Private foundations can be an excellent way to give back to the community while leaving a legacy and engaging family or corporate management in charitable giving. A private foundation is a nonprofit entity at the state level that has received a determination from the IRS that it is a private foundation based on its organization and operations in furtherance of an exempt purpose.
We want to make sure that your foundation has the platform to be successful. A proper platform for success includes an entity that is properly formed, receipt of a tax-exempt determination letter, and appropriate advice, education, processes and resources for your management team. A private foundation’s management team should be educated on issues specific to a private foundation, including:
Exempt Purpose & Private Benefit: A private foundation is required to operate exclusively for certain exempt purposes (such as religious, charitable, scientific, literary or education) and may only have incidental private benefit to an individual or entity.
Jeopardy Investments: A private foundation must invest assets in a manner that does not jeopardize their use for exempt purposes.
Excess Business Holdings: Generally, the permitted amount of stock or other interest in a business enterprise is limited.
Qualifying Distributions: A private foundation must make qualifying distributions (often this is achieved through grants to public charities). In certain situations a private foundation should conduct a specific type of evaluation and take follow up measures to ensure that an expenditure has been properly used (expenditure responsibilities) by a person receiving the distribution. Private foundations may also need to determine whether an investment in a for-profit will be a qualifying distribution because it is a program-related investment.
Taxable Expenditures: Grants to individuals or organizations (other than a qualified public charity or an exempt operating foundation) are taxable unless expenditure responsibility or other qualifications are met. Expenditures to carry out activities with purposes other than tax-exempt purposes are taxable. Lobbying and political activities generally are taxable, as noted below.
Lobbying and Political Activity: Other than through making available the results of nonpartisan analysis, study or research, a private foundation is subject to tax on expenditures to carry out propaganda or otherwise attempt to influence legislation and to influence the outcome of an election. Substantially funding these types of activities may cause a loss of tax-exempt status.
Self-Dealing: Certain types of transactions between a private foundation and an interested person (such as a director, officer, substantial donor and their family) or related entities may be prohibited. In other situations, such as compensation for qualified personal services, these transactions need to be properly disclosed and determined to be reasonable and necessary.
Donations: Qualifying donations to a private foundation are deductible by donors (other than corporate donors) to the extent of 30 percent of the donor’s adjusted gross income. Generally, donors must have receipts to support qualifying deductions, and private foundations are required to provide written disclosures to donors who receive goods or services in exchange for certain payments.
We help you plan for a private foundation, create a private foundation, address any issues that may arise and continue the private foundation throughout your family or corporation’s lifetime of charitable giving.