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Private Foundation or Community Foundation?

If your client is considering establishing a private foundation, check out the simpler, less expensive alternatives first. You’ll find Akron Community Foundation offers benefits that private foundations can’t offer, including a more favorable tax status and no minimum annual payout requirement. We minimize the paperwork and administrative hassles, allowing your client to focus on the joy of giving and involving family members for generations to come.

You can accomplish this with either a donor-advised fund or supporting organization:

Private Foundation Supporting Organization of ACF Donor-Advised Fund of ACF
Legal Identity Separate nonprofit corporation with donor’s choice of name Separate nonprofit corporation affiliated with ACF; donor’s choice of name Fund of ACF with donor’s choice of name
Tax Status Private Foundation Public Charity Public Charity
Minimum Size Generally, $1 million and up $2,000,000 $5,000
Taxation of Investment Income Up to 2% annually None None
Required Payout 5% annually None None
Deductibility of Cash Gifts Up to 30% of AGI Up to 50% of AGI Up to 50% of AGI
Deductibility of Long-Term Capital Gain Property Deductible at cost only, except for qualified appreciated securities, which are deductible at fair market value up to 20% AGI Deductible at fair market value up to 30% of AGI Deductible at fair market value up to 30% of AGI
Administration Donor responsible for all accounting and record keeping, including detailed IRS annual filing ACF responsible for all accounting, record keeping and IRS filing ACF responsible for all accounting and record keeping; no separate IRS filing required
Grant-making Expertise Donor must be knowledgeable or obtain professional advice ACF staff available to research donor interests, develop applications, advise donor, monitor grants ACF staff available to research donor interests, advise donor, monitor grants
Control Private foundation board has control of distributions and responsibility for asset management Supporting organization board has control of distributions and responsibility for asset management Donor advisor(s) recommend grants and investment pool for ACF Board approval
Upfront Costs Substantial organizational fees and expenses, plus local, state and federal filing fees of $700 Local, state and federal filing fees of $700 None
Annual Costs Legal and accounting fees, insurance, possibly staff and office expenses Administrative fee of 1.25% of assets (or less depending on asset size) Administrative fee of 1.25% of assets (or less depending on asset size)

Converting a private foundation

Person at a laptop.Section 507 of the Internal Revenue Code permits termination of a private foundation in either trust or corporate form and distribution of its assets to a public charity.

To terminate, a private foundation must meet two primary requirements: 

  • It must distribute all of its net assets to one or more tax-exempt organizations. 
  • Each organization must have been in existence for a continuous period of at least five years preceding the distribution. 

Akron Community Foundation qualifies under both of these requirements. And, as part of the community foundation, a private foundation's assets can continue with the organization’s original charitable purpose as a permanent named fund.

There is no excise tax, payout requirement or need for a separate audit as a fund of the community foundation.

We also provide services for private foundations

Many times, private foundations struggle at year’s end to make their 5 percent mandatory grant payout. You can help them meet the requirement in a single, immediate transaction through a grant from their foundation to establish a donor-advised fund at Akron Community Foundation. Then, the private foundation’s board can take time to deliberate on their grant-making decisions. A minimum of $5,000 establishes a donor-advised fund, and your client gains all the charitable benefits a public charity can offer.

For more information about our services for private foundations, contact Margaret Medzie, vice president of development and donor engagement, or Laura Fink, director of development.