Private Foundations and Public Charities – What’s the difference?

April 16, 2014

This information was originally published in a post by the Foundation Group.

Many people have a layman’s understanding of the difference between public charities and private foundations:  Public charities are understood to perform charitable work, while private foundations support the work of public charities.  That grassroots definition is, in practice, mostly true.  The specifics, however, are slightly more complicated.

Public charities. Public charities represent the largest share of active, 501(c)(3) organizations.  Those starting a new organization usually prefer public charity status, not just because it better describes the organization’s purpose.  Public charities also enjoy some advantages over private foundations:  higher donor tax-deductible giving limits, the ability to attract support from other public charities and private foundations, as well as a $25,000 income threshold to trigger annual Form 990 filing (private foundations file Form 990-PF regardless of income).  In fact, an applicant for 501(c)(3) status must prove why it should be considered a public charity, lest they be considered a private foundation by default.

Like the layman’s definition, public charities typically carry out some type of direct, charitable activity.  Examples include churches, private schools, homeless shelters, etc…the list of possibilities is nearly endless.  The true definition of a public charity, though, goes well beyond the programs and into the realm of structure and revenue source.  As for structure, in order to qualify for (and keep) public charity status, a 501(c)(3) must be organized for exclusively 501(c)(3) purposes.  The IRS requires certain language to be in a public charity’s articles of incorporation explicitly restricting its activities to such.  In addition, a public charity must represent the public interest by having a diversified board of directors.  More than 50% of the board must be unrelated by blood, marriage or outside business co-ownership and not be compensated as employees of the organization.  We are often asked where that is in the “code” and, frankly, it isn’t there…at least not verbatim.  It is an extrapolation of the IRS’s requirement that governance of a public charity be at arms-length and without private benefit (inurement) to insiders.  As such, the IRS requires that a quorum of board members be possible who have no personal stake, either directly or potentially through relationship.  Finally comes the income, or source of revenue, test.  Public charities must be supported by the general public.  For that to be true, a significant amount of revenue, at least 33%, must come from relatively small donors (those who give less than 2% of the organization’s income), from other public charities or the government.  While that is significant, that leaves 67% to potentially come from other, less diverse sources.

Private foundations. While being considered a private foundation could simply be a fall-back position of not qualifying for public charity status via either the organizational or income test (or both), it is most often a choice that is made.  There are reasons why someone would choose foundation status over public charity.  Chief among those is control.  In exchange for somewhat disadvantaged deductibility limits to donors, mandatory Form 990-PF filings, and minimum annual asset distributions (5% each year), private foundations can be controlled by related parties and be funded by a relatively small group…even one individual or family (think Bill and Melinda Gates Foundation).  This is often more than enough trade off for those starting a foundation.  One thing that is not different for private foundations is the requirement that it be organized for exclusively charitable purposes.

There is even a third type of 501(c)(3), the private operating foundation.  This is best thought of as a hybrid of the other two, most often a private foundation with direct program services like that operated by public charities.  The rules are strict, as control can be like that of private foundations, but with some of the benefits of public charities.  There are relatively few of these organizations around.  You typically only see these under rather unique circumstances.


Giving with Purpose: Relevance

April 14, 2014

This week, the Giving With Purpose online course introduces the RISE Framework for Social Change, which provides a means of assessing nonprofit giving opportunities. The RISE framework can be viewed as a “charitable checklist.”

RISE stands for Relevance (connectedness), Impact (making a difference), Sustainability (managing money wisely), and Excellence in Management & Operations (capacity for doing work well). These concepts will be further developed through the remaining lectures.

This week’s class focused especially on the “R” of RISE  (Relevance), and posed some important questions for reflection, and to encourage thoughtful and deliberate giving:

  • “Why do you give?
  • “What matters to you?
  • “What’s the change you’d like to see in the world?”

Some other, more specific questions were also raised in this week’s course, that are helpful in determining the kinds of causes and organizations that are personally relevant to you:

  • “What role you want giving to play in your life, especially in regard to your religious, ethical, political, and social values, beliefs, and worldview?
  • “Are there methods of change that you are especially interested in, such as direct service to individuals, community programs, research, policy advocacy, or social enterprise?
  • “Are there specific problems or issues you feel compelled to address, such as education, health, hunger, or the environment?
  • Are there groups or populations that matter to you, such as youth, the elderly, immigrants, or veterans?”

In the guest lecture portion, Hall of Fame baseball player Cal Ripken Jr. reflected on his own answers to some of these important questions as he discussed his motivation and goals for giving, including meaningful interactions and measurable results.

How do these questions apply to your giving, whether through a foundation, a donor advised fund, or simply as an individual?


Giving With Purpose: Why Give?

