Organizations that promote the public good or serve a public purpose may be classified as Nonprofit Organizations. This means that the organization may earn income and receive donations without paying income taxes on the money coming in. The organization must use the funds it receives to fulfill its goals. Most Charitable or Nonprofit Organizations rely on grants as well as on donations from benefactors. 
However, a Private Foundation is a different type of charitable organization. Instead of receiving ongoing or periodic donations, a Private Foundation is generally created by a single primary donation that comes from an individual, family or company. The person or entity that makes the initial donation for the Private Foundation will manage and control the money, often along with Trustees or a Board of Directors.
Private Foundations have specific tax obligations and full compliance with tax laws is essential . An experienced Scottsdale Arizona nonprofit corporate law attorney can provide assistance to those interested in starting a Private Foundation or to individuals involved with this type of organization. Call Lotzar Law Firm, P.C. today to learn more and to schedule a consultation with an attorney who can help.
What is a Private Foundation?
A Private Foundation is established in order to serve a charitable purpose or provide a public benefit. The foundation is started by, and receives initial funding, from a person, family or company. Instead of soliciting ongoing to periodic donations, or applying for grants, the foundation generates income from the investment of the initial donation. The bulk of this investment income is then used to fulfill the organizational purpose of the foundation. The Bill and Melinda Gates Foundation is an example of a Private Foundation, and it is controlled by the Gates’ family.
According to the Internal Revenue Service, Private Foundations are required to file Form 990-PF, Return of Private Foundation each year. An excise tax is typically charged on the net investment income made by domestic Private Foundations. Some foreign Private Foundations are taxed on gross investment income that is derived from sources within the United States. Some Private Foundations are also required to fulfill public disclosure requirements.
Private Foundations can make it possible for wealthy benefactors to contribute funds to causes they believe in and to have more direct control over where the income from those funds is distributed. However, there are restrictions on Private Foundations that limit self-dealing between contributors and the foundation, as well as that limit the amount of holdings in private businesses. Investments made by the Private Foundation cannot jeopardize the ability of the organization to carry out its charitable or exempt purposes, and a significant portion of investment income must actually be distributed annually in service of the organization’s goals.
An experienced nonprofit corporate law attorney at Lotzar Law Firm, P.C. can assist with the creation and ongoing operation of a Private Foundation to ensure that all legal requirements are fulfilled. To get started so your foundation can begin working towards achieving its important mission, call today to schedule your consultation.
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