One of the most common questions we receive is, “Can my foundation accept donations from other people?” The short answer is, YES!
A private foundation can raise money from “outsiders”, like other family members, friends, strangers and companies. Corporate foundations often receive funds from vendors and employees. However, there are some aspects that the directors of a private foundation should consider when fundraising.
- Tax Deduction Limits
- Disqualified Persons
- Charitable Solicitation
Tax Deduction Limits
The limits for tax deductions are different for a private foundation than they are for a public charity. Cash gifts are limited to 30% of adjusted gross income (AGI). The various types of property donations are limited to 20% of AGI. Corporations are limited to 10% of their taxable income. All limits are on an annual basis. Any contribution in excess of the limit in a given year can carry forward for up to five years.
Disqualified Persons
A contributor who makes a significant gift may become a “substantial contributor” and therefore a “Disqualified Person” (DP) with regard to the private foundation. DPs are subject to the self-dealing rules. A substantial contributor is any person who has contributed more than $5,000 to a private foundation or has contributed more than 2% of the total contributions received by the foundation since its inception.
Because of the attribution rules under section 4946, if a contributor is a substantial contributor, then a business owned by a substantial contributor and family members of the substantial contributors may also be DPs. If a business is a substantial contributor / DP, then owners of the business may be DPs as well.
Status as a DP matters mostly in that the DPs cannot enter into most kinds of transactions with the private foundation. For example, if the private foundation were having a fundraising event and a vendor became a DP because of a gift, the private foundation would not be able to contract with the vendor to provide catering to the private foundation event.
Charitable Solicitation
If a private foundation solicits contributions from the public, it may need to register to do so. Most states require some type of charitable solicitation registration and an annual report of the contributions received. Some states also require disclosure language to be used when soliciting donations.
Registration is not required if a charity, operating on a purely local basis or within a limited geographic area, makes clear on its website that its fundraising focus is limited to that area even if it receives contributions from outside that area occasionally.
At Foundation Launch, we stay up to date with the various state rules and regulations so that you can focus on your philanthropy.
