Private foundation (United States)
Encyclopedia
A private foundation is a charitable organization recognized by the US Tax Code at and section 501(c)(3). It is defined by a negative definition, in other words, it is defined by what it is not. A private foundation
formed in the United States
is a charity, but it is not a public charity (a term of art defined by the 501(c)(3)) and is not a supporting organization
.
Most private foundations in the US are non-operating foundations, also called grantmaking foundations, which primarily provide support to public charities, individuals and to other organizations to further a charitable cause. Alternatively, operating foundations generally operate their own charitable programs. The IRS reports that there were 115,340 private foundations in the U.S. in 2008, of which 110,099 were grantmaking (non-operating) and 5,241 were operating foundations. Approximately 75% of the private foundations file annually with the IRS.
Some private foundations are informally called family foundations because their funds are derived from members of a single family. At least one family member serves as an officer or board member of the foundation, and as the donor. The family member plays a significant role in governing and/or managing the foundation throughout its life. Most family foundations are run by family members who serve as trustees or directors on a voluntary basis - receiving no compensation.
A private foundation is typically set up as a non-profit corporation that bears the name of its donors, but may alternatively be established as a trust. Donors specify the charitable purpose of the foundation (example: grants for cancer research, scholarships for the needy, support of religious goals). During their lifetime, they may continue their charitable giving by making tax deductible contributions to the foundation. The foundation may also be funded with a bequest from the donors' will or trust or receive funds as the primary or secondary beneficiary of a qualified plan or IRA.
created the private foundation as we know of it today where the tax code imposed the present day legal framework. These restrictions came about as a reform effort to remedy perceived abuses of private foundations such as the claim that this type of charitable organization more likely served the private interests of the rich rather than the intended charitable purpose. Such criticism asserted that private individuals created private foundations as a vehicle to protect their assets from taxation; meanwhile the descendants may assert control over these assets almost in perpetuity. This is the context from which the present day legal framework arose.
In 2007 the Wall Street Journal reported that wealthy families are both increasing the number of foundations they close as well as increasing the number they establish. One trend is to put a time limit on the life of a foundation, under the assumption that heavy spending over a short period of time will do more good than slower spending over the long term. Some foundations are closed due to family disputes, concern about the effect of foundation wealth on descendants, and concern that future generations will not share the political beliefs that spurred the original establishment of the foundation. Sometimes one is closed, only to be reopened with a new purpose.
Private foundation
A private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets...
formed in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
is a charity, but it is not a public charity (a term of art defined by the 501(c)(3)) and is not a supporting organization
Supporting organization (charity)
A supporting organization, in the United States, is a public charity created by the U.S. Internal Revenue Code in . A supporting organization either makes grants to, or performs the operations of, a public charity similar to a private foundation...
.
Function
A private foundation is a nonprofit organization having a principal fund managed by its own directors or trustees. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.Most private foundations in the US are non-operating foundations, also called grantmaking foundations, which primarily provide support to public charities, individuals and to other organizations to further a charitable cause. Alternatively, operating foundations generally operate their own charitable programs. The IRS reports that there were 115,340 private foundations in the U.S. in 2008, of which 110,099 were grantmaking (non-operating) and 5,241 were operating foundations. Approximately 75% of the private foundations file annually with the IRS.
Some private foundations are informally called family foundations because their funds are derived from members of a single family. At least one family member serves as an officer or board member of the foundation, and as the donor. The family member plays a significant role in governing and/or managing the foundation throughout its life. Most family foundations are run by family members who serve as trustees or directors on a voluntary basis - receiving no compensation.
A private foundation is typically set up as a non-profit corporation that bears the name of its donors, but may alternatively be established as a trust. Donors specify the charitable purpose of the foundation (example: grants for cancer research, scholarships for the needy, support of religious goals). During their lifetime, they may continue their charitable giving by making tax deductible contributions to the foundation. The foundation may also be funded with a bequest from the donors' will or trust or receive funds as the primary or secondary beneficiary of a qualified plan or IRA.
History
The Tax Reform Act of 1969Tax Reform Act of 1969
The United States Tax Reform Act of 1969 was a federal tax law signed by president Richard Nixon in 1969. The largest impact of the act was the creation of the Alternative Minimum Tax, which was intended to tax high income earners otherwise exempt from income taxes through various exemptions and...
created the private foundation as we know of it today where the tax code imposed the present day legal framework. These restrictions came about as a reform effort to remedy perceived abuses of private foundations such as the claim that this type of charitable organization more likely served the private interests of the rich rather than the intended charitable purpose. Such criticism asserted that private individuals created private foundations as a vehicle to protect their assets from taxation; meanwhile the descendants may assert control over these assets almost in perpetuity. This is the context from which the present day legal framework arose.
In 2007 the Wall Street Journal reported that wealthy families are both increasing the number of foundations they close as well as increasing the number they establish. One trend is to put a time limit on the life of a foundation, under the assumption that heavy spending over a short period of time will do more good than slower spending over the long term. Some foundations are closed due to family disputes, concern about the effect of foundation wealth on descendants, and concern that future generations will not share the political beliefs that spurred the original establishment of the foundation. Sometimes one is closed, only to be reopened with a new purpose.
See also
- Foundation (United States law)Foundation (United States law)A foundation in the United States is a type of charitable organization. However, the Internal Revenue Code distinguishes between private foundations and public charities...
- Private foundationPrivate foundationA private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets...
- Foundation (charity)Foundation (charity)A foundation is a legal categorization of nonprofit organizations that will typically either donate funds and support to other organizations, or provide the source of funding for its own charitable purposes....
- PhilanthropyPhilanthropyPhilanthropy etymologically means "the love of humanity"—love in the sense of caring for, nourishing, developing, or enhancing; humanity in the sense of "what it is to be human," or "human potential." In modern practical terms, it is "private initiatives for public good, focusing on quality of...