The Difference Between Operating and Non-Operating Private Foundations

Did you know there are two types of private foundations? Read on to find out why!

The difference between operating and non-operating private foundations

Private foundations are specific types of tax-exempt organizations created for charity. There are two types of private foundations, operating and non-operating. Keep reading to learn more about private foundations and the difference between the two. 

What is a private foundation?

A private foundation is an organization created exclusively for charitable purposes. They are usually founded and run by an individual, a family, or a corporation, unlike a public charity that gets its funding from the general public. 

What is the difference between a private foundation and a public foundation?

The main difference between public and private foundations is their funding source, but there are a few others. First, private foundations primarily make grants, while public foundations primarily organize charitable activities and services. 

Second, public charities must prove that their funding comes from the public. Private foundations are not. Last, a private foundation may be governed by its donors or a board chosen by the donors. Public charities are typically governed by a board of directors representative of the public it serves. 

What is an operating foundation?

An operating foundation typically performs charitable activities and is involved in its own projects continuously. Operating foundations must spend 85% of their investment income on the activities of their charitable operations. They conduct their own projects in order to support their cause rather than making grants or financial contributions. Examples of operating foundations include libraries, museums, and zoos.

What is a non-operating foundation?

A non-operating foundation typically makes grants to public charities in support of their cause. Charitable activities are not their primary concern, instead, they can conduct their own financial charitable activities. A non-operating foundation must annually distribute about 5% of its prior year’s average net investment assets. 

Filing a Form 990-PF

Form 990-PF is a return of private foundations used to determine taxes based on investment income and to report charitable activities and distributions. Form 990-PF is required to be filed annually by the 15th day of the 5th month after an organization’s tax period ends. 

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