Public charity versus private foundation

[Andaxia Moonstar]

A review of the IRS Form 1023 brought up an important point. We will need to determine if we are a private foundation (specifically a private operating foundation) or a public charity. They have some different tax benefits, restrictions, and requirements. There is a section with a series of questions that help to determine this, and depending on the answers to those questions, there is an option to allow the IRS to determine which one we are. However, we should be prepared to call out the most appropriate one for us. I'm sure more info can be found, and I'll be doing more research on that end soon, but if anyone has some input on this, please chime in.

[Albert Dumblewort]

Good point. Keep us posted.

[Guest]

No strong concept of why one is preferable over another, let us know what you learn and we'll figure it out.

[Andaxia Moonstar]

Upon further reading, we are most likely a public charity, but we could fall under the private operating foundation umbrella too.

This is from the Form 1023 instructions:

Public Charities and Private Foundations

Every organization that qualifies for tax-exempt status under section 501(c)(3) is further classified as either a public charity or a private foundation. For some organizations, the primary distinction between a public charity and a private foundation is an organization's source of financial support.

A public charity has a broad base of support, while a private foundation receives its support from a small number of donors. This classification is important because different tax rules apply to the operations of each entity. Deductibility of contributions to a private foundation is more limited than contributions to a public charity. In addition, private foundations are subject to excise taxes that aren’t imposed on public charities.

Public charities. The following 501(c)(3) organizations are classified as public charities.

Churches.

Schools.

Hospitals, medical research organizations, and cooperative hospital service organizations.

Organizations that receive substantial support from grants, governmental units, and/or contributions from the general public.

Organizations that normally receive more than one-third of their support from contributions, membership fees, and gross receipts from activities related to their exempt functions, and not more than one-third of their support from gross investment income and net unrelated business income.

Organizations that support other public charities.

If an organization requests public charity classification based on receiving substantial public support, it must continue to seek significant and diversified public support contributions in later years.

Private foundation. A 501(c)(3) organization that can’t meet one of the specific exceptions to be classified as a public charity is a private foundation.
Classification as a private foundation has nothing to do with the name of the organization. There are many organizations that include the word foundation in their names that aren’t private foundations for tax purposes.

Private operating foundations. A private foundation that lacks general public support but actively conducts exempt programs (as opposed to making grants to other organizations to conduct exempt activities) may be treated as a private operating foundation. Private operating foundations are subject to more favorable rules than other private foundations in terms of charitable contribution deductions and attracting grants from private foundations. In order to be classified as a private operating foundation, an organization must meet certain support tests. See support test at IRS.gov/ PrivateOperatingFoundationSupportTests.

[Guest]

Sounds like we are a public charity. We're not seeking individual donors with deep pockets.

[Andaxia Moonstar]

We are definitely not a general private foundation. There is a possibility we could be a private OPERATING foundation though, since we will be conducting programs and not making grants or financial contributions directly to others. We will be getting public support, but it is in order to host our events. I agree we most likely are a public charity, but we'll need to be sure which we are and be able to defend that choice when we do the 1023. I'll do some more digging this weekend.

[Guest]

Sounds good, thanks!

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