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 IRS presumes that a 501(c)(3) is a private foundation unless it shows that it meets one of the exceptions. 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 – those that receive at least one-third of their support from the general public and government, or that meet a facts-and-circumstances test that starts at ten percent.
• 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 non-operating private foundation must distribute roughly five percent of the average value of its investment assets each year for charitable purposes, or it faces excise taxes on the shortfall.
• Excise tax. A private foundation pays an excise tax on net investment income, currently at a flat rate of 1.39 percent. Public charities do not.
• Self-dealing and holdings. Private foundations are subject to restrictions on transactions with insiders and on holding large stakes in businesses. Public charities have lighter rules.
• Deductions. Cash gifts to a public charity can be deducted up to 60 percent of adjusted gross income; the limit for most gifts to a private foundation is lower, and the deduction for gifts of appreciated property can be limited 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. Every private foundation files Form 990-PF, whatever its size.

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 158, 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.

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.