United States: Consider A Private Foundation To Fulfill Your Philanthropic Goals

What Is a Private Foundation?

There are a variety of vehicles through which individuals and families can promote their charitable giving goals, and private foundations are often a leading choice. Simply stated, a private foundation is a type of charitable organization that qualifies for tax-exempt status as an organization described under Section 501(c)(3) of the Internal Revenue Code (the "Code").1

Why Create a Private Foundation?

Tax Benefits. Contributions to a private foundation are eligible for a charitable deduction on a donor's income tax return during life and on an estate tax return at death if the private foundation is recognized by the Internal Revenue Service ("IRS") as an organization described under Section 501(c)(3) of the Code.2

Control. Private foundations maintain a separate legal existence, generally as a trust or a corporation, and are operated by the creator and his or her family or other individuals or entities they select to make grants to charitable organizations within the foundation's mission. The ability to control the mission and direction of a private foundation is often a key component for the donors who choose this form over direct giving or contributions to a donor advised fund or community foundation.

Coordinated Family Giving. Private foundations are particularly attractive to donors who want to create a charitable legacy that extends across multiple generations because they can be used not only to coordinate the family's current philanthropic activities, but also to engage younger generations by fostering an interest in charitable giving.

Grants for Charitable Purposes. While a private foundation's grants must generally be made to public charities, under certain conditions a foundation may make grants for charitable purposes to other organizations, such as international or for-profit entities, providing increased opportunities for a foundation to promote its mission. In those cases, the Code requires foundations to exercise "expenditure responsibility," meaning the foundation must closely monitor the use of the grant funds to ensure that they are used for the intended charitable purposes.

Administrative and Tax Considerations of Private Foundations

Foundation Administration. While not unduly difficult, the administration of a private foundation is more complex than, for example, making contributions directly to a public charity. Because the private foundation maintains a separate legal existence, the foundation must maintain separate bank and investment accounts and must take care not to commingle the assets of the foundation with the assets of individuals who manage or contribute to the foundation. In addition, there are on-going obligations associated with any grant-making program, such as reviewing grant requests, distributing grants, reviewing grantee reports, and making site visits. Depending on the foundation's mission and the involvement of the donor and his or her family, these activities may be more or less complex. In many cases, grant-making is relatively limited and can be handled by the donor and/or members of the donor's family. In some cases, where the scope of activities is significantly broad, hired staff may be needed to handle the day-to-day administration.

Annual Distributions. Private foundations are required to distribute annually a minimum amount equal to approximately five percent of the fair market value of the foundation's non charitable assets (the "distributable amount"). In general, distributions that will qualify toward satisfying the annual distributable amount include grants to public charities and administrative expenses of the private foundation related to grant-making. In the event a private foundation distributes less than the distributable amount within the period of time prescribed by the Code, the private foundation may be subject to an excise tax on the amount not distributed.

Restrictions on Foundation Activities. Once assets are transferred to a private foundation, the Code imposes various restrictions on their use and investment. These restrictions are intended to protect the charitable nature of the assets and ensure that they are used to further exempt purposes, rather than private interests. Specifically, certain types of distributions are prohibited, including grants for lobbying, grants to individuals (unless the foundation has received prior approval from the IRS), and grants for non charitable purposes. In addition, to underscore the fact that the assets are to be used only for charitable purposes, the Code prohibits transactions between the foundation and its donors or managers except under very limited circumstances. Similarly, the Code regulates the extent to which a foundation can control a business entity and prohibits foundation managers from making investments that would jeopardize the foundation's ability to carry out its charitable purposes. There are other rules applicable to private foundations, and foundation managers must be mindful that they comply with all of the rules because violations may result in significant penalties for both the foundation and the individuals involved, including a potential loss of tax-exempt status.

Taxes and Form 990-PF. Private foundations must file annual information returns with the IRS ("Form 990¬PF Return of Private Foundation"). Although private foundations are tax-exempt organizations for income tax purposes, they are subject to an excise tax of one to two percent on their annual net investment income. Because of the complexities involved in filing the annual returns and in complying with the Code's requirements, some of which have been outlined above, private foundations are strongly advised to engage the services of an accountant and an attorney who specialize in advising tax-exempt organizations.

For many donors, private foundations offer an appropriate vehicle for promoting philanthropic interests, one that affords control while providing a means to establish a family legacy and a tradition of giving.


1. A public charity is another type of charitable organization described under Section 501(c)(3) of the Code. Broadly speaking, the differences between the two types of organizations arise primarily from funding sources and activities. Public charities derive most of their support from the general public through solicitations, fees for services provided, and other fundraising endeavors and generally focus their activities on providing direct services or on conducting tax-exempt activities. Private foundations, on the other hand, are generally funded from a more limited number of sources such as an individual, a family, or a corporation, and tend to focus their activities on making grants to other charitable organizations such as public charities.

2. The Code provides that the deduction available for contributions to private foundations is generally less than the deduction available for contributions to public charities, so donors should consult with their accountant or financial advisor prior to making a contribution to a private foundation.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions