If the foundation fails to actually distribute the start-up period minimum amount during the start-up period or, generally, if it fails to distribute the full-payment period minimum amount during a tax year of the full-payment period, then any set-aside the foundation makes during the appropriate period will not be treated as a qualifying distribution unless it was approved by the IRS under the suitability test. Also, any set-aside made after the year of such a failure to distribute a minimum amount will be treated as a qualifying distribution only if the Service approves it under the suitability test. However, if the foundation's failure to distribute the full-payment period minimum amount during a tax year of the full-payment period is not willful and is due to reasonable cause, the foundation may correct the failure. To do so, it must distribute within the correction period cash or its equivalent in an amount not less than the difference between the full-payment period minimum amount for the tax year and the amount actually distributed during that year. The additional distribution is treated as though it had been made in the year in which it originally should have been made, for purposes of meeting the cash distribution test. If a foundation fails to distribute the full-payment period minimum amount during the appropriate tax year because the amount can be determined only after the end of that tax year, no willful failure to distribute will occur if the foundation makes an additional distribution within 5-1/2 months after the end of the tax year.
