Public Charity vs. Private Foundation
May 28, 2015Greg McRay, EAEducation, Featured, Managing a Nonprofit, Private Foundation, Starting a nonprofit
https:// www.501c3.org/public-charity-vs-private-foundation/
When starting a 501(c)(3) organization, there are generally two choices of how the organization will be classified. It can be a public charity or a private foundation. Though greatly outnumbered by public charities, private foundations bring a lot to the table. Many people have a layman’s understanding of the difference between public charities and private foundations: Public charities are understood to perform charitable work, while private foundations support the work of public charities. That grassroots definition is, in practice, mostly true. The specifics, however, are slightly more complicated. Let’s take a closer look at the differences, and similarities, between these classifications:
Public charities. Public charities represent the largest share of active, 501(c)(3) organizations. Those starting a new organization usually prefer public charity status, not just because it better describes the organization’s purpose. Public charities also enjoy some advantages over private foundations: higher donor tax-deductible giving limits and the ability to attract support from other public charities and private foundations. Also, public charities have 3 possible tax filing requirements, depending upon annual revenue (listed in order of complexity): Form 990 ($200,000), Form 990-EZ ($50,000 – $200,000), and Form 990-N e-postcard (<$50,000). All private foundations, regardless of revenue, must file Form 990-PF each year. It is a lengthy and complex return much like Form 990 for public charities. It should also be pointed out that an applicant for 501(c)(3) status must prove why it should be considered a public charity, lest they be considered a private foundation by default.