Public charity vs private foundation

Most organizations recognized under section 501(c)(3) fall into one of two categories: public charities and private foundations. The tax code defines a private foundation as any 501(c)(3) organization except those described in section 509(a)(1), (2), (3) or (4), which are the public charities. The category affects the rules the organization follows, the tax on its investment income, the form it files, and how donors' gifts are deducted. It also changes what the numbers on this site represent.

What makes a public charity

A public charity draws its support from the general public, a government, or a group of donors, or it performs a function that the tax code treats as inherently public. Section 509(a) lists the routes. The main ones are:

• Inherently public organizations – churches, schools, hospitals and medical research organizations, and governmental units. Their activity puts them in the category.
• Publicly supported organizations – under the test in Schedule A, Part II, at least one-third of total support comes from governmental units, the general public and other public charities, or at least 10 percent does and the facts and circumstances show that the organization is publicly supported. Part III of Schedule A has a separate test for organizations described in section 509(a)(2).
• Supporting organizations – organizations that exist to support one or more public charities and are controlled or operated in connection with them.

Schedule A of Form 990 is where an organization reports which category applies and shows the support calculation. The IRS classification code, in the Business Master File, records the result. On the pages here, the header shows "Public charity" or "Private foundation" accordingly.

What makes a private foundation

A private foundation gets most of its funds from a small number of sources, often a single family or a corporation, and its income mostly comes from investments. Foundations either give grants to other organizations, run their own charitable programs, or do both. A private operating foundation spends most of its income on its own programs and follows somewhat different rules from a grantmaking foundation. This site marks a foundation by the IRS foundation code, and the Publication 78 deductibility code separates operating foundations (POF) from others (PF).

Rules that differ

• Payout. A private foundation must distribute its distributable amount each year as qualifying distributions. The starting point is the minimum investment return, 5 percent of the fair market value of assets not used for exempt purposes, less related debt, with certain adjustments. A foundation that misses the payout owes a 30 percent excise tax on the undistributed income, and an additional 100 percent tax if it does not correct the shortfall within 90 days of the IRS notice.
• Excise tax. Most domestic private foundations pay an excise tax of 1.39 percent of net investment income for tax years beginning after December 20, 2019. An exempt operating foundation does not. Public charities are not subject to this tax.
• Self-dealing and holdings. Private foundations are subject to excise taxes on self-dealing with substantial contributors and other disqualified persons, on certain business holdings, on investments that jeopardize their charitable purpose and on certain expenditures. Public charities do not face these provisions.
• Deductions. For an individual who itemizes, the IRS lists the limit for cash gifts to a public charity, a private operating foundation or a supporting organization as 60 percent of adjusted gross income. Gifts to most private foundations, which the IRS calls private nonoperating foundations, fall under a 30 percent limit, and for some property gifts to them the deduction is reduced to the donor's cost basis. A tax adviser can confirm the limit that applies to a particular gift.
• The return. Public charities file Form 990 or 990-EZ, or the 990-N e-Postcard if their receipts are normally $50,000 or less. Every private foundation files Form 990-PF, regardless of financial status.

How this shows up in the data

The financial statements of the two groups measure different things, and the pages here adapt to that:

• A public charity reports revenue from contributions, program services and investments, and its expenses divide into program, management and fundraising. Ratios such as the program expense ratio are meaningful.
• A private foundation reports investment income, gains and contributions received, and expenses that include grants paid. The IRS extract for Form 990-PF gives total receipts and total expenses on the books, net assets, and the contributions, gifts and grants paid. The pages for foundations show the grants paid by year; the functional expense split does not apply.

A foundation's revenue can swing with the markets because realized gains and dividends count as receipts. A year of lower "revenue" on a foundation page can reflect portfolio results and not a change in giving; the grants paid line is the better guide to activity. Foundations here are ranked by grants paid: the largest grantmakers page lists the top 500, led by Gates Foundation Trust, with organization-level totals only. Individual grant recipients are not published on this site.

How to tell which one you are looking at

1. Check the classification chip in the page header.
2. Look at the deductibility statement, which comes from Publication 78: PC for public charities, PF or POF for foundations.
3. In the IRS Tax Exempt Organization Search, the foundation classification appears on the record and Form 990-PF appears among the filings for foundations.

Some organizations change category. A foundation can be reclassified as a public charity once its public support grows, and the reverse can happen when a large gift skews the support test. The data on this site use the classification in the Business Master File downloaded on the date shown in the source box on each page.

A donor-advised fund is a separately identified account maintained by a sponsoring 501(c)(3) organization. Once the donor contributes, the sponsor has legal control over the money, and the donor keeps advisory privileges over distributions and investments. Gifts to the sponsor are gifts to a charity; this site shows the sponsor, not the individual accounts.

This guide is general information about IRS rules and is not tax or legal advice. Rates and limits are set by law and can change; check current IRS publications for a specific decision.