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Charitable Transfers - Private Foundations

Private Foundations
A private foundation is an organization that qualifies for tax-exempt status per the IRC code Section 501(c)(3). Unless the organization is a public hospital, university, school or broad publically recognized charitable organization it will typically fall under the private foundation category.


Restrictions and Requirements on Private Foundations:
  • Limited holdings in private businesses.
  • The foundation is required to distribute the income annually to a charity.
  • Restricted business dealings between the foundation and its large contributors.
  • Provisions to assure that expenditures further exempt status.
  • Investments must not interfere with the carry out of exempt status.

Private foundations usually derive their donations from a single source, such as an individual, estate, small business, corporation or family; they typically do not solicit the public for donations. A private foundation receives most of its income from investments and endowments. It then devotes most of its earnings and assets directly to the conduct of its tax exempt purposes, rather than making grants to other organizations for these purposes.

Deduction?
Donations to private foundations will typically allow the donor to receive a tax deduction of up to 30% of the adjusted gross income. If the foundation distributes the contributions they receive to public charities and private operating foundations (where income and corpus are both distributed to a public charity) within 2.5 months following the year of receipt, they could qualify for the 50% of adjusted gross income deduction.

Donor Advised Funds
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