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U.S. Foundation Types

U.S. tax law effectively divides charities into two categories: public charities and private foundations. Although treated differently for some regulatory purposes, both public charities and private foundations are exempt from income tax under Section 501(c)(3) of the U.S. Tax Code. Both public charities and private foundations must be organized and operated for an exempt purpose. Exempt purposes include religious, charitable, scientific, testing for public safety, literary, education, fostering national or international amateur sports competition, or the prevention of cruelty to children or animals.

  1. What is a public charity
  2. What are the different types of public charities?
  3. What is a private foundation?
  4. What are the different types of private foundations?
  5. What is the difference between a private foundation and a public charity?

a. What is a public charity?

Neither the Internal Revenue Code nor the accompanying regulations use the term "public charity," but in practice the term refers to organizations that are described in Section 501(c)(3) and that fall in one of five categories:

  1. a house of worship, school or college, hospital or medical research organization, or other enterprise that Congress has determined to be eligible for non-private foundation treatment due to the nature of its activities;
  2. an organization whose base of support is diverse enough to satisfy one of two alternative mathematical tests of public support;
  3. an organization that receives a substantial portion of its revenue from dues, admissions, sales, fees for services or other gross receipts related to the organization’s exempt purpose;
  4. an organization that is not publicly supported but is controlled and closely associated with another public charity; or
  5. an organization that operates exclusively for testing for public safety.[1]

b. What are the different types of public charities?

Public charities include grantmaking organizations that meet the public support test, community foundations and intermediary/partner organizations.

Publicly-supported grantmaking organizations receive financial support from a sufficiently broad base of donors to satisfy one of two mathematical support tests which measure public support as a fraction of total support.

Community foundations are publicly-supported grantmaking organizations that meet additional criteria. As defined by the Council on Foundations’ Community Foundations Leadership Team, a community foundation is a tax-exempt nonprofit, autonomous, publicly supported, non-sectarian philanthropic institution with a long-term goal of building permanent, named component funds established by many separate donors for the broad-based charitable benefit of the residents of a defined geographic area, typically no larger than a state.”[2]

Intermediary/partner grantmaking organizations are usually non-endowed non-profit organizations that receive individual donor, corporate and/or foundation support in order to re-grant funds to other nonprofit organizations.[3]

Their services vary by organization but may include:

  • Setting up a donor-advised fund
  • Identifying an appropriate grantee organization
  • Performing due diligence on the prospective grantee
  • Transferring the funds
  • Complying with legal requirements both in the home country and in the grantee’s country
  • Monitoring the grant
  • Obtaining grant report

A donor-advised fund is not a separate public charity but is, instead, owned, controlled, and administered by a public charity, subject to an agreement under which the donor (or an advisor designated by the donor) has the right to make recommendations with respect to the distributions and/or investments. Community foundations and some intermediary organizations offer donor-advised funds as a giving option for their donors.


c. What is a private foundation?

Under Section 509 of the tax code, a Section 501(c)(3) organization is automatically classified as a private foundation unless it satisfies one of the definitions of public charities discussed above and found in Section 509(a)(1), Section 509(a)(2), Section 509(a)(3), and Section 509(a)(4) of the tax code.[4] Private foundations generally have endowments from a single source, often a family or corporation; hence they tend not to actively raise funds or seek public financial support.


d. What are the different types of private foundations?

Private non-operating foundations are the most common type of private foundation. The bulk of their expenditures are in the form of grants to other organizations. They do not operate their own charitable programs to any substantial extent.[5]

Private operating foundations are private foundations that use the bulk of their resources to run charitable programs of their own. They make few, if any, grants to outside organizations and generally do not raise funds from the public.

Private foundations include family, independent and corporate foundations.

Family foundations, as defined by the Council on Foundations, are private foundations in which the donor or the donor's relatives play a significant governing role.

Independent foundations are private foundations that make grants from their endowments and have independent boards that are not controlled by a donor, the donor’s family or a corporation.

Corporate foundations are private foundations that derive their grantmaking funds primarily from the contributions of a profit-making business. The company-sponsored foundation often maintains close ties with the donor company, but it is a separate, legal organization, sometimes with its own endowment, and is subject to the same rules and regulations as other private foundations.


e. What is the difference between a private foundation and a public charity?


  • Both public charities and private foundations are exempt from federal income tax under Section 501(c)(3) and must comply with its requirements and prohibitions.


  • A public charity is typically supported by a broad cross-section of the public, while a private foundation is generally funded by a single source such as a family, individual, corporation, or endowment income.
  • Private foundations that wish to make cross-border grants are subject to an additional set of rules, not applicable to public charities.



[1] Betsy Buchalter Adler. Rules of the Road: A Guide to the Law of Charities in the United States (Council on Foundations: 1999)

[2] Council on Foundations Community Foundations Leadership Team, “National Standards for U.S. Community Foundations,” June, 2000

Definition compiled by Grantmakers Without Borders, 2005.

[3] John A. Edie and Jane C. Nober. Beyond Our Borders: A Guide to Making Grants Outside the United States (Council on Foundations: 2002) p. 4.

[4] John A. Edie. Expenditure Responsibility Step by Step (Council on Foundations: 2002)


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