What is "private foundation"

n. a charity that does not receive a major part of its support from the public

A private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy or an object legal in the economic operation. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets. However, most private foundations are much smaller. Approximately two-thirds of the more than 84,000 foundations which file with the IRS, in 2008, have less than $1 million in assets, and 93% have less than $10 million in assets. In aggregate, private foundations in the U.S. control over $628 billion in assets and made more than $44 billion in charitable contributions in 2007.

Unlike a charitable foundation, a private foundation does not generally solicit funds from the public. And a private foundation does not have the legal requirements and reporting responsibilities of a registered, non-profit or charitable foundation.

Not all foundations engage in philanthropy: some private foundations are used for estate planning purposes.

Until 1969, the term private foundation was not defined in the United States Internal Revenue Code. Since then, every U.S. charity that qualifies under Section 501(c)(3) of the Internal Revenue Service Code as tax-exempt is a "private foundation" unless it demonstrates to the IRS that it falls into another category. Private foundations in the United States are generally subject to a 1% or 2% excise tax on net investment income. According to the Foundation Center, a private foundation is a nongovernmental, nonprofit organization, which has a principal fund managed by its own trustees or directors. Hopkins (2013) listed four characteristics that make up a private foundation:

• It is a charitable organization and thus subject to the rules applicable to charities generally;
• Its financial support came from one source, usually an individual, family, or company;
• Its annual expenditures are funded out of earnings from investment assets, rather than from an ongoing flow of contributions;
• It makes grants to other organizations for charitable purposes, rather than to its own programs.