If you are thinking of starting a family foundation – the latest trend among philanthropic families of means – then you may be conducting a bit of research to try and figure out whether such a foundation is right for your needs.
To begin with, it is important to understand that not all private foundations are created equally. The “private operating foundation” directly engages in charitable activity; the “private non-operating foundation,” however, does not conduct charitable programs or services, but invests charitable funds (usually received from a single person, family, or corporation) and makes grants to other charities.
To create a foundation, you need to establish a nonprofit entity – usually a corporation – in accordance with the laws in your state. The reason that most people prefer to use a corporation as the foundation’s entity is because of the liability limitations enjoyed by the officers and directors. Additionally, a foundation does not need to be created whilst one is alive, but may be created via a provision of one’s will. That being said, however, most people prefer to create it while alive so that he or she may take advantage of the tax exemption.
In order to gain tax-exempt status, a foundation needs to file I.R.S. Form 1023, which is the Application for Recognition of Exemption Under § 501(c)(3) of the Internal Revenue Code within 15 months of organizing. If done in a timely fashion, the foundation’s exempt status will relate back to the date of its organization. If the filing is not timely made, its exempt status only relates back to the date of the filing.