Earlier, we talked about the estate of Huguette Clark and the Santa Barbara property that was designated to her private foundation.
The law of charitable giving and nonprofits isn't always crystal-clear to the layman. The terms public charity and private foundation often get confused. People assume, when they hear the word "foundation" that it's the same thing as a charity.
Perhaps it is, from a purely philosophical point of view. But from a tax point of view, it isn't.
A foundation is still a philanthropic entity that is exempt under Section 501(c)(3) of the code. But there are a few notable differences. This is something we've talked about before on this blog, but it merits an explanation again, especially as we move into the "season of giving."
The one big difference between a foundation and a charity is that the foundation's funding typically comes from limited sources.
Take for example, Huguette Clark's foundation. Although there is limited information about it, it appears that she created a private foundation to support the arts. This foundation's funds are primarily coming from her estate and the income derived from the assets she put into the foundation (i.e. the income from the investment of her foundation's funds).
Now, her foundation might conduct events and have actual activities, which might move it into the realm of a private operating foundation. The benefit here is that donors can take a larger income tax deduction when giving to the foundation.
However, it might just end up being a private grant-making foundation that engages in grant-making to organizations that support its mission. Private non-operating foundations must make these mandatory annual distributions.
Remember, the Clark estate is still being disputed. The estate might go to court in 2013 and at that time, it's very possible that much of the money in the estate (and the assets) will go to family members and not to any philanthropic cause.
Check out some of the related resources below for more information on forming a 501(c)(3) entity.