What is the difference between a public charity and a private foundation?
501(c)3 organizations are classified as either a public charity or a private foundation. What is the difference? The main difference between a public charity and a private foundation is how they are funded and the source of their income.
A public charity is an organization that is primarily supported by donations from the general public, gross receipts from program activities, or government or foundation grants. Public charities are typically run by a board of directors or trustees and are required to receive a significant portion of their income from public sources. Public charities are subject to annual reporting requirements. All public charities other than churches must file Form 990, 990-EZ, or 990-N each year to maintain their tax-exempt status.
On the other hand, a private foundation is usually funded by a single individual, family, or corporation, and is typically established to support a specific charitable purpose. Private foundations can be run by the donor or by a board of directors or trustees. Private foundations typically do not rely on public donations, and instead, their funding comes from an endowment or other investments.
Private foundations are subject to stricter regulations and tax rules than public charities. They are required to distribute a minimum percentage of their assets each year to maintain their tax-exempt status. Private Foundations file Form 990-PF annually to maintain exemption with the IRS.
In summary, while both public charities and private foundations are tax-exempt organizations that serve charitable purposes, the main differences between the two are their sources of funding and their regulatory requirements. Public charities rely on public donations and government grants, and are subject to more lenient regulatory requirements, while private foundations are typically funded by a single donor or family, and are subject to more stringent rules and regulations.