Per Investopedia, “an endowment is a donation of money or property to a nonprofit organization, which uses the resulting investment income for a specific purpose. An endowment can also refer to the total of a nonprofit institution’s investable assets, also known as its “principal” or “corpus,” which is meant to be used for operations or programs that are consistent with the wishes of the donor(s). Most endowments are designed to keep the principal amount intact while using the investment income for charitable efforts.
When the donated endowment accrues dividends, capital gains, and interest on the underlying assets, the resulting earned income may be taxable. However, this depends almost entirely on the nature of the non-profit organization or institution that controls the endowment fund.
In most instances, recognized 501(c)(3) organizations are exempt from taxation. As such, the endowment qualifies for tax-exempt status, and any accrued earnings are not taxed.
When the donated endowment accrues dividends, capital gains, and interest on the underlying assets, the resulting earned income may be taxable. However, this depends almost entirely on the nature of the non-profit organization or institution that controls the endowment fund.4
In most cases, an endowment is a legal entity, such as a trust or corporation, entirely separate from the non-profit group that receives the benefit. If the benefiting party is a tax-exempt organization, the endowment qualifies for tax-exempt status, in which case any accrued earnings are not taxed.
Although encourage by the I.R.S. to report financial information, churches are not required to report such information.
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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax, or other professional services. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.