Southeast Virginia Community Foundation vs. Private Foundation

How is giving to the community foundation more advantageous than setting up a private foundation?

Establishing a fund is quick and easy, and can be accomplished in a matter of days. Establishing a private foundation takes months, and requires significant legal expense and filing fees.

A community foundation is a public charity and offers donors the most favorable tax treatment.

As a publicly supported charity, the Foundation is not subject to the 5% minimum distribution rule that applies to private foundations. This features permits donors to start seed funds now and allow those funds to build over time before making grants.

The Southeast Virginia Community Foundation has a Chief Executive Officer and finance staff, auditors, and lawyers available to provide services. The Foundation includes all funds in its audit and tax return. A private foundation must secure these services and file its own return.

Many donors are surprised to learn that their donations to a private foundation, and all grants their foundation awards, are public information, increasingly available on the Internet. The SEVACF, however, is not required to publish its donor list. And while we do list our grants in our tax return, we do not indicate which fund was the source of each grant. In addition, some donors prefer to make all or some of their gifts anonymously, which we often do. We can also research a charity on the donor’s behalf, which secures the needed information to make a responsible gift while protecting the donor from solicitations from the charity directly.

Set-Up Procedures and Costs
Private foundations must incorporate and apply to the IRS for tax-exempt status and there are legal and accounting fees to establish a foundation. On the other hand, the Southeast Virginia Community Foundation does not charge start-up fees. We charge an annual administrative fee of 1%, significantly lower than operating a private foundation. Because of our economies of scale and our operating endowment, our costs are among the lowest of all nonprofit organizations.

Tax Treatment of Contributions
With a private foundation, current year tax benefits are limited to 30% of income for cash gifts and 20% of income for appreciated property gifts. At Southeast Virginia Community Foundation, current year tax benefits are 50% of income for cash gifts and 30% of income for appreciated property gifts.

Contributions of Appreciated Property
At Southeast Virginia Community Foundation, federal income tax deduction for all appreciated property gifts may be taken at 100% of value. With a private foundation, the Federal tax deductions for appreciated property gifts are generally limited to a person’s basis. (Please note: the ability to make gifts of publicly traded stock to private foundations and take a deduction based on the fair market value of the stock is an exception occasionally allowed by Congress. This rule has changed repeatedly over the last several years.)

Excise Taxes
At Southeast Virginia Community Foundation, there is NO tax on investment income, while at a private foundation, excise taxes are up to 2% of investment income annually.

Investment, Audit, Accounting and Tax Returns
With a private foundation, you must perform financial and administrative services yourself, or contract or hire staff to fulfill these functions. An annual 990-PF tax return is also required. The community foundation handles all financial and administrative management, files annual tax return and provides an annual independent audit.

Liability and Insurance
With a private foundation, directors and officer’s liability insurance, employee bonding, and office insurance must be separately purchased. Meanwhile, the Southeast Virginia Community Foundation automatically covers all liability insurance.

Grant Payout Requirement
Private foundations are required to distribute 5% of their assets annually to avoid penalty taxes. There is no payout requirement with the community foundation, so your fund can accumulate income for a sizable project or grant. You give when you are ready to give.

Grant Management
A private foundation must verify the charitable status of all recipient organizations. The Community Foundation verifies charitable status of all recipient organizations for you.

Private foundations file detailed tax returns on grants, investment fees, trustee fees, staff salaries, etc. These are public records and are compiled into grantseeker directories, internet files, and other widely distributed resources. At Southeast Virginia Community Foundation, individual donors or grants can be kept private. If the donor wishes, the community foundation can serve as a buffer between the donor and grantseekers.