Can Private Foundations Accept Donations?

A private foundation operates as a non-governmental, nonprofit organization, typically established and funded by a single source such as an individual, family, or corporation. Its primary function involves making grants to support charitable endeavors. These organizations are legally permitted to accept various forms of contributions from diverse sources, which is fundamental to their operations and their ability to fulfill their philanthropic missions.

What Donations Private Foundations Can Accept

Private foundations can accept a broad spectrum of assets as charitable contributions. Cash remains the most direct form of donation, providing immediate liquidity for operations and grantmaking. Donors frequently contribute publicly traded securities, including stocks, bonds, mutual funds, valued at their fair market value at the time of the gift. Donating appreciated securities can offer tax advantages, as capital gains taxes may be avoided.

Real estate, encompassing property and land, is another asset type private foundations can accept. These donations, while valuable, often introduce complexities related to valuation, ongoing maintenance, and potential illiquidity. Tangible personal property, such as art, collectibles, or equipment, is also acceptable. The tax implications for donors of tangible personal property can depend on whether the foundation’s use of the item is related to its exempt purpose. Intellectual property, including patents and copyrights, represents a less common but permissible form of donation, though its valuation can present unique challenges.

Common Donor Types and Their Contributions

Private foundations receive contributions from a variety of sources. Individuals often contribute directly from their personal assets. Corporations also engage in philanthropic giving to private foundations, sometimes aligning with corporate social responsibility initiatives.

Other private foundations can provide grants to recipient foundations, fostering a network of charitable support. This inter-foundation giving is often subject to specific oversight requirements for the granting foundation. Public charities may also make grants to private foundations under certain conditions, contributing to specific projects or programs. Government entities can provide grants or enter into contracts with private foundations to support public-interest initiatives.

Understanding Donor Tax Implications

Donors who contribute to private foundations may qualify for income tax deductions, subject to specific limitations. For cash contributions, individual donors can generally deduct up to 30% of their adjusted gross income (AGI) in a given tax year. Contributions of appreciated property, such as long-term publicly traded securities, are typically limited to 20% of the donor’s AGI, with the deduction generally based on the fair market value of the securities.

For non-publicly traded assets like private company stock or real estate, the deduction to a private foundation is often limited to the donor’s cost basis rather than the fair market value. If a donor’s contributions exceed these annual AGI limits, the unused portion of the deduction can often be carried forward for up to five subsequent tax years. For non-cash contributions exceeding $5,000 (excluding publicly traded securities), a qualified appraisal is generally required to substantiate the deduction, and IRS Form 8283 must be completed.

Foundation Responsibilities for Accepted Donations

Upon accepting donations, a private foundation assumes several responsibilities. Providing a written acknowledgment to the donor is a legal requirement for contributions of $250 or more. This acknowledgment must detail the amount of cash or a description of any non-cash property received, and state whether any goods or services were provided in exchange for the contribution.

Accurate valuation of non-cash contributions is necessary, as it impacts the donor’s tax deduction and the foundation’s financial records. Record-keeping is fundamental for all donations received, ensuring transparency and compliance. Private foundations must report donations received to the Internal Revenue Service (IRS) on their annual information return, Form 990-PF. Schedule B of Form 990-PF requires detailed information for individual contributions of $5,000 or more. When a private foundation makes a grant to an organization that is not a public charity, it must exercise “expenditure responsibility” to ensure the funds are used for charitable purposes, involving pre-grant inquiries and follow-up reporting.

Limitations on Accepting Certain Donations

Private foundations can accept a wide array of donations, but specific limitations and challenges exist. Transactions with “disqualified persons,” such as substantial contributors or foundation managers, are heavily scrutinized under self-dealing rules. Accepting a donation from a disqualified person is generally allowed, but other financial interactions, like buying or selling assets with a disqualified person, are typically prohibited.

Private foundations are also subject to “excess business holdings” rules, which generally limit the combined ownership by the foundation and its disqualified persons to no more than 20% of the voting stock in an active business enterprise. Accepting donations that would cause the foundation to exceed these thresholds can lead to excise taxes. Unrelated Business Taxable Income (UBTI) arises from income generated by a trade or business activity that is regularly carried on and not substantially related to the foundation’s exempt purpose. If donated property, such as a business interest, generates UBTI, the foundation may incur income tax on that revenue at corporate rates, requiring the filing of Form 990-T if gross UBTI exceeds $1,000. Illiquid or hard-to-value assets like undeveloped land or private company stock are acceptable, but they can pose practical difficulties and costs for the foundation in terms of management and eventual conversion to liquid funds.