What is a Private Foundation?

Question: What is a Private Foundation?

Answer: Organizations described in IRC Section 501(c)(3) fall into two categories: private foundations and public charities. Under Section 509, all organizations, domestic or foreign, described in Section 501(c)(3) are by default private foundations unless otherwise excepted.

Private foundations must:

(1) Refrain from acts of self-dealing.
(2) Meet minimum distribution requirements (5% of the distributable amount, which is based on the fair market value of the noncharitable use assets).
(3) Abstain from excess business withholdings.
(4) Abstain from jeopardizing investments.
(5) Refrain from making certain types of expenditures, such as those paid or incurred to lobby, electioneer, make grants to individuals that do not satisfy certain criteria, or make grants to non-public charities or operating foundations without exercising expenditure responsibility.

Private foundations are also subject to 2% tax on their net investment income.