Instructions For Form 990-Pf - Return Of Private Foundation Or Section 4947(A)(1) Nonexempt Charitable Trust Treated As A Private Foundation - Internal Revenue Service - 2003 Page 22
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30Overview. A private foundation that is
readily available if a security is any of the
appraisal. A valuation based on
not a private operating foundation must
following:
acceptable methods of valuing property
•
pay out, as qualifying distributions, its
Listed on the New York or American
for Federal estate tax purposes will be
minimum investment return. This is
Stock Exchange or any city or regional
considered acceptable.
generally 5% of the total fair market value
exchange in which quotations appear on
The appraisal must include a closing
of its noncharitable assets, subject to
a daily basis, including foreign securities
statement that, in the appraiser’s opinion,
further adjustments as explained in the
listed on a recognized foreign national or
the appraised assets were valued
instructions for Part XI. The amount of
regional exchange.
according to valuation principles regularly
•
this minimum investment return is figured
Regularly traded in the national or
employed in making appraisals of such
in Part X and is used in Part XI to figure
regional over-the-counter market for
property, using all reasonable valuation
the amount that is required to be paid out
which published quotations are available.
methods. The foundation must keep a
•
(the distributable amount).
Locally traded, for which quotations can
copy of the independent appraisal for its
be readily obtained from established
Minimum investment return. In figuring
records. If a valuation is reasonable, the
brokerage firms.
the minimum investment return, include
foundation may use it for the tax year for
If securities are held in trust for, or on
only those assets that are not actually
which the valuation is made and for each
behalf of, a foundation by a bank or other
used or held for use by the organization
of the 4 following tax years.
financial institution that values those
for a charitable, educational, or other
Any valuation of real estate by a
securities periodically using a computer
similar function that contributed to the
certified independent appraisal may be
pricing system, a foundation may use that
charitable status of the foundation. Cash
replaced during the 5-year period by a
system to determine the value of the
on hand and on deposit is considered
subsequent 5-year certified independent
securities. The system must be
used or held for use for charitable
appraisal or by an annual valuation as
acceptable to the IRS for Federal estate
purposes only to the extent of the
described above. The most recent
tax purposes.
reasonable cash balances reported in
valuation should be used to compute the
The foundation may reduce the fair
Part X, line 4. See the instructions for
foundation’s minimum investment return.
market value of securities only to the
lines 1b and 4 below.
extent that it can establish that the
If the valuation is made according to
Assets that are held for the production
securities could only be liquidated in a
the above rules, the IRS will continue to
of income or for investment are not
reasonable period of time at a price less
accept it during the 5-year period for
considered to be used directly for
than the fair market value because of:
which it applies even if the actual fair
•
charitable functions even though the
The size of the block of the securities;
market value of the property changes
•
income from the assets is used for the
The fact that the securities held are
during the period.
charitable functions. It is a factual
securities in a closely held corporation; or
Valuation date. An asset required to
•
question whether an asset is held for the
The fact that the sale of the securities
be valued annually may be valued as of
production of income or for investment
would result in a forced or distress sale.
any day in the private foundation’s tax
rather than used or held for use directly
Any reduction in value allowed under
year, provided the foundation values the
by the foundation for charitable purposes.
these provisions may not be more than
asset as of that date in all tax years.
10% of the fair market value (determined
For example, an office building that is
However, a valuation of real estate
without regard to any reduction in value).
used to provide offices for employees
determined on a 5-year basis by a
engaged in managing endowment funds
Also, see Regulations sections
certified, independent appraisal may be
for the foundation is not considered an
53.4942(a)-2(c)(4)(i)(b), (c), and (iv)(a).
made as of any day in the first tax year of
asset used for charitable purposes.
the foundation to which the valuation
Line 1b — Average of monthly cash
applies.
balances. Compute cash balances on a
Dual-use property. When property is
monthly basis by averaging the amount of
used both for charitable and other
Assets held for less than a tax year.
cash on hand on the first and last days of
purposes, the property is considered used
To determine the value of an asset held
each month. Include all cash balances
entirely for charitable purposes if 95% or
less than 1 tax year, divide the number of
and amounts that may be used for
more of its total use is for that purpose. If
days the foundation held the asset by the
charitable purposes (see line 4 on page
less than 95% of its total use is for
number of days in the tax year. Multiply
23) or set aside and taken as a qualifying
charitable purposes, a reasonable
the result by the fair market value of the
distribution (see Part XII).
allocation must be made between
asset.
charitable and noncharitable use.
Line 1c — Fair market value of all other
Line 1e — Reduction claimed for
assets. The fair market value of assets
Excluded property. Certain assets
blockage or other factors. If the fair
other than securities is determined
are excluded entirely from the
market value of any securities, real estate
annually except as described below. The
computation of the minimum investment
holdings, or other assets reported on lines
valuation may be made by private
return. These include pledges of grants
1a and 1c reflects a blockage discount,
foundation employees or by any other
and contributions to be received in the
marketability discount, or other reduction
person even if that person is a
future and future interests in estates and
from full fair market value because of the
disqualified person. If the IRS accepts the
trusts. See Pub. 578, chapter VII, for
size of the asset holding or any other
valuation, it is valid only for the tax year
more details.
factor, enter on line 1e the aggregate
for which it is made. A new valuation is
amount of the discounts claimed. Attach
Line 1a — Average monthly fair market
required for the next tax year.
an explanation that includes the following
value of securities. If market quotations
5-year valuation. A written, certified,
information for each asset or group of
are readily available, a foundation may
and independent appraisal of the fair
assets involved:
use any reasonable method to determine
market value of any real estate, including
the average monthly fair market value of
1. A description of the asset or asset
any improvements, may be determined
securities such as common and preferred
group (e.g., 20,000 shares of XYZ, Inc.,
on a 5-year basis by a qualified person.
stock, bonds, and mutual fund shares, as
common stock);
The qualified person may not be a
long as that method is consistently used.
2. For securities, the percentage of
disqualified person (see General
For example, a value for a particular
the total issued and outstanding securities
Instruction C) with respect to the private
month might be determined by the closing
of the same class that is represented by
foundation or an employee of the
price on the first or last trading days of the
the foundation’s holding;
foundation.
month or an average of the closing prices
3. The fair market value of the asset
on the first and last trading days of the
Commonly accepted valuation
or asset group before any claimed
month. Market quotations are considered
methods must be used in making the
blockage discount or other reduction;
-22-
Form 990-PF Instructions
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