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Augusta-3 | The Community Foundation

Community Foundations vs. Private Foundations

As a charitable donor, you wish to create a vehicle that allows you to maintain long-term involvement with your charitable assets. The Community Foundation enables the philanthropy-minded to secure maximum tax deductions, involve family members, focus grant making, and obtain visibility for their giving. While some donors may find a private foundation suited to their needs, the alternative of establishing a fund with The Community Foundation often proves more attractive. Many individuals have converted their private foundation to a Donor Advised Fund. The following comparison will show why:

Establishing a fund with The Community Foundation has many advantages over a private foundation.

Private Foundation

- private foundation can be both time-consuming and costly to establish.
- For economic operations, a private foundation needs to have substantial assets.

The Community Foundation

- Establishing your own fund with The Community Foundation is inexpensive and very easy to set up.
- Only $20,000 is needed to begin a Fund with The Community Foundation.

Tax Filings & Liability

Private Foundation

- A private foundation must prepare its own detailed federal tax return (Form 990PF) with required supporting schedules and must report to the state as well.
- A private foundation is subject to an annual excise tax of up to two percent on net investment including net capital gains.

The Community Foundation

- All Funds of The Community Foundation are Component Funds and are included in the Foundation's annual Form 990 to the Internal Revenue Service. A further reduction in expenses.
- The Community Foundation is a tax exempt entity.

Tax Advantages

Private Foundation

Tax treatment is not as favorable:
- Deduction for gifts of cash is limited to 30% of Adjusted Gross Income (AGI).
- For gifts of appreciated property the deduction is limited to 20% of AGI.
- Gifts of publicly traded stock are deductible at their Fair Market Value (FMV) through 6/98.
- Other appreciated property can be deducted on a basis value.

A new private foundation must establish its tax-exempt status, which can take several months to obtain.

The Community Foundation

A donor can enjoy maximum tax advantages:
- Deduction for gifts of cash is limited to 50% of AGI.
- The full market value of appreciated property is deductible from income up to 30/o of AGI.
- Gifts of publicly traded stock are deductible at their FMV. No time limitations.
- Other appreciated property can be deducted for the FMV.

The Community Foundation already has a favorable tax-exempt ruling from the IRS, so contributions are immediately deductible.

Operations & Administration

Private Foundation

- Administration can be costly and time-consuming.
- A private foundation does not qualify for public charity status.
- Complete donor control over the fund's use is permitted.
- A new private foundation must establish and obtain the following:
- A mechanism for receiving and managing gifts of real estate, securities, and cash.
- A means of evaluating requests for grants from nonprofit agencies.
- system for verifying the tax exempt status of grantees.
- Qualified professional and support staff.
- Office space and equipment.
- Knowledge of the needs of the community.

The Community Foundation

- Administrative costs are shared by all Funds and, therefore, kept at a minimum for individual Funds.
- The Community Foundation meets the IRS's "public support test," thereby qualifying as a public charity.
- Donor Advised Funds are the most flexible Funds in The Community Foundation.
- As an established organization, The Community Foundation has the following developed and in place:
- A mechanism for receiving and managing gifts of real estate, securities, and cash.
- A means of evaluating requests for grants from nonprofit agencies.
- A system for verifying the tax-exempt status of grantees.
- Qualified professional and support staff.
- Office space and equipment.
- Knowledge of the needs of the community.

There are strict regulations regarding self-dealing between a private foundation and those who manage, control or contribute to it and persons or corporations closely related to them.

Monitoring and Oversight

Private Foundation

- A private foundation that makes grants to other private foundations or new charitable agencies or awards scholarships that have not received public charity status is subject to federal monitoring and reporting requirements.

The Community Foundation

- The Community Foundation must be able to demonstrate that its money is being used for charitable purposes, but does not need to report such information to the federal government.

Public Disclosure

Private Foundation

- Private foundation's tax return, along with those of its contributors, must be open to public inspection for six months.

The Community Foundation

- Funds established by donors may be anonymous, even though tax returns must be available for three years.

Payout Requirements

Private Foundation

- A private foundation must pay annually for charitable purposes a minimum five percent (5%) of its net asset value, regardless of earnings.

The Community Foundation

- The Community Foundation does not have minimum payout requirements; therefore, The Community Foundation can be more flexible in accepting gifts such as undeveloped real estate or other assets that produce little or no current income.

Investment

Private Foundation

- A private foundation must research and secure its investment vehicles.

The Community Foundation

- The Community Foundation currently deals with investing in a balanced portfolio for maximum returns.

High-Risk Involvement

Private Foundation

- Some high-risk involvement of a private foundation can be subject to a federal penalty tax.

The Community Foundation

- The Community Foundation fulfills fiduciary duties.

Purpose

Private Foundation

- Expensive court proceedings may be required to change the original restricted purpose if it becomes outdated.

The Community Foundation

- If the named charity or restricted purpose is no longer active or providing a needed service, or if the gift becomes impractical or impossible to fulfill, then the Governing Committee may select another recipient with a similar purpose.

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