April 4, 2014

This week marked the beginning of the Giving with Purpose MOOC (Massive Open Online Course) in which several Gateway Center for Giving members are participating – it’s a free, online course about philanthropy, intended to help participants learn about intentional giving, how nonprofits work, and how foundations work.  The course teaches us to understand why we donate our time, talent and treasure;  and how to give to highly performing organizations that make a difference.

Though the course has started, registration remains open until April 15 – so be sure to sign up by clicking here.

 

The first course module focused on the basics of nonprofits, and explored the presence of nonprofits in our day-to-day lives: libraries, summer camps, tutoring programs, churches, radio stations, museums, hospitals, universities, and many more.

After being asked to consider all of the ways that the nonprofit sector touches our lives, course participants were asked to reflect on a question: What are possible consequences of people lacking awareness of the nonprofit sector’s role in their own lives and in society as a whole?

Understanding the role of the nonprofit sector is vital to answering an important question for all philanthropists, big or small: Why give?


Gateway Center CEO attends Foundations on the Hill

March 7, 2014

This post was written by Gateway Center for Giving CEO, Deb Dubin, after returning from Washington DC where she advocated on behalf of the philanthropic sector.

 

It’s Philanthropy Week in Washington, DC, and along with the snow, hundreds of philanthropic leaders from across the country are blanketing Capitol Hill to discuss the vital role of charitable giving and its inextricable link to thriving communities.

As the Captain (and sole member!) of the Missouri “Foundations on the Hill” delegation this year, I am visiting the offices of Senator McCaskill and Senator Blunt, as well as Congressman Clay, to highlight the impact of philanthropy in our state. I’m also sharing stories and data about our sector’s collective efforts to make the St. Louis region a safer, healthier and more inclusive place to live.

Foundations have an enormous impact on Missouri communities. In 2011, over 1,412 Missouri foundations invested more than $784,853,675 in the nonprofit economy, which employs nearly one tenth of our state’s workers: more than 230,000 people.  It is estimated that every philanthropic dollar invested in the nonprofit sector leverages an additional $8 in direct economic benefits, supporting jobs for tax-paying citizens.

Various tax policy proposals are now in play, from House Ways & Means Committee Chairman David Camp’s recently introduced tax reform bill to the President’s FY 2015 budget, released this past week. Both contain provisions that impact the philanthropic sector, and by extension, the nonprofits and communities with which we partner. We’re told that neither of these proposals will be enacted in their current forms, and that there will be extensive discussion and negotiation over the coming months.

Congress should advance proposals that increase giving, not diminish it.

It comes as no surprise that Regional Associations of Grantmakers support tax policy that encourages charitable giving, thereby allowing the nonprofit sector to survive and thrive. For example, the charitable deduction incentive encourages individuals to donate to charitable organizations, an important source of revenue for nonprofits. These funds are often leveraged with grant funding from the philanthropic sector. If donors have less incentive to give, donations could decline by billions of dollars, obstructing the critical work of nonprofits.

States matter.

While federal policy is the focus of our visit to Washington, we were also reminded that it’s important to keep an eye on state governments. At the same time that Congress passed 80 bills last year, state legislatures passed 40,000. There is clearly a lot of activity happening at the state level, and our sector should remain watchful for public policy proposals that could impede charitable contributions.

The Gateway Center for Giving has “Foundations on the Hill” materials and resources to share. Please let us know if we can be of service.


Gateway Center Presents Video & New Website

February 7, 2014

The Gateway Center helps donors do more – learn how by watching our all-new video featuring a few of our fantastic grantmaking members.  Hear them reflect on the role of philanthropy in our community, and on how the Gateway Center supports them in their work.  Click here to view the video.

We have also launched our newly redesigned website, with enhanced content and improved navigation. Our URL remains the same:  www.centerforgiving.org.

The website offers a broad range of grantmaker and nonprofit resources that are available to the general public, as well as exclusive, password-protected content for our members.

We hope you will enjoy the new online experience.


The Gateway Center for Giving honors regional grantmakers

January 27, 2014

The Gateway Center for Giving convened 160 grantmakers and nonprofits at the Gateway Center’s Annual Meeting on 1-24 to celebrate the generosity of donors in the St. Louis region, name new Board Members, and recognize grantmaking excellence.

The Excellence in Grantmaking Awards celebrate the work of St. Louis area grantmakers by honoring donors who fund programs, efforts, or initiatives that have made a significant impact in the region.

