Community Foundation or Private Foundation

You want to make an impact, but you are not sure whether starting your own foundation is out of reach or too complicated.  The following table provides comparisons between community and private foundations to help you determine the best course for you.

Community Foundations

Private/Family Foundations

Establishing A Fund

A Community Foundation fund can
be established quickly and efficiently
with a simple document. Administrative
fees are 2% of the fund’s annual market value.
Establishing a new foundation requires extensive legal, accounting and operational expenses on an on-going basis.

Tax Treatment of Cash Gifts

Tax deduction of up to 50% of Adjusted Gross Income (AGI). Tax deduction of up to 30% of Adjusted Gross Income (AGI).

Tax Treatment of Appreciated Publicly Traded Securities

Tax deduction of 100% of fair market
value up to 30% of AGI.
Tax deduction limited to fair market value up to 20% of AGI.

Tax Treatment of Appreciated Closely Held Stock

Tax deduction of 100% of fair market
value up to 30% of AGI.
Tax deduction limited to cost basis up to 20% of AGI.

Tax Treatment of    Real Estate Gifts

Tax deduction of 100% of fair market
value up to 30% of AGI.
Tax deduction limited to cost basis up to 20% of AGI.

Tax Exempt Status and Required Payout

A Community Foundation is a 501(c)(3) public charity and is fully tax exempt. Private foundations are subject to excise taxes and 5% payout requirements.

Annual Tax Returns

Individual funds are not required to file.
A Community Foundation prepares
and files all tax reports to the IRS and
obtains an annual independent audit.
Must file annual Federal 990-PF and supporting schedules, which indicate staff salaries, investment performance, fees, etc. Trustees must perform, contract or hire staff for these services.

Investments

A diversified portfolio and economies of
scale offer greater cost-efficiencies and
minimize risks.  A Community
Foundation works with professional
money managers. A Community Foundation’s Investment Committee
provides experienced oversight.
Selection of investment strategies and professional fund advisors can become a very time consuming responsibility for a private foundation’s Board of Trustees.

Expertise

A Community Foundation provides
expertise to donors on a wide range of
gift management, finance and
fund administration issues.
Must hire staff or Board members carry out administrative tasks on their own.

Grant Administration

Full-time professional staff are available
to assist donors with grant
administration, research and program
evaluation to ensure maximum
community impact.
Requires extensive time to review proposals, investigate community needs, confirm status of grantees and evaluate previous distributions.

Accountability

A Community Foundation obtains an independent audit each year.
Publication of an annual report, public
disclosure of grants and thoughtful
selection of Board members ensures
funds are used in the communities’
best interests.
Laws and regulations governing private foundations differ greatly from those of public charities and may require expensive specialized legal and finance expertise.

Flexibility

As a public charity, a Community
Foundation’s organizational structure is
purposely designed to allow greater
flexibility to respond to and meet
emerging needs in the community.
Expensive and lengthy legal proceedings may be required to change the purposes of a private foundation.

Privacy

Individual donors or grants can be kept
private.  If the donor wishes, the
Community Foundation can serve as a
buffer between the donor and
grantseekers.
Required to file tax returns on donations,  grants, investment fees, staff salaries, etc.  These are public records and are compiled into grantseeker directories.

 

Resource: Council on Foundations Listserve

NOTE: Policies and laws governing charitable gifts are subject to change. Examine carefully the policies that apply when you create a fund or foundation. The Community Foundation is not in the business of rendering legal, accounting or financial advice. Always discuss your plans with your attorney, accountant or financial advisor.