What is the difference between a Private Foundation and a Public Charity?

What is the difference between a Private Foundation and a Public Charity?

What is the difference between a private foundation and a public charity?

Private foundations and public charities are distinguished primarily by the level of public involvement in their activities. Per the IRS, Public charities generally receive a greater portion of their financial support from the general public or governmental units, and have greater interaction with the public. Most 501(C)(3)s are Public Charities.  A private foundation, on the other hand, is typically controlled by members of a family or by a small group of individuals, and derives much of its support from a small number of sources and from investment income. Because they are less open to public scrutiny, private foundations are subject to various operating restrictions and to excise taxes for failure to comply with those restrictions.

Definitions

Public Charity: This is the most common type. It conducts actual operations in pursuit of its mission. It typically collects donations from the public, or applies for grants or sponsorships.

Two Types of Private Foundations

Private Foundation: A private foundation doesn’t conduct its own operations. Instead, it gives money to other organizations so that they can do the work. Private foundations are often funded privately, typically by a business, family, or individual. Most Grantors who make grant donations are generally operating as Private Foundations.

Private Operating Foundation: This is a private foundation that conducts its own operations, like a public charity. However, it is still financed privately.

Under the tax law, a section 501(c)(3) organization is presumed to be a private foundation unless it requests, and qualifies for, a ruling or determination as a public charity.  Organizations that qualify for public charity status include churches, schools, hospitals, medical research organizations, publicly-supported organizations (i.e., organizations that receive a specified portion of their total support from public sources), and certain supporting organizations.

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