Exempt Organization Business Income Tax Return, is imposed on “unrelated business
taxable income (UBTI).” Unrelated business taxable
income is gross unrelated business income, less
deductions directly connected with carrying on the
trade or business, and less certain other deductions.
The unrelated business income tax was determined
based on the corporate or trust tax rates that were in
effect for a given tax year. (Gross) unrelated business income and the associated business codes were
reported on Form 990-PF, Part XVI-A, columns (a)
and (b).

Notes and References
[1] For complete information on Forms 990-PF filed
for Reporting Year 2000, see Ludlum, Melissa,
“Private Foundations and Charitable Trusts,
2000,” Statistics of Income Bulletin, Fall 2003,
Volume 23, Number 2.
[2] Unless otherwise noted, this article discusses
only those contributions that were included in
“qualifying distributions” and that reflected the
amount that foundations actually disbursed, on a
cash basis, for 2001.
[3] For purposes of the analyses, “charitable trusts”
refer only to the IRC section 4947(a)(1) charitable
trusts that file Form 990-PF, while “private
foundations” refer to the section 501(c)(3) private
foundations that file Form 990-PF.

[4] Programs termed “charitable” refer to taxexempt activities that are charitable, educational,
scientific, social, literary, or religious in nature.
[5] For a detailed discussion of organizations other
than private foundations that are tax-exempt
under IRC section 501(c)(3), see Arnsberger,
Paul, “Charities and Other Tax-Exempt Organizations, 2001,” Statistics of Income Bulletin, in
this issue.
[6] Data included in the “Foundation Assets and
Investments, Constant Dollar Analysis” and in
Figure C differ from those presented elsewhere
in this article because they have been adjusted
for inflation. Reporting Year 2000 investment
totals were adjusted based on the 2000 chaintype price index for Gross Domestic Product as
reported by the U.S. Department of Commerce,
Bureau of Economic Analysis; 2001 was used
as the base year. Unless otherwise noted, all
other data are in current dollars.
[7] The net investment income amount used in
calculating the NII yield was obtained from
column (b) of the income statement, found in
Part I of Form 990-PF.
[8] The rate-of-total-return formula used here is the
same as that developed and used by Salamon
and Voytek in their studies on foundation assets.
See Salamon, Lester M. and Voytek, Kenneth
P. (1989), Managing Foundation Assets: An
Analysis of Foundation Investment and
Payout Procedures and Performance, The
Council on Foundations, Washington, DC, p. 32.
The formula for this calculation is shown below:
Rate of Total Return =
[Ending Fair Market Value of Assets
Indexed Beginning Fair Market Value of Assets
Contributions Received
+ Grants Paid
+ Operating and Administrative Expenses
+ Excise Tax Paid on Net Investment Income]
DIVIDED BY
———————————————————
[Indexed Beginning Fair Market Value of Assets
+ 50 percent of Contributions Received]

163

Domestic Private Foundations and Charitable Trusts, 2001

To calculate the rate of total return shown in
Figure E, samples of private foundation information returns for 2000 and 2001 were
matched in order to analyze both the beginning
and end-of-year fair market value data.
The beginning fair market value of assets for
2001 equals the ending fair market value
reported on the 2000 tax return. Thus, in order
to provide a consistent form of measurement by
which to compare rates of total return among
different years, the ending fair market value of
asset amounts (reported for both the year
subject to the computation and the prior year)
was used to compute the rate of return. In
order to obtain an inflation-adjusted real rate of
return, the beginning-of-year fair market value
of assets was indexed based on the 2000 chaintype price index for Gross Domestic Product as
published by the Bureau of Economic Analysis,
using 2001 as the base year.

164

[9] For more information on the unrelated business
income of exempt organizations, see Riley,
Margaret, “Unrelated Business Income of
Nonprofit Organizations: 2000,” Statistics of
Income Bulletin, Spring 2004, Volume 23,
Number 4.
[10] Foreign foundations, which are organized abroad
but required to file Form 990-PF and pay excise
taxes on net investment income, are subject to a
4-percent tax on the value of their U.S.-based net
investment incomes. Data from returns filed by
foreign foundations are not included in this article.
[11] The J. Paul Getty Trust, the largest operating
foundation, is exempt from the excise tax on net
investment income.
[12] Only those operating and administrative expenses included in qualifying distributions are
discussed in this section. Additional time-series
data, including both current and constant dollar
amounts for operating and administrative
expenses, qualifying distributions, and distributable amounts, may be accessed via the Internet
at www.irs.gov/taxstats under the Tax-exempt/
Employee Plans Statistics topic heading.

