News & Events

Public Charity or Private Foundation?

NFP Newsletter February 2016

In the nonprofit world, you’re either a public charity or a private foundation. It’s important that nonprofit leaders clearly understand the distinction — because a nonprofit that doesn’t act like a true public charity risks losing its charitable status.

The Difference
The IRS sees it this way: A 501(c)(3)organization is considered to be a private foundation unless it proves otherwise. In fact, the IRS will not say an organization is a public charity — only that it is not a private foundation.

In general, a public charity is an organization that:

• Engages in activities to promote general welfare,
• Does not exist to make a profit,
• Obtains its funding from the general public or the government, and
• Provides services that support its tax-exempt purposes.

By contrast, private foundations are typically funded by a single source — usually a family or corporation. Most private foundations do not provide charitable services. Instead, they provide funding to other organizations to do so. [Read more]