The three award winners are:

  • Missouri Foundation for Health (MFH), nominated for the “Giving is On Time” award by Planned Parenthood of the St. Louis Region and Southwest Missouri.  MFH provided funding to several area nonprofits for certified application counselors to provide information and assistance to the uninsured.  This funding makes a substantial impact in the knowledge about and enrollment in health insurance. Tom Barry (Vice President of Development & External Relations at Planned Parenthood of the StLouis Region and Southwest Missouri) presented the award to Jessi LaRose (Health Policy Officer at Missouri Foundation for Health).
  • St. Louis-Jefferson Solid Waste Management District , nominated for the “Giving is On Going” award by two nonprofits, the Missouri Recycling Association (MORA) and St. Louis Earth Day. St. Louis-Jefferson Solid Waste Management District funded the development of key marketing and educational materials for the Missouri Recycling Association, and supported St. Louis Earth Day in developing innovations in recycling and waste reduction in the St. Louis area. Cassandra Hage (Executive Director of St. Louis Earth Day) and Dan Imig (President of MORA) presented the award to David Berger (Executive Director of St. Louis-Jefferson Solid Waste Management District).
  • Emerson, nominated for the “Giving is Far Reaching” award by the Saint Louis Language Immersion Schools (SLLIS). In addition to monetary gifts, a finance team at Emerson has donated their time, talent & intellect to review St. Louis Language Immersion School’s potential facilities options.  The team is now working with local partners, developers and architects to help them select a plan that will best meet the needs of their current and prospective students.  Dr. Steve Sanchez (Board Chair of SLLIS) presented the award to Pat Sly (Executive Vice President of Emerson and head of the Emerson Charitable Trust).

 

Outgoing Gateway Center Board Chair Jane Donahue of the Saint Louis Public Schools Foundation welcomed the following new additions to the Gateway Center for Giving Board of Directors:

  • Desiree Coleman of Wells Fargo Advisors
  • Jama Dodson of the Saint Louis Mental Health Board
  • Mike Grabenhorst of Northern Trust
  • Lindsay Matush of the Brown Sisters Foundation

Ann Vazquez of the Lutheran Foundation of St. Louis will serve as the 2014 Gateway Center Board Chair.

Outgoing Board Members Kirby Burkholder of IFF, Cynthia Crim of Commerce Bank and the Norman J. Stupp Foundation, and John Fort of the Fort Family Foundation were thanked for their service.

“By working together, we help make the St. Louis region stronger, smarter, more inclusive and more liveable for everyone,” said Gateway Center for Giving CEO Deb Dubin.

The Gateway Center’s Annual Meeting was hosted by the Nine Network and supported by Emerson, Enterprise Holdings and Ameren. Visit the Gateway Center for Giving Facebook page over the coming weeks to see pictures from the meeting, and watch the video on the Gateway Center’s Youtube page.


The Outlook for 2014

December 20, 2013

 

This post was originally published in The Rome Group Insights, December 2013.

With the New Year almost here, The Rome Group Insights asked the leaders of three local associations of funding organizations for their predictions on the giving climate in 2014.

Mary McMurtrey, Director of Community Engagement, Greater St. Louis Community Foundation:

“The Community Foundation works extensively with donors and their professional wealth advisors. Many of our wealth advisors anticipate strong returns in the market in 2014. This has the potential to positively impact charitable giving due to the direct correlation between market performance and giving.

“We should continue to see financial stability in 2014 through conservative budgets, continued collaborations, and strategic partnerships.”

Deb Dubin, CEO & President, Gateway Center for Giving:

“Generally, our members expect their giving levels to be about the same in 2014. However, a few may support one-time, large-scale civic projects this year, thereby narrowing the distribution of their giving to fewer organizations overall, when compared to past years.

“The biggest concern remains the economy. Continued uncertainty in the marketplace impacts our members across the board, whether family foundations, corporate foundations, private foundations or sector-serving businesses.

“One corporate funder suggests nonprofits consider making requests beyond just financial ones. Are in-kind services a possibility? Does the funder have staff members with skill sets that can be shared? Can you leverage corporate funders’ desire to see their employees engage in meaningful community service?

“One of our private foundation funders said nonprofits should build outcomes evaluation into their asks. It should be part of the program’s DNA, and not something to be treated as ancillary. All of our members also want to see evidence of collaborations — how are you working with others in the infrastructure to accomplish your mission?”

Kathleen Osborn, executive director, The Regional Business Council:

“Our economy is slowly recovering, but we continue to live with fiscal uncertainty. While corporate giving might rise as our economy continues to recover, businesses will utilize a newly refined discerning eye. With an increased emphasis on making every donated dollar meaningful, corporate donors will concentrate their charitable efforts on nonprofit organizations that bring real value and measurable outcomes to the community.

“Thus, United Way will continue to be a vehicle to serve those with the greatest need. Funders, including the RBC, will rely on the organization to invest the funds most appropriately and provide oversight and direction to their member organizations.

“We are concerned with the proliferation of nonprofits and the ability to sustain and fund them. The days of “feel good” giving are behind us, and corporate donors are closely examining their charitable options. Donors are more likely to fund organizations that collaborate, that eliminate redundancy and that have a clear capacity-building plan.

“Nonprofits should concentrate on using donations to affect touchable, measurable outcomes. They should focus their efforts and make their goals and audiences clear to donors. They also should consider partnering with other nonprofits both to maximize their exposure and to avoid overlaps in services.”


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