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

All organizations that are described in Section 501(c)(3) of the Internal Revenue Code are either public charities and private foundations.  The Internal Revenue Service classifies an organization as a private foundation, unless the organization can demonstrate that it qualifies as a public charity.  Because there are different rules that apply to public charities and private foundations, it is important to be able to identify whether an organization is a public charity or a private foundation.

Private foundations – normally receive substantially all of their contributions from relatively few sources and often rely on investment earnings as their source of ongoing support.

Public charity – they are publicly supported” (i.e. derive a substantial portion of its financial support from the public) or functions to “support” one or more organizations that are public charities.  Specifically, an organization may qualify as a “publicly supported” organization because it does one of the following:

*  Caries on specific activities identified by statute (e.g. activities carried on by churches, educational organizations, colleges and universities, hospitals and medical research organizations and governmental units).

*  Is supported substantially by financial support from government agencies and the general public.

*  Is supported substantially by gross receipts from its exempt activities, and does not receive more than one-third of its support from investment income.

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Karmen A. Booker is an Attorney, Business Consultant and Owner of Compu-Perfect Professional Services, a business consulting firm specializing in Business Entity Formation (Corporations, Limited Liability Companies, and Nonprofit Corporations), Completing 501(c)(3) Federal Tax Exemption Applications, Grant Research and Writing services, and more.

She is also the author of the “Nonprofit Handbook”, that provides strategies and tips for your Nonprofit 501(c)(3) Organization.  This Handbook is a valuable resource for all Nonprofit Organizations who desire to use effective tools that will undoubtedly yield quality services for their target markets.  Click  her to GET YOUR COPY TODAY!!

Nonprofit Handbook Cover

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