Private Foundations and Public Charities — Definition and Classification (Portfolio 876)

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Detailed Analysis

I. Introduction

A. General

B. Background

II. Organizations Subject to Classification

III. Advantages and Disadvantages of Public Charities and Private Foundations

A. General

B. Public Charities

C. Private Operating Foundations

IV. Scope of § 509

A. Organizations Subject to § 509

B. Relationship Between § § 501(c)(3) and 509

C. Presumption of Private Foundation Status

D. Termination of Private Foundation Status

V. Public Charity Status Based on Activities: § 509(a)(1) Organizations

A. General

B. Modification of § 170(b)(1)(A)

C. Effect of TRA '69 on § 170(b)(1)(A)

D. Organizations Qualifying Under More Than One Paragraph of § 509(a)

E. Summary of Organizations Described in § 509(a)(1)

F. Statutory Activity as Principal Activity

G. Churches and Conventions or Associations of Churches

H. Certain Educational Organizations

I. Certain Hospital and Medical Research Organizations

1. Hospitals

2. Medical Research Organizations

3. Cooperative Hospital Service Organizations

J. University Endowment Foundations

1. In General

2. Cooperative Service Organizations of Educational Institutions

K. Governmental Units

VI. Publicly Supported Organizations

A. General

B. Application of § § 170(b)(1)(A)(vi) and 509(a)(2)

VII. Section 509(a)(2) Organizations

A. General

B. Determination of Support

C. Public Support

1. General

2. Limitation on Public Support

a. Disqualified Persons

b. Government Bureaus

D. Distinction Between § 509(a)(2)(A)(i) and (ii) Receipts

1. Gifts and Contributions Distinguished from Gross Receipts

2. Grants Distinguished from Gross Receipts

3. Membership Fees

E. Unrelated Business Activities

F. Gross Investment Income

G. Special Rules of Attribution

1. Attribution of Investment Income

2. Relationships Created for Avoidance Purposes

H. Definition of "Normally" for Purposes of Determining Support

1. General Rule

2. Exclusion of Unusual Grants

3. Newly Created Organizations

a. No Advance Ruling

b. Advance Ruling

I. Effect of Ruling on Grantors and Contributors

1. General

2. Special Situation

VIII. Section 170(b)(1)(A)(vi) Organizations

A. General

B. 1966 Regulations

1. "Mechanical" Test

a. Support

b. Public Support

2. "Facts and Circumstances" Test

a. Factors Considered

b. Scope of "Facts and Circumstances" Test

C. Effect of § 509(a)(2) on 1966 Regulations

D. Current Regulations

1. General

2. 3313% of Support Test

3. Revised Definition of "Support"

4. "Facts and Circumstances" Test

a. Percentage of Support

b. Sources of Support

c. Representative Governing Body

d. Availability of Public Facilities or Services

e. Public Participation in Programs or Policies

f. Membership Organizations

5. Definition of "Normally"

a. Existing Organizations

b. New Organizations

E. Organizations Qualifying Under Both § 509(a)(1) and (2)

IX. Community Trusts

A. General

B. Problems Under 1966 Regulations

C. Proposed Regulations

1. Support Test

2. Structural Test

3. Administration Test

4. Distribution Test

5. Newly Created Organizations

6. Status of Component Trusts

D. Final Regulations

1. General

2. Treatment as a Single Entity

a. Name

b. Common Instrument

c. Common Governing Body

d. Exercise of Powers

e. Rate of Return

f. Common Reports

g. Component Parts

3. Transitional Rules

a. Eligible Organizations

b. Substance of Transitional Rules

X. Supporting Organizations: § 509(a)(3)

A. General

1. Purpose Requirement

2. Relationship Requirement

3. Control Requirement

B. Background

C. Purpose Requirement

1. Organizational Test

a. Purposes

b. Specified Organizations

2. Operational Test

3. Noncharitable Beneficiary Organizations

D. Relationship Requirement

1. "Operated, Supervised, or Controlled By"

2. "Supervised or Controlled in Connection With"

3. "Operated in Connection With"

a. Responsiveness Test

b. Integral Part Test

c. Transitional Rules for Certain Pre-1970 Trusts

E. Control Requirement

1. General

2. Proof of Independent Control

XI. Section 509(a)(4) Organizations

XII. Private Operating Foundations

A. General

B. The Income Test

1. Qualifying Direct Distributions

2. "Substantially All"

3. Adjusted Net Income

4. Minimum Investment Return

C. The Alternative Tests

1. Assets Test

2. Endowment Test

3. Support Test

D. Computation Periods

E. Exempt Operating Foundations

XIII. Special Private Nonoperating Foundations

A. General

B. Distributing Foundations Under § 170(b)(1)(A)(vii) and (E)(ii)

C. Private Foundations Maintaining a Common Fund Under § 170(b)(1)(A)(vii) and (E)(iii)

XIV. Foreign Exempt Organizations

A. General

B. Comparison of Taxes on Investment Income of Foreign and Domestic Private Foundations

C. Withholding on Foreign Exempt Organizations

XV. Nonexempt Charitable Trusts

A. General

B. Charitable Trusts

1. Definition

2. Application

C. Split-Interest Trusts

1. Definition

2. Application

3. Exemption from Certain Excise Taxes


Working Papers

Table of Worksheets

Other Sources

Worksheet 1 Legislative History Materials

Worksheet 2 I.R.M. 7.8.3, Private Foundations Handbook, Ch. 2â€"6

Worksheet 3 Checklist for Public Charity or Private Foundation Status

Worksheet 4 Letter to Founder of Newly-Created Private Foundation

Worksheet 5 IRS National Office Section 501(c)(3) Determination Letter





Legislative History:

Treasury Rulings: