What are the requirements for private foundations giving out grants?

Question: If a private foundation offers $25,000 grants, can they give smaller awards to their applicants who ask for the full amount? 

Yes. Typically, grants will be funded “up to” a certain amount. There is no binding agreement between a foundation and the grant applicants until an award is issued and the foundation and recipient enter into the grant agreement. It’s the foundation’s prerogative how much to fund.

Question: Is there a minimum  percentage of grants a Foundation is required to fund? For example, if a Foundation receives 100 applications annually, are they legally bound to fund 25?

The general rule is that private foundations are required to distribute at least 5% of the total fair market value of their noncharitable-use assets annually from the preceding year. This can be done through disbursing grants themselves and covering grant-related expenses.

The number of applications to a private foundation’s grant application isn’t the denominator here – it’s about the percentage of funds. The calculation can be complicated and takes into account a bunch of things, so this would be something private foundations should work with a CPA firm to determine the yearly minimum. The IRS doesn’t want foundations hoarding too much money, so it is important foundations meet that minimum.

Question: Can a private foundation end an advertised grant cycle early if they have maxed out their funding capabilities? 

In short, yes.

When funds are used up, you can close applications. There is no binding obligation to anyone until you make an award – and that includes the stated end date of a grant cycle. If you max out your giving, just close the applications and put up a notice that says something like “Thank you for your interest in applying. Due to a high volume of applications, we have made all awards for this year. Be sure to check back with us in [month] when next year’s applications will open.”