Charitable Giving Vehicle:

Community Foundation

Private Foundation

IRS charitable status

501(c)(3) & 509(a)(1)
(public charity)

501(c)(3)
(private foundation)

Governing body

1. Advisory Committee

·        Advisor may be establisher or may be committee of family members and/or others.

·        Successive generations may participate in future.

2. Community Foundation must have final approval for all grants and administrative matters.

Governing body may consist of donor and related persons.

Tax treatment of cash gifts

Deductible up to 50 percent of adjusted gross income (AGI).

Deductible up to 30 percent of AGI.

Tax treatment of gifts of appreciated publicly-traded securities

Full market value deductible up to 30 percent of AGI.

Full market value deductible up to 20 percent of AGI.

Tax treatment of closely held stock or real estate

Full market value deductible up to 30 percent of AGI or cost basis up to 50 percent of AGI.

Deduction limited to donor's cost basis, up to 20 percent of AGI.

Deduction carry-over available

Five additional years

Five additional years

Ease of establishment, incorporation and tax exemption

·        One signed document
(Instrument of Transfer)

·        Automatically covered by the Community Foundation's tax exempt status

·        Corporation or trust required

·        Must apply to IRS for tax-exempt status using Form 1023. (IRS may take six months or longer to process)

Excise tax on investment income and net realized capital gains

None

Generally 2 percent; may be reduced to 1 percent under special circumstances.

Self dealing rules

Not applicable

Strict prohibition under IRC Section 4941.

Investment options:

1. Hold closely-held stock (i.e., own a business participation in community)

Yes (can own controlling business assets)

No (may hold limited shares in a manner that does not violate the excess business holdings or jeopardy investment restrictions under IRC Sections 4943 and 4944)

2. Foundation investment portfolios

Yes

No

3. Other investment opportunities

Yes (within approved investment guidelines and periodic investment performance reviews)

Yes (except jeopardy investment rules under IRC Section 4944)

Minimum payout requirements

None (can accumulate toward a sizable project or grant with no required payout)
A Community Foundation fund has the flexibility to hold low yield property.

Yes (minimum 5% of average asset value each year under IRC Section 4942)
A private foundation must meet the minimum distribution rules whether or not the foundation's investments earn that amount.

Restriction on private investment

Yes

Yes (in addition, you cannot engage in acts that may violate strict self dealing rules that apply only to private foundations)

Restriction on holding interests in business enterprises

No

Yes

Application of expenditure responsibility procedures for grants to organizations and programs that are not public charities

No

Yes (under IRC Section 4945 - taxable expenditure retax for failure to make "expenditure responsibility" investigations)

Possibility of advisory role for donor and family in grantmaking

Yes

Yes

Separate annual IRS tax return required

No

Yes

Privacy

Individual donors' fund assets size, gifts and grant making are kept private and confidential. No public disclosure of individual grants or donations is required. Donors are generally recognized for grants disbursed, but grants may be made anonymously. If a donor wishes, the Community Foundation can serve as the buffer between donors and grant seekers.

Yes (IRS Form 990-PF which is open to public inspection)
Private foundations are required to file detailed tax returns on grants issued, investment fees, trustee fees, staff salaries, asset size, etc. and then publish a notice to the public that the tax return is available for public viewing. These are public records and are often compiled into grant-seeker directories.

Opportunity to hire staff

No

Yes

Investment, accounting, audit and tax returns

The Foundation handles all investments and accounting, files annual tax return and provides annual independent audit.

Trustees must perform, contract or hire staff for these services.

General administration

Community Foundation handles all financial and administrative management.

Trustees must perform, contract or hire staff for these services.

Grant administration

If donor wishes, the Community Foundation can identify potential recipients, investigate applicants, make grant payments and monitor performance.

Trustees must perform, contract or hire staff for these services.

Liability and insurance

Advisors to funds are covered by Community Foundation's liability and office insurance policies. Fundraising events and other activities will require insurance.

Any Directors and Officers liability insurance, employee bonding, and office insurance must be separately purchased.