a favored way for individuals to make philanthropic
while maintaining control or direction over the assets
contributed. The foundations can be private or established
as a "fund" in an existing foundation.
Foundations & the
IRS (the boring facts)
(scroll down for comparisons between private foundations and funds)
Every organization that qualifies for tax exemption as an organization described
in section 501(c)(3) is a private foundation unless it falls into one of the
categories specifically excluded from the definition of that term (referred
to in section 509(a)). In addition, certain nonexempt charitable trusts are
also treated as private foundations. Organizations that fall into the excluded
categories are generally those that either have broad public support or actively
function in a supporting relationship to such organizations. Organizations
that test for public safety also are excluded. Even if an organization falls
within one of the categories excluded from the definition of private foundation,
it will be presumed to be a private foundation, with some exceptions, unless
it gives timely notice to the IRS that it is not a private foundation. If an
organization is required to file the notice, it must do so within 15 months
from the end of the month in which it was organized. Generally, foundations
use Form 1023, Application for Recognition of Exemption, for this purpose.
There is an excise tax on the net investment income
of most domestic private foundations. Certain foreign
private foundations are also subject to a tax on gross
investment income derived from United States sources.
This tax must be reported on Form 990-PF, Return of Private
Foundation, and must be paid annually at the time for
filing that return or in quarterly estimated tax payments
if the total tax for the year is $500 or more.
In addition, there are several restrictions and requirements
on private foundations, including:
1. restrictions on self-dealing between private
foundations and their substantial contributors and other
Certain trusts that have charitable interests as well as private interests may also b subject to some of the private foundation
2. requirements that the foundation annually distribute income for charitable
purposes; limits on their holdings in private businesses;
3. provisions that investments must not jeopardize the carrying out of exempt
4. provisions to assure that expenditures further exempt purposes.
Violations of these provisions give rise to taxes and penalties against the private foundation and, in some cases, its managers, its substantial contributors, and certain related
A private foundation cannot be tax exempt nor will contributions to it be deductible as charitable contributions unless its governing instrument contains special provisions in addition
to those that apply to all organizations described in 501(c)(3).
Advantages of a Private Foundation over a Fund
1. Donor maintains more control
Advantages of a Fund over a Private Foundation
2. Donor can name trustees to oversee investment management as well as accounting,
auditing services and tax preparation services
3. Donor can name trustees to oversee general administrative services
4. Donor can name trustees to oversee general liability and insurance services
1. A fund is easy and inexpensive to establish. A private foundation
requires a donor to create a new organization, apply for tax-exempt status,
pay filing fees and incur legal and accounting expenses
Shoreline's Competitive Edge
2. A gift of cash to a charitable fund allows a deduction of up to 50% of a
donor's Adjusted Gross Income (AGI). A gift of cash to a private foundation
allows a donor to deduct up to 30% of AGI
3. By creating a charitable fund, a donor may deduct gifts of closely held
long-term appreciated stock at its fair market value, up to 30% of AGI. If
the same gift is given to a private foundation, deductibility may be limited
to its cost basis up to 20% of AGI
4. No tax is imposed on the investment income of a charitable fund because
it is a component of a public charity. A private foundation pays up to 2% federal
excise tax on its investment income and net realized capital gain
5. A community foundation donor may remain anonymous. A private foundation
must make available to the public the name and address of any substantial contributor
6. There are no minimum distribution requirements for a charitable fund at
a community foundation. A private foundation must annually distribute at least
5% of its net investment assets, regardless of whether the amount is actually
7. There are fewer restrictions on a charitable fund. For private foundations,
however, there are strict regulations regarding self-dealing between the
foundation and those who manage, control, or contribute to it and persons
closely related to them. For example, a private foundation, along with its
donor and other "disqualified persons" (including members of the board and
staff), may not hold more than 20% of a related corporation's voting stock
8. There are fewer investment restrictions on a community foundation's funds.
A private foundation may not make certain types of investments. For example,
a community foundation may hold more than a 20% ownership in a particular corporation,
but private foundations may not
9. There are fewer IRS reporting requirements on community foundation grants
and funds, and requirements that do exist are handled by the foundation's staff
at no extra charge to individual donors
10. Charitable gifts to a community foundation fund are almost always considered "public
support," thus helping the recipient charity retain its public charity status.
A private foundation grant is usually not considered "public support" in
its entirety and, thus, may not be as helpful to the recipient charity in
its public charity status
Whatever your need, establishing a private foundation or participating in the
fund of an existing foundation, Shoreline Wealth and Investment Management can
assist you in obtaining and preparing the necessary legal and financial paperwork
to accommodate your specific needs.
For more information:
If you'd like more information about how diversified investment advisors can
help you achieve your financial objectives through personalized wealth or
retirement and risk management strategies, please contact us. We welcome
the opportunity to discuss your unique needs and how we may best meet them.
This page (formatted for versions 4.0 and higher of
Netscape or MSIE) is updated regularly so check in from
time-to-time to see new articles and updates.
You can click on any underlined words on each page to see a specific wealth
management topic in the
left margin of each page.
For more information:
If you'd like more information about how diversified investment advisors can help you achieve your financial objectives through personalized wealth or retirement and risk management strategies, please contact us. We welcome the opportunity to discuss your unique needs and how we may best meet them.
This page (formatted for versions 10.0 and higher
of Internet Explorer) is updated regularly so check in
from time-to-time to see new articles and updates.
You can click on any underlined words on each
page to see a specific wealth management topic in the
left margin of each page.
Charles M. Bloom, Registered Principal offers securities
and advisory services through Centaurus Financial, Inc. - Member FINRA and SIPC - 775 Avenida Pequena, CA, 93111 (mailing address: 3905 State Street Suite 7173, Santa Barbara, CA, 93105) - CA Life Insurance License No. 0A52786 - Centaurus Financial, Inc. and Shoreline Wealth & Investment Management are not affiliated companies.
The information contained in this web site is neither an offer nor solicitation of any security or service.