Private foundation (United States)

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A private foundation is a charitable organization recognized by the US Tax Code at 26 U.S.C. § 509 and section 501(c)(3). It is defined by a negative definition, in other words, it is defined by what it is not. A private foundation formed in the United States is a charity, but it is not a public charity (a term of art defined by the 501(c)(3)) and is not a supporting organization. Private foundations in the US are generally subject to a 1% or 2% excise tax on net investment income.[1]


A private foundation is a nonprofit organization having a principal fund managed by its own directors or trustees. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.[2]

Most private foundations in the US are non-operating foundations, also called grantmaking foundations, which primarily provide support to public charities, individuals and to other organizations to further a charitable cause. Alternatively, operating foundations generally operate their own charitable programs. The IRS reports that there were 115,340 private foundations in the U.S. in 2008, of which 110,099 were grantmaking (non-operating) and 5,241 were operating foundations.[3] Approximately 75% of the private foundations file annually with the IRS.[4]

Some private foundations are informally called family foundations because their funds are derived from members of a single family. At least one family member serves as an officer or board member of the foundation, and as the donor. The family member plays a significant role in governing and/or managing the foundation throughout its life. Most family foundations are run by family members who serve as trustees or directors on a voluntary basis - receiving no compensation. [5] A private foundation is typically set up as a non-profit corporation that bears the name of its donors, but may alternatively be established as a trust. Donors specify the charitable purpose of the foundation (example: grants for cancer research, scholarships for the needy, support of religious goals). During their lifetime, they may continue their charitable giving by making tax deductible contributions to the foundation. The foundation may also be funded with a bequest from the donors' will or trust or receive funds as the primary or secondary beneficiary of a qualified plan or IRA.


The Tax Reform Act of 1969 created the private foundation as we know of it today where the tax code imposed the present day legal framework. These restrictions came about as a reform effort to remedy perceived abuses of private foundations such as the claim that this type of charitable organization more likely served the private interests of the rich rather than the intended charitable purpose. Such criticism asserted that private individuals created private foundations as a vehicle to protect their assets from taxation; meanwhile the descendants may assert control over these assets almost in perpetuity. This is the context from which the present day legal framework arose.

In 2007 The Wall Street Journal reported that wealthy families are both increasing the number of foundations they close as well as increasing the number they establish. One trend is to put a time limit on the life of a foundation, under the assumption that heavy spending over a short period of time will do more good than slower spending over the long term. Some foundations are closed due to family disputes, concern about the effect of foundation wealth on descendants, and concern that future generations will not share the political beliefs that spurred the original establishment of the foundation. Sometimes one is closed, only to be reopened with a new purpose.[6]

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