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Just What Are Public Charities and Private Foundations, Anyway?

Note: The following discussion is provided for informational purposes only and is not intended to serve as legal or tax advice. For specific information about public charities and private foundations ("charitable organizations"), consult your attorney or tax adviser.

It can be so confusing … private nonoperating foundations … private operating foundations … public charities … public charities that act as foundations. What are
they, and how do you tell which is which?

Charitable organizations—the organizations in the GuideStar database—fall under Section 501(c)(3) of the U.S. Tax Code. The Internal Revenue Service divides charitable organizations into two groups: private foundations and public charities. With the exception of religious organizations and nonprofits whose gross receipts are less than $5,000, the IRS usually defines every charitable organization as a private foundation, unless the nonprofit specifically requests classification as a public charity.

Public Charities

A public charity is a charitable organization that (a) has broad public support, (b) actively functions to support another public charity, or (c) is devoted exclusively to testing for public safety. Many public charities rely on contributions from the general public. Donations to public charities are tax deductible.

Public charities are the organizations people usually think of when they hear the word charity. These nonprofits' missions range from helping the poor to easing community tensions to advancing religion, education, or science.

Private Foundations

Private foundations are charitable organizations that do not qualify as public charities. In practice, they usually are nonprofits that were established with funds from a single source or specific sources, such as family or corporate money.

Although contributions to private foundations technically are tax deductible, many of these nonprofits do not accept donations. Instead, private foundations usually invest their principal funding, then distribute the income from investments for charitable purposes. Many have endowments.

The IRS recognizes two types of private foundations: private nonoperating foundations and private operating foundations. Although the IRS uses a number of criteria to distinguish between the two, in practice, the key difference between a private nonoperating foundation and a private operating foundation is how each distributes its income:

  • A private nonoperating foundation grants money to other charitable organizations.
  • A private operating foundation distributes funds to its own programs that exist for charitable purposes.
Both types of private foundations are subject to certain restrictions and requirements. For example, they must distribute a specific portion of their income for charitable purposes each year, and they cannot do business with their major contributors.

Public Charities That Act as Foundations

A number of nonprofits that grant money to public charities are actually public charities themselves. Community foundations and the United Way are examples of such organizations. Many of these nonprofits accept tax-deductible contributions to fund their grantmaking programs.


  • Internal Revenue Service, U.S. Department of the Treasury. Package 1023, "Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code." September 1998.
  • "Exemption Requirements—§ 501(c)(3)."
  • "Instructions for Form 990-PF."
  • "Private Foundation."
  • Publication 557, "Tax-Exempt Status for Your Organization." November 1999.
Suzanne E. Coffman, August 2001
© 2001, Philanthropic Research, Inc.
Topics: Law and Regulations