164

[13] The payout rate was calculated by dividing the
amount of (adjusted) qualifying distributions by
the value of noncharitable-use assets. This
payout formula is as follows:
Qualifying Distributions (Part XII, Line 4) +
Taxes (Part XI, Line 2c)--Recoveries of
Amounts Treated as Qualifying Distributions
and Income Distributions from Split-Interest
Trusts (Part XI, Line 4c) + Deduction from
Distributable Amount (Part XI, Line 6) +Excess
Distributions Applied to 2001 (Part XIII, Col. A,
Line 5)
DIVIDED BY
Net Value of Noncharitable-Use Assets (Part
X, Line 5)
[14] The excise tax on undistributed income is a
“two-tier” tax, which consists of an initial and
additional tax. If a private foundation has
undistributed income for a reporting year that is
still not distributed by the end of the following
reporting year, the initial tax of 15 percent is
imposed. Any organization that stills fails to
distribute the undistributed income may be subject
to the additional tax, which equals 100 percent
of the amount of the undistributed income.
[15] Seven of the ten largest foundations had
calendar year accounting periods, meaning that
all of their activity occurred during the calendar
year period. However, three of the ten had
other fiscal year accounting periods. For the
2001 Reporting Year, the Ford Foundation had
an accounting period ending in September 2002,
the J. Paul Getty Trust in June 2002, and the
W.K. Kellogg Foundation and the W.K.
Kellogg Foundation Trust in August 2002;
therefore, much of their activity for Reporting
Year 2001 occurred in Calendar Year 2002.
See the Data Sources and Limitations section.
[16] As with private foundations, data for charitable
trusts organized abroad but required to file
Form 990-PF are not included in this article.
Also not covered in this article are publicly
supported IRC section 4947(a)(1) charitable

Domestic Private Foundations and Charitable Trusts, 2001

trusts and split-interest trusts. Publicly supported IRC section 4947(a) (1) charitable
trusts, which receive the majority of their
support from public (rather than private)
sources, file Form 990. These trusts typically
operate in connection with, and provide support
to, tax-exempt organizations other than private
foundations. Entities known as split-interest

trusts, which have both charitable and
noncharitable beneficiaries, complete Form
5227, Split-Interest Trust Information
Return. For further information on splitinterest trusts, see Belvedere, Melissa, “Charitable Remainder Trusts, 2001,” Statistics of
Income Bulletin, Winter 2003-2004, Volume
23, Number 3.
SOURCE: IRS, Statistics of Income Bulletin,
Fall 2004, Publication 1136. (Rev. 12-04.)

165

Domestic Private Foundations and Charitable Trusts, 2001

Table 1.--Domestic Private Foundations: Number and Selected Financial Data, by Type of Foundation
and Size of Fair Market Value of Total Assets, Reporting Year 2001
[All figures are estimates based on a sample--money amounts are in thousands dollars]
Selected sources of revenue
Type of foundation,

Number

asset size

of

Total revenue

Contributions, gifts,

Dividends and interest

Net gain (less loss)

and grants received

from securities

from sales of assets

returns

Number

Amount

Number

Amount

Number

Amount

Number

Amount

(1)

of returns
(2)

(3)

of returns
(4)

(5)

of returns
(6)

(7)

of returns
(8)

(9)

All foundations

Total............................................................................
70,787

68,647

45,263,770

33,578

27,745,950

54,390

9,211,308

42,679

3,163,744

Zero or unreported.........................................................................
*427
*427
$1 under $100,000.........................................................................
21,788
19,652
$100,000 under $1,000,000.........................................................................
25,757
25,757

*378
436,295
2,543,940

-12,389
11,382

-405,070
2,032,545

-11,108
22,088

-12,462
266,277

-5,981
17,509

--16,706
68,290

$1,000,000 under $10,000,000.........................................................................
18,305
18,305
$10,000,000 under $25,000,000.........................................................................
2,467
2,465

9,047,366
4,372,836

7,842
1,075

6,156,129
2,835,847

16,882
2,349

1,287,204
868,235

15,071
2,212

442,724
267,305

$25,000,000 under $50,000,000.........................................................................
1,015
1,014
3,909,720
$50,000,000 under $100,000,000.........................................................................
513
512
3,566,910
$100,000,000 or more.........................................................................
515
515
21,386,325

429
231
230

2,247,463
2,391,266
11,677,629

978
487
498

870,205
790,153
5,116,773

939
472
495

269,618
129,379
2,003,134

Nonoperating foundations
Total...............................................................................
63,650

61,939

41,213,867

28,435

25,534,568

50,563

8,707,055

40,593

3,258,023

Zero or unreported.........................................................................
*427
*427
$1 under $100,000.........................................................................
18,798
17,089
$100,000 under $1,000,000.........................................................................
23,514
23,514

*378
412,848
2,356,748

-10,253
9,751

-384,882
1,866,492

-10,253
20,602

-10,955
255,208

-5,981
16,752

--16,706
72,344

$1,000,000 under $10,000,000.........................................................................
16,754
16,754
$10,000,000 under $25,000,000.........................................................................
2,270
2,269

