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Key Differences

Nonprofits organized under U.S. IRS Code Section 501(c)3 may be classified as either a public charity or a private foundation. Below are the key differences between the two which will help you in determining which type applies to your nonprofit organization. It’s important to note that when applying for 501(c)3 status, the IRS will recognize qualifying nonprofits as a private foundation by default until the nonprofit requests public charity status and shows appropriate cause for the change in classification. As part of an organization’s annual tax form 990 filing, a public charity must pass the public support test to avoid being reclassified as a private foundation by the IRS.

   Public Charity  Public Foundation
 Primary Function  Perform Charity Work. Support the work of public charities. 
 Tax Advantages for Donors Higher donor tax-deductibility giving limits which helps attract support from the public as well as other public charities and private foundations. 
Deductibility limits for donors.  Often times private foundations are funded by one individual or a family.
 IRS Tax Filings (Types of IRS Forms for Nonprofits)  Form 990, 990-EZ, or 990-N. 
 Form 990-PF. 
 Examples Private schools, churches, homeless shelters, food pantries, etc. 
Family Foundations.
 Structure Articles of incorporation must restrict activities to those of a public charity 
The sole purpose of the foundation often times is to fund public charities. 
 Governance  Majority of the Board of Directors must be unrelated by blood, marriage or outside business co-ownership and not be compensated as employees of the organization.  
Closely governed. May be controlled by related parties and be funded by a relatively small group (including one individual and/or a family). 

 Public Support Test (How is this Calculated)

Must be supported by the general public with at least 33% of revenue coming from small donors who give less than 2% of the organization’s revenue, from other public charities, and/or from the government.  
No restriction on having a minimum amount of revenue provided by the public.  
 Annual Asset Distribution None. A minimum of 5% must be distributed each year.

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