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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 a donor-advised fund: 

 

STARTING A DONOR-ADVISED FUND AT ACF 

GIVING DIRECTLY TO CHARITY 

STARTING A PRIVATE FOUNDATION

Set-up time  As little as 1 day  Immediate 6-9 months 
Start-up costs (e.g. legal and accounting fees) None  None Varies and sometimes costly
Initial gift minimum recommended $5,000  None $5-10 million
Separate tax return No No Yes
Record keeping / accounting No  No Yes
5% minimum payout No  No Yes
Excise tax on investments No  No Yes - up to 2%
Governance and oversight  ACF board of directors Charity's board Private foundation board
Administrative support ACF professional staff  Charity's staff  Non, must hire private foundation staff
Grant-making strategy assistance; information on community issues Yes, if donor desires  No None, must hire private foundation staff
Confidentiality Yes, donor can choose anonymity both in fund name and grant-making  No No
Donor control of distributions ACF carries out donor's wishes and grant recommendations, subject to ACF board approval Donor can request restrictions on gift, but charity has final say Subject to private foundation's board
Ability to give to multiple nonprofits and causes Yes No Yes

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.