Foundations and Funders

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According to the Foundation Center, A foundation is an entity that is established as a nonprofit corporation or a charitable trust, with a principal purpose of making grants to unrelated organizations or institutions or to individuals for scientific, educational, cultural, religious, or other charitable purposes. This broad definition encompasses two foundation types: private foundations and public foundations. The most common distinguishing characteristic of a private foundation is that most of its funds come from one source, whether an individual, a family, or a corporation. A public foundation, in contrast, normally receives its assets from multiple sources, which may include private foundations, individuals, government agencies, and fees for service. Moreover, a public foundation must continue to seek money from diverse sources in order to retain its public status.

The best way to identify private foundations is to refer to the formal determination made by the Internal Revenue Service. Under the rules first set forth by the Tax Reform Act of 1969, those nonprofits determined by the IRS to be "private foundations" are treated differently from other nonprofits. To understand the differences between private and public foundations, it is helpful to trace the path that leads to an IRS determination letter. A nonprofit that has been legally established in one of the 50 states must obtain recognition as a charitable organization from the IRS in order for contributions to it to be tax deductible. Section 501 of the Internal Revenue Code covers many types of organizations that are exempt from federal income tax. It covers those tax-exempt organizations that are "organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes...."

An organization that meets the definition of Section 501 (c) (3) is measured against Section 509(a) of the Internal Revenue Code, which declares that a 501(c)(3) organization is presumed to be a private foundation unless it can demonstrate that it meets at least one of the four criteria:

It is an organization described in 170(b)(1)A: churches, schools, colleges, etc.; hospitals, medical research institutes, etc.; support organizations to public colleges or universities; certain governmental units; publicly supported organizations;

It is an organization that normally receives more than one-third of its support from gifts, grants, or fees and gross receipts from admissions, sales, etc. and normally receives not more than one-third of its support from investment income;

It is a supporting organization that is not publicly supported but is organized for and controlled by another public charity;

It is an organization organized and operated exclusively for testing for public safety. Most grantmaking foundations apply for Section 501(c)(3) status. Those that do not meet the requirements for classification as "not a private foundation" are, by default, private foundations. Thus the IRS defines a private foundation by exclusion: a private foundation is a nonprofit organization that does not meet one of the four criteria for exclusion. The IRS does not have a separate classification for "public foundations," so public charities that are significant grantmakers can be difficult to identify using IRS definitions and resources.

The tax laws for private foundations include, among other things, a minimum distribution requirement, an excise tax on investment income, and a limit as to the proportion of a for-profit enterprise they may own, the "excess business holdings" rule. Private foundations must make "qualifying distributions" of at least 5 percent of the average market value of their investment assets in any given fiscal year by the end of the following year, a rule often referred to as "the payout requirement." The excise tax, normally 2 percent of net investment income, or 1 percent in special circumstances, counts as a credit toward the 5 percent minimum.

Although they are complex, the definitions of foundations contained in the Internal Revenue Code determine not only the way a foundation must operate but also the information it must make publicly available. All private foundations must file the Form 990-PF, which is a valuable source of information about their finances, board members, and grants. The Center acquires the Forms 990-PF from the IRS as they are processed and adds them on a continuous basis to a database identifying virtually all private foundations.

Because the IRS has no separate designation for them, public foundations follow the same reporting guidelines as other public charities. Public charities with gross receipts over $25,000 in any year must file an information return with the IRS for that year, using the Form 990. The Forms 990 for public foundations are indistinguishable from those for non-grantmaking public charities, so they are not a useful means of identifying public foundations.

2004, Top 50 Foundations by Total Giving (in descending order)

rankings are taken from a report by the Foundation Center

2004, Top 50 Foundations by Total Assets (in descending order)

rankings are taken from a report by the Foundation Center

General List of Foundations

Related SourceWatch Resources

External links

General Information

Critical Interviews

  • Andrew Gavin Marshall, "On Foundations", Boiling Frog Radio, November 9, 2011.

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