Public Charity vs. Private Foundation

One of the key differences between public charities and private foundations is in regards to taxes.
One of the key differences between public charities and private foundations is in regards to taxes.

The IRS classifies 501(c)3 charitable organizations into two categories:

  1. Public Charity
  2. Private Foundation

While both public charities and private foundations are exempt charitable organizations, there are distinct differences between the two.

Defining a Private Foundation

According to the Council on Foundations, “private foundation” is the umbrella term that includes corporate, independent, family and operating foundations. These independent legal entities make grants from their charitable endowments, which consist of funds coming from one or a small list of sources – an individual, a family or a corporation.

The fund is managed by the foundation’s own appointed trustees or directors.

Like public charities, private foundations are classified as a tax-exempt 501(c)(3) organization by the IRS. Unlike public charities, however, private foundations do not raise funds or seek financial support from the public.

Some of the most well-known U.S. private foundations are The Bill and Melinda Gates Foundation, Ford Foundation and The Rockefeller Foundation.

Defining a Public Charity

According to the Council on Foundations, “public charities” are grantmaking public charities that gain their funds from a variety of sources, which may include foundations, individuals, corporations, or public entities. Public foundations may engage in fundraising, and may seek broad public financial support. They may or may not have endowments.

Generally, organizations classified by the IRS as public charities are:

  1. Churches, hospitals, qualified medical research organizations affiliated with hospitals, schools, colleges and universities.
  2. Active in fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities,
  3. Receiving income from the conduct of activities in furtherance of the organization’s exempt purposes, or
  4. Actively functioning in a supporting relationship to one or more existing public charities.

Key Differences: Public Charities & Private Foundations

In contrast to public charities, private foundations usually have a single major source of funding (an individual, family or corporation).

Another key difference is in regards to taxes. Gifts to public charities receive more favorable tax treatment than gifts to private foundations.

For example, charitable cash donations are deductible at up to 50% of the taxpayer’s adjusted gross income (AGI) when given to public charities (see CARES Act implications for 2020 tax deductions), but the same gift to a private foundation is deductible at a rate of only 30% of AGI.

Types of private foundations include:

  • Independent foundations
  • Family foundations
  • Corporate foundations
  • International foundations
  • Private operating foundations

Types of public charities include:

  • Statutory public charities (churches, hospitals, schools)
  • Public charities supported through donations
  • Public charities receiving exempt function income
  • Supporting organizations that attach itself to or supports another public charity (or charities)

Public Charities that Act as Foundations

Some organizations, like community foundations, are considered to be public charities that act as foundations.

Community foundations, like The San Diego Foundation, are grantmaking public charities dedicated to improving the lives of people in a defined local geographic area. We bring together the financial resources of individuals, families, agencies and businesses to support nonprofits strengthening our communities.

Charitably-minded individuals and corporations turn to community foundations to be their partner in philanthropy because community foundations:

  • Have deep roots in the community
  • Grow giving and impact
  • Provide expert advisors in philanthropy
  • Ensure optimal tax advantages
  • Maximize the impact of charitable gift(s)
  • Deliver a high degree of personal service
  • Connect charitably-minded peers
  • Simplify charitable giving

Interested in making an impact through a community foundation? Learn about the benefits of giving through a donor-advised fund.