Giving
private foundation
A private foundation is a charitable organization, often funded and controlled by one family. It must file a yearly return, pays an excise tax on most investment income, and follows added IRS rules.
A private foundation is a 501(c)(3) charity that does not qualify as a public charity. Families often form one to control how their giving is invested and granted. The IRS says every 501(c)(3) organization is a private foundation unless it falls into an excluded category, such as a hospital or university, or one with broad public support.
The rules are heavier than for a donor-advised fund. A private foundation must file Form 990-PF every year, and the IRS says there is an excise tax on the net investment income of most domestic private foundations. There are also limits on self-dealing and rules that require the foundation to give for charitable purposes each year.
For example: a family funds a foundation with $2 million. A family member sits on the board and picks grants. The foundation files its return, keeps its own records and follows the self-dealing rules. If a family member takes a salary or loan from it, that can trigger penalties.
Why it matters: you get control, and you also take on cost and compliance. Many families first compare it with a donor-advised fund.
Read our comparison of a donor-advised fund and a private foundation.
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