The IRS requires that all funds within a community foundation be considered assets of the foundation, otherwise the foundation would operate like a bank. While the organization receives distributions each year, and all gifts to an organization’s endowment are designated only for the use of that organization, the organization cannot:
– spend the principal at will (the organization would not do this anyway where the funds are held as a true endowment),
– remove the funds from the foundation unilaterally,
– direct how assets in the endowment fund are invested.
In other words, the organization receives the income benefits on all gifts to its endowment fund, but does not manage the fund itself.