Frequently Asked Questions

What is a private foundation?

Technically, it is a not-for-profit entity that can be controlled by a person, family or business. It is organized exclusively for charitable, educational, religious, scientific and literary purposes under Section 501(c)(3) of the Internal Revenue Code. The foundation must be officially recognized by the IRS in order for contributions to it to be tax deductible. In practice, a private foundation is a unique planned giving vehicle that fosters family involvement, provides significant control over assets and giving, and allows donors to receive an immediate tax deduction for charitable donations that are made in the future.

Can I or members of my family be employed by my foundation?

Yes. By appointing children or other family members as officers or directors, you will have the option of making the foundation a family affair. However, paying yourself or family members requires strict adherence to detailed IRS rules. To avoid the potential for legal problems, you must consult with your attorney before paying yourself or family members.

Can my family or I engage in transactions with the foundation?

The IRS strictly prohibits self dealing. Disqualified individuals (the donor, lineal descendants and antecedents, e.g., parents, children and their spouses, and people under their employment) may not engage in transactions with the foundation except to make donations to it, or under limited circumstances, to receive fair market value compensation for services. Examples of self dealing include:

- Purchasing items from or selling items to the foundation.
- Personal use of foundation assets or income.
- Borrowing money from the foundation.
- Retaining foundation assets (e.g., paintings) on private premises.

Who can open a private foundation?

The founder must be a U.S. citizen or resident alien who is at least 18 years old.

Who can a private foundation give money (make grants) to?

Private foundations typically carry out their philanthropy by making grants to recognized public charities. This includes churches and synagogues, educational, scientific and cultural institutions, poverty relief agencies or any other organization that qualifies as a 501(c)(3) charity according to the IRS.

Private foundations are generally precluded from making grants to political campaigns or organizations that exist to influence legislation and voting. In addition, Foundation Source ensures that grants are in full compliance with the requirements of the USA PATRIOT Act and OFAC (Office of Foreign Assets Control) sanctions, which preclude organizations and individuals suspected of, or known to be, engaging in criminal, terrorist, or other illicit behavior from receiving financial contributions from private foundations. (The Patriot Act and OFAC sanctions apply to donor advised funds and individuals as well.)

Can a private foundation make grants for political activities?

No. IRS rules generally prohibit private foundations from making grants to political campaigns or to organizations that exist to influence legislation and voting.

Can a private foundation own all or part of a family business?

Generally, no. The IRS has established rules against excess business holdings to keep a private foundation from owning a significant stake in a family business. We advise you to consult with your legal or tax advisor on any business issues.

Can I sell family assets to my foundation?

No. The IRS strictly prohibits self-dealing. Donors, donors’ parents, children and spouses, and people under their employment may not engage in transactions with the foundation, except to make donations to it. Under limited circumstances, they can receive compensation for their services at fair market value.

Tactical Wealth Advisors, LLP
Investment advisory services are provided through Tactical Wealth Advisors, LLP a Registered Investment Advisor. The information contained on this site is for educational purposes only, it is not intended to be professional tax or legal advise; consult a tax advisor about your specific situation.


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