How do Community Foundations differ from private foundations?
A Community Foundation is supported by a broad and ever-widening group of unrelated individuals, families, corporations, and institutions. The only thing that connects all of our donors is a desire to improve local communities.
Because of their broad base of support, Community Foundations are classified by the IRS as publicly-supported charities. This gives Community Foundations tax advantages not enjoyed by private foundations.
Community Foundations are also allowed to treat all funds within their control (known as “component funds”) as part of a single corporation. This gives them administrative advantages over private foundations as well.
Private foundations, by contrast, are generally supported by a single individual, family, or business. Rarely does it make sense to establish a private foundation if the principal endowment is not large. Today, of course, the world’s largest foundations -Gates, Ford, Kellogg- are all still private foundations.
To prevent abuse and self-dealing, private foundations have been subjected by the IRS to numerous penalty taxes and legal requirements, since the 1970s.
Because Community Foundations are controlled by large, diverse, and unrelated boards of directors, and the possibility of abuse is slim, the IRS does not impose any tax penalties or burdensome legal requirements on Community Foundations.
← How do Community Foundations differ from private foundations?
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