Is itthe law that a 501 (c) (3) corporation must give away 5 percent
of its assets each year--or is a longer time span permissible?

fie..

Thanks for your question. Prior to providing your answer, I want to
ensure that you understand that answers and comments provided on
Google Answers are general information, and are not intended to
substitute for informed professional tax, legal, investment,
accounting, or other professional advice.  You should contact a tax
attorney for specific information as it applies to your situation.

What you are referring to is known as a qualifying distribution. 
Private foundations that are 501(3)(c) corporations, in order to avoid
excise tax undistributed income, are required to make a qualifying
distribution of at least 5% of the value of its assets not used to
carry out its exempt function.  Qualifying distributions are outlined
in Internal Revenue Code 4942.  IRC 4942 can be found at
http://www4.law.cornell.edu/uscode/26/4942.html

The qualifying distribution must be made with one year of the end of
the qualifying year.  In other words, for 2002, the qualifying
distribution must me made by the end of 2003 to avoid the tax.  This
is spelled out in IRC 4942(a).

One thing to be aware of is that the qualifying distribution applies
to private foundations.  In very broad strokes, virtually all
charities, other than churches, are considered private foundations. 
Private foundations are definined in IRC 509, which can be found at
http://www4.law.cornell.edu/uscode/26/509.html

Again, I want to emphasize that you discuss your particular situation
with a tax attorney to determine your specific tax requirements.

Thank you for your question and I hope the above information has been
helpful.  If you need any additional clarification, please let me
know.

Regards,

-THV

Search Strategy:
501(c)(3) distribution
IRC 4942
IRC 509

References:
What You Should Know About Your Private Foundation
http://www.trustsandestates.net/Charity/Mm_Cl_Priv_Found.htm

In reply to the question, tar_heel_v-ga wrote:

>> In very broad strokes, virtually all charities, other than
churches, are considered private foundations. <<

That is incorrect.

There are two basic kinds of Federal Tax Code section 501(c)(3)
organizations: private foundations and public charities. And there are
three basic kinds of public charities:

1. Those that have automatic public charity status. These include
churches, and also schools, hospitals, government agencies, and
certain public service organizations.

2. Those that qualify as "publicly supported organizations" under
170(b)(1)(a)(vi). These include most of the organizations that people
usually think of when tax-deductible donations come to mind. The
Nature Conservancy, Habitat for Humanity, World Wildlife Fund,
whatever.

3. Those that qualify as 509(a)(2) organizations. I don't think there
are many of these, but in essence they are treated as "publicly
supported organizations" because they meet certain bypass tests even
though they may not meet the tests required of 170(b)(1)(a)(vi)
organizations.

Any requirement to distribute x% of something every year does NOT
apply to public charities; it applies only to private foundations. And
I'm not really sure that it applies to all of those: there are
different kinds of private foundations in the eyes of the Tax Code.

If you have any question whether a given organization is a private
foundation or a public charity, you can look the organization up on
the Internal Revenue Service Web site to find out:

  http://www.irs.gov/charities/page/0,,id=15053,00.html

If the organization is a private foundation, you will see

  Code: (?) - A private foundation generally with a 30% deductibility
limitation

If the organization is a public charity, you will see

  Code: None - A public charity with a 50% deductibility limitation