What differentiates a public charity from a private foundation?
We hear this question quite often, so let’s break it down.
What’s the Difference?
First, public charities:
- Are churches, hospitals, or qualified medical research organizations affiliated with hospitals, schools, colleges and universities,
- Have an active program of fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities,
- Receive income from the conduct of activities in furtherance of the organization’s exempt purposes, or
- Actively function in a supporting relationship to one or more existing public charities.
In contrast, private foundations usually have a single major source of funding, typically gifts from one family or corporation rather than funding from many sources. Most private foundations make grants to other charitable organizations and individuals as their primary activity, rather than the direct operation of charitable programs.
What Is Schedule A?
If an organization falls into the following three categories, they will need to use Schedule A. If an organization is described in section 501(c)(3) and is a public charity: it is described in sections 501(e), (f), (j), (k), or (n): or it is a nonexempt charitable trust described in section 4947(a)(1) that is not treated as a private foundation.
If an organization isn’t required to file Schedule A and decides to fill it out, they must complete the full schedule with all of the information required.
Can You Explain Public Support?
If an organization receives more than 10% but less than 33 and ⅓% of its support from the general public or a governmental unit, it can qualify as a public charity. It is up to the charity to establish that it normally receives a substantial part of its support from governmental units or the general public.
And that, in a nutshell, is the difference between public charities and private foundations.
Hope this clears things up! If you have any other questions, reach out to ExpressTaxExempt at 704.839.2321.