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What's the Difference Between a Public Charity and Private Foundation?

Every nonprofit organization that qualifies for a tax exemption under Internal Revenue Code Section 501(c)(4) is a private foundation, unless it falls into an excluded category. According to I.R.C. Section 509(a), the following organizations are considered "public charities":

  • Organizations eligible for the 50 percent deduction limitation on charitable contributions, including:
    • A church;
    • An educational organization;
    • An organization operated for the benefit of certain state and municipal colleges and universities;
    • A hospital and medical research organization operated in conjunction with a hospital;
    • A governmental unit; and
    • A 501(c)(3) organization that ordinarily receives a substantial art of its support from a governmental unit or from direct or indirect contributions from the general public.
  • Organizations that receive broad public support in the amounts required by I.R.C. § 509(a)(2);
  • Organizations that actively function in a supporting relationship to, and are operated, supervised, or controlled by or in connection with one or more of the organizations described in the two preceding paragraphs;
  • Organizations that are organized and operated exclusively for testing for public safety.

One of the primary differences between public charities and private foundations is the level of public involvement in their activities. For example, public charities generally receive a significant portion of their support from the general public, whereas private foundations are generally controlled by members of a certain family or a small group of individuals (like a corporation).

Of course, there are potentially significant tax implications in the decision between a public charity and a private foundation. If you're considering forming a nonprofit organization (public charity or private foundation), you should see a nonprofit attorney and CPA to carefully plan for the future.

Ariel Bedell is a Shareholder at The Loftin Firm. For questions relating to any other California real estate, corporate governance, land use, or estate planning matter, contact Ms. Bedell at (760) 814-9649. 

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The Loftin Firm, P.C.
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