Private Foundations vs. Public Charities

Q1: What is the difference between a private foundation and a public charity?

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This is part of "What Every Grantmaker Should Know & Frequently Asked Legal Questions."

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All organizations that are described in Section 501(c)(3) of the Internal Revenue Code are either private foundations or public charities. The Internal Revenue Service classifies an organization described in Section 501(c)(3) of the Code as a private foundation unless the organization can demonstrate that it qualifies as a public charity. Because there are different rules that apply to public charities and private foundations, it is important to be able to identify whether an organization is a public charity or a private foundation.

Unlike private foundations, which normally receive substantially all of their contributions from relatively few sources and often rely on investment earnings as their source of ongoing support, a public charity is either "publicly supported" (i.e. derives a substantial portion of its financial support from the public) or functions to "support" one or more organizations that are public charities. Specifically, an organization may qualify as a "publicly supported" organization because it does one of the following:

  • Carries on specific activities identified by statute (e.g. activities carried on by churches, educational organizations, colleges and universities, hospitals and medical research organizations and governmental units).
  • Is supported substantially by financial support from government agencies and the general public.
  • Is supported substantially by certain permitted contributions and gross receipts from its exempt activities and does not receive more than one-third of its support from investment income.
  • Is organized and at all times thereafter operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified publicly supported organizations. Organizations described in this paragraph are called "supporting organizations" and are classified as a Type I, Type II, Type III functionally integrated or Type III non-functionally integrated supporting organization.

Because the private funding and private control of a private foundation increase the likelihood that the foundation will improperly benefit those who control the foundation, the Code subjects a private foundation to certain requirements and restrictions that are not applicable to public charities. For example, private foundations are subject to a 2-percent tax on net investment income that can be reduced to 1 percent if the private foundation makes sufficient qualifying distributions for charitable purposes. In addition, private foundations are subject to excise taxes for failing to take certain required actions or for taking certain prohibited actions; under Minnesota law, they are prohibited from engaging in conduct that would result in excise taxes being imposed.

Most notably, private foundations are required to make annual distributions equal to 5 percent of the aggregate fair market value of all investment assets of the organization (see 5% Payout Rule) and are prohibited from the following:

Finally, the deductibility for federal income tax purposes of contributions to a private foundation is subject to certain limitations that do not apply to contributions to public charities. For example, the amount of contributions to private foundations that may be deducted for any year generally may not exceed 30 percent of an individual's adjusted gross income for the year. There also are special limitations with respect to the amount of deduction that may be claimed in connection with the contribution of appreciated property to the foundation.

Q2: How do I know if a foundation is a public charity or a private foundation?

The Internal Revenue Service indicates whether an organization is a public charity or a private foundation in the organization's determination letter. The organization is required to provide you with a copy of its determination letter upon request.

In lieu of reviewing an organization's determination letter, you can determine whether an organization views itself as a public charity or a private foundation based on its annual information return filed with the IRS. All private foundations are required to file a Form 990-PF, while a public charity files a Form 990 or Form 990-EZ (assuming it has significant enough revenues to trigger the filing requirement). If an organization files a Form 990 or 990-PF, such forms are generally available at

Note: Often the links to such forms are labeled "Form 990" even if an organization files a Form 990-PF, so make sure to follow the link and view an organization's tax forms in order to verify whether an organization is a public charity or private foundation.

Q3: How does a private foundation determine whether a grantee is a supporting organization?

It is sometimes important to determine not only whether an organization is a public charity, but also what kind of public charity it is. Specifically, the law distinguishes among four types of supporting organizations (see Q1), and provides that private foundations must exercise expenditure responsibility over grants to certain types of supporting organizations (see Grantmaking Q1) and may not count such grants toward meeting the 5% minimum payout requirement (see 5% Payout Rule Q3).

The IRS Section 501(c)(3) determination letter for a supporting organization will indicate that the organization is classified under Section 509(a)(3) of the Internal Revenue Code of 1986. In contrast, other public charities are classified under Section 509(a)(1) or Section 509(a)(2) of the Code. If you do not have a copy of the determination letter, review the grantee's Form 990 on

Although you can determine whether a grantee is a supporting organization, it is more difficult to determine the organization's "type." Determination letters historically have not identified an organization's type, and organizations completing the Form 990 are not always sure which type they are, even though the annual information return now requires supporting organizations to identify their type on Schedule A, Part I, Line 11. To address this concern, the IRS has published special procedures for funders to determine a supporting organization's type. As of the date of this publication, these can be found in Notice 2006-109, available at