7,520,759
3,912,386

6,756
910

5,363,224
2,528,684

15,685
2,190

1,214,641
823,580

14,021
2,066

520,881
256,418

$25,000,000 under $50,000,000.........................................................................
946
945
3,427,028
$50,000,000 under $100,000,000.........................................................................
470
470
3,186,666
$100,000,000 or more.........................................................................
472
472
20,397,053

375
197
193

2,056,907
2,139,760
11,194,618

919
452
462

837,942
739,447
4,825,283

882
436
455

270,132
102,626
2,052,328

Operating foundations
Total...............................................................................
7,137

166

6,708

4,049,904

5,143

2,211,382

3,827

504,253

2,087

-94,279

Zero or unreported.........................................................................
--$1 under $100,000.........................................................................
2,991
2,563
$100,000 under $1,000,000.........................................................................
2,243
2,243

-23,447
187,192

-2,136
1,631

-20,188
166,053

-*854
*1,486

-*1,507
*11,069

--*757

--*-4,054

$1,000,000 under $10,000,000.........................................................................
1,551
1,551
$10,000,000 under $25,000,000.........................................................................
197
196

1,526,607
460,450

1,086
165

792,905
307,163

1,197
159

72,563
44,655

1,050
146

-78,157
10,887

$25,000,000 under $50,000,000.........................................................................
69
69
$50,000,000 under $100,000,000.........................................................................
43
42
$100,000,000 or more.........................................................................
43
43

482,692
380,244
989,272

54
34
37

190,556
251,506
483,011

59
35
36

32,263
50,706
291,491

57
36
40

-514
26,752
-49,194

Grantmaking foundations
Total...............................................................................
58,909

58,482

41,084,781

27,097

24,309,029

48,577

8,989,582

39,948

3,126,945

Zero or unreported.........................................................................
*427
*427
$1 under $100,000.........................................................................
14,525
14,098
$100,000 under $1,000,000.........................................................................
23,223
23,223

*378
396,579
2,255,730

-8,972
10,128

-370,831
1,766,773

-8,544
20,456

-9,514
249,984

-5,554
16,607

--16,779
68,354

$1,000,000 under $10,000,000.........................................................................
16,473
16,473
$10,000,000 under $25,000,000.........................................................................
2,313
2,313

7,300,826
3,891,744

6,228
952

4,656,623
2,471,956

15,460
2,231

1,218,405
835,510

13,840
2,111

409,894
266,276

$25,000,000 under $50,000,000.........................................................................
966
966
3,515,318
$50,000,000 under $100,000,000.........................................................................
489
489
3,383,359
$100,000,000 or more.........................................................................
493
493
20,340,848

391
215
211

1,963,891
2,281,500
10,797,454

936
467
484

851,813
766,367
5,057,989

903
454
480

272,773
109,965
2,016,463

Grantmaking-nonoperating foundations
Total...............................................................................
55,863

55,436

38,475,679

24,953

23,042,946

46,656

8,648,552

38,616

3,148,665

Zero or unreported.........................................................................
*427
*427
$1 under $100,000.........................................................................
13,671
13,244
$100,000 under $1,000,000.........................................................................
21,853
21,853

*378
394,252
2,177,624

-8,117
9,254

-368,504
1,696,772

-8,544
19,203

-9,514
244,325

-5,554
15,850

--16,779
72,408

$1,000,000 under $10,000,000.........................................................................
15,822
15,822
$10,000,000 under $25,000,000.........................................................................
2,232
2,232

6,307,729
3,689,272

5,951
885

4,304,075
2,325,720

14,935
2,162

1,193,412
817,609

13,407
2,049

409,748
253,122

$25,000,000 under $50,000,000.........................................................................
929
929
3,256,072
$50,000,000 under $100,000,000.........................................................................
464
464
3,079,879
$100,000,000 or more.........................................................................
465
465
19,570,473

363
195
188

1,909,057
2,050,455
10,388,362

905
448
458

831,718
736,065
4,815,909

871
433
453

275,812
102,107
2,052,247

Grantmaking-operating foundations
Total...............................................................................
3,046

166

3,046

2,609,102

2,144

1,266,082

1,922

341,030

1,332

-21,719

Zero or unreported.........................................................................
--$1 under $100,000.........................................................................
*854
*854
$100,000 under $1,000,000.........................................................................
*1,369
*1,369

-*2,327
*78,107

-*854
*874

-*2,327
*70,001

--*1,253

--*5,660

--*757

--*-4,054

$1,000,000 under $10,000,000.........................................................................
651
651
$10,000,000 under $25

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A67acba4b1d7df876. Public record. Not legal advice.