Estates, Gifts, And Trusts (EGT)

Private Foundations and Public Charities — Definition and Classification (Portfolio 456)

  • This portfolio discusses the definition and classification of private foundations and public charities.


The Bloomberg Tax Portfolio, Private Foundations and Public Charities — Definition and Classification, No. 456, discusses the definition and classification of private foundations and public charities. Under §509, enacted by The Tax Reform Act of 1969, certain §501(c)(3) organizations (charitable, educational, religious organizations) are classified as private foundations. Organizations classified as private foundations are subject to restrictions and requirements in addition to those applicable to exempt charities generally. Under §4942(j)(3), also added by the 1969 Tax Reform Act, certain private foundations, known as private operating foundations, are exempted from some of those burdens placed on private foundations. Those private operating foundations, known as exempt operating foundations, are exempt from the §4940 tax on investment income as well. Certain non-operating private foundations also receive special treatment.

This Portfolio discusses the background of §§509 and 4942(j)(3), outlines the additional restrictions and requirements applicable to private foundations to which public charities are not subject, and contains an in-depth discussion of the qualification of public charities under §509(a)(1) through (4) and operating foundations under §4942(j)(3). Since§509(a)(1) is essentially a cross reference to §170(b)(1)(A)(i) through (vi), this Portfolio contains detailed discussions of these provisions, as well as §170(b)(1)(A)(vii) pertaining to certain non-operating private foundations. This Portfolio also contains a brief discussion of foreign private foundations and public charities. See 877 T.M., Private Foundations and Public Charities — Termination (§507) and Special Rules (§508), for a detailed discussion of the procedures for applying for exemption and notification of nonprivate foundation status. See 459 T.M., Supporting Organizations, for an in-depth discussion of §509(a)(3)supporting organizations, 484 T.M. Tax Issues of Religious Organizations, 873-2nd T.M. Nonprofit Healthcare Organizations: Federal Income Tax Issues, 450 T.M. Tax-Exempt Organizations: Organizational Requirements, and 451 T.M. Tax-Exempt Organizations: Operational Requirements, for in depth discussions of other related topics.

This Portfolio may be cited as Cesare, 456 T.M., Private Foundations and Public Charities — Definition and Classification.

Table of Contents

I. Introduction
II. Organizations Subject to Classification
III. Advantages and Disadvantages of Public Charities and Private Foundations
IV. Scope of § 509
V. Public Charity Status Based on Activities: Section 509(a)(1) Organizations
VI. Publicly Supported Organizations
VII. Section 509(a)(2) Organizations
VIII. Section 170(b)(1)(A)(vi) Organizations
IX. Community Trusts
X. Donor-Advised Funds
XI. Supporting Organizations: Section 509(a)(3)
XII. Section 509(a)(4) Organizations
XIII. Private Operating Foundations
XIV. Special Private Nonoperating Foundations
XV. Foreign Exempt Organizations
XVI. Nonexempt Charitable Trusts

Lauren Watson Cesare
Law Offices of Lauren Watson Cesar