Private foundation (United States)

Until 1969, the term private foundation was not defined in the United States Internal Revenue Code. Since then, every U.S. charity that qualifies under Section 501(c)(3) of the Internal Revenue Service Code as tax-exempt is a "private foundation" unless it demonstrates to the IRS that it falls into another category. Private foundations in the United States are generally subject to a 1% or 2% excise tax on net investment income. According to the Foundation Center, a private foundation is a nongovernmental, nonprofit organization, which has a principal fund managed by its own trustees or directors. Hopkins (2013) listed four characteristics that make up a private foundation:

The Tax Reform Act of 1969 created the private foundation as we know of it today where the tax code imposed the present day legal framework. These restrictions came about as a reform effort to remedy perceived abuses of private foundations such as the claim that this type of charitable organization more likely served the private interests of the rich rather than the intended charitable purpose. Such criticism asserted that private individuals created private foundations as a vehicle to protect their assets from taxation; meanwhile the descendants may assert control over these assets almost in perpetuity. This is the context from which the present day legal framework arose.

In 2007 The Wall Street Journal reported that wealthy families are both increasing the number of foundations they close as well as increasing the number they establish. One trend is to put a time limit on the life of a foundation, under the assumption that heavy spending over a short period of time will do more good than slower spending over the long term. Some foundations are closed due to family disputes, concern about the effect of foundation wealth on descendants, and concern that future generations will not share the political beliefs that spurred the original establishment of the foundation. Sometimes one is closed, only to be reopened with a new purpose.

A private foundation is a nonprofit organization having a principal fund managed by its own directors or trustees. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations. However, some scholars, such as, Silk and Lintott (2002) argue that even though private foundations offer a number of tax benefits, taxes are not a sufficient reason to create a private foundation. Given some charitable intent on the part of the founder, there are several substantial financial and personal benefits to creating a foundation. Using the Rockefeller Foundation and the Gates Foundation as example, Eckl (2014) discusses the fact that private foundations have the power to shape global social and health policy. He argues that adding monetary resources and supplementary goodwill to existing global efforts is not the only goal of private foundations, rather it is still likely that they pursue a partisan agenda. A private foundation is typically set up as a non-profit corporation that bears the name of its donors, but may alternatively be established as a trust. Donors specify the charitable purpose of the foundation (example: grants for cancer research, scholarships for the needy, support of religious goals) . During their lifetime, they may continue their charitable giving by making tax deductible contributions to the foundation. The foundation may also be funded with a bequest from the donors' will or trust or receive funds as the primary or secondary beneficiary of a qualified plan or IRA.The IRS reports that there were 115,340 private foundations in the U.S. in 2008, of which 110,099 were grantmaking (non-operating) and 5,241 were operating foundations. Approximately 75% of the private foundations file annually with the IRS.

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