Key Term

What is Private Foundation?

Definition

A private foundation is a type of charitable organization that typically derives its funding from a single source, such as an individual, family, or corporation, rather than from public donations. It is established as a nonprofit entity that manages its own funds and makes grants to other charitable organizations or individuals to support various causes. Private foundations must meet specific IRS requirements, including distributing at least 5% of their assets annually and paying an excise tax on investment income.

Significance

Private foundations play a crucial role in the philanthropic landscape by providing substantial, focused funding for charitable causes while offering significant tax benefits and control to their founders. They allow wealthy donors to create lasting charitable legacies, maintain family involvement in giving across generations, and strategically direct resources to specific causes or geographic areas. Unlike public charities, private foundations provide donors with greater control over their charitable assets and grant-making decisions, though they must operate under stricter regulations and face higher scrutiny to prevent self-dealing and ensure charitable purpose.