Forming a corporate foundation presents a terrific opportunity to better organize, focus, track, and publicize a company’s philanthropic efforts. They are typically set up as a private foundation and are exempt from federal income tax under IRS section 501(c)3. The foundation benefits from the financial resources, networks, and expertise of the company, while the parent company benefits from the positive impact and reputation associated with its philanthropic endeavors.
Benefits
- Tax Benefits
- Corporations can deduct up to 10% of taxable income.
- Corporations can carry forward any contributions that exceed the 10% threshold up to five years.
- Charitable contributions via S-Corporations and other pass-through entities are deductible on the shareholder/partner personal tax return (up to 30% of adjusted gross income each year with ability to carry forward five years).
- Receive a current year tax deduction and decide later how the funds should be distributed.
- Contributing to a corporate foundation permits a corporation to level out peaks and valleys in corporate giving by making more contributions to the foundation during profitable years and little if any when profits are down. The corporation can make the gift and receive the tax benefits in a profitable year and still have funds available to support philanthropy in lean years.
- Improve brand image and reputation by engaging in philanthropic efforts and fostering positive associations with customers and stakeholders.
- Increase employee engagement and morale, as employees feel proud to be part of an organization that actively contributes to society.
- Can make gifts subject to terms to ensure grants are used as intended.
- Protect executives from fielding funding requests by permitting them to direct such requests to the foundation.
Considerations
Foundations must comply with applicable laws and regulations, including annual reporting requirements to the Internal Revenue Service. They must distribute for charitable purposes at least 5% of the fair market value of the previous year’s assets (less expenses). They are subject to a 1.39% excise tax on net investment income each year. Foundations must must also avoid the following or face penalty excise taxes:
- Self-dealing transactions with insiders.
- Ownership of “excess business holdings” which is greater than a 20% interest in any one business.
- Risky investments that jeopardize the accomplishment of the foundation’s charitable purposes.
- Taxable expenditures including contributions to individuals, other private foundations, or non-charitable organizations.
- Buying tables at charity dinners.
- Making matching grants that fulfill the pledges made by the company or insiders connected to the company.
- Rent office space from the company.
Alternatives
Direct Giving is the easiest and cheapest option. As the name implies, the company makes donations directly to various charities. Direct Giving is a good option for a company starting in philanthropy. There are almost no administrative costs besides the gift itself and the time involved in making the decision of what, how, and to whom to give. On the other hand, having some kind of intermediary allows a company to smooth giving over time, provides marketing and branding benefits, and helps to prevent ad hoc giving by encouraging the development of a strategy.
A Donor Advised Fund (DAF) is a separate fund created and held at a public charity or charitable affiliate of a financial services provider. The company contributes funds or assets to the public charity, which allocates them to the DAF. The company, or someone appointed by the company, retains the right to advise or recommend charitable grants from the DAF. A company that creates a donor advised fund must understand that it gives up legal control and ownership of the assets once given to the sponsoring organization. Gifts from the fund to charities it suggests are “made possible by” the company, but the company has no direct relationship to the ultimate grantee.
Examples - (Fiscal year 2022)
There are 3,329 corporate foundations in the United States. Combined, these corporate foundations employ 2,449 people, earn more than $16 billion in revenue each year, and have assets of $109 billion. CauseIQ
Allstate Foundation - We empower youth, work to advance racial equity and disrupt the cycle of relationship abuse. We also invest in nonprofit leaders. Because we believe in better for all.
- Tax-Exempt Year: 1954
- Contributions: $30M
- Total Assets: $106M
- Grants Made: $36M
Bank of America Charitable Foundation - Our mission is to make a meaningful difference in the communities we serve by identifying local priorities and consistently delivering financial and human resources to address those challenges.
- Tax-Exempt Year: 2004
- Contributions: $77M
- Total Assets: $13M
- Grants Made: $314M
Caterpillar Foundation - We build thriving communities by investing in the skills people need to join the modern workforce, and the natural and vital infrastructure they rely upon.
- Tax-Exempt Year: 1953
- Contributions: $59M
- Total Assets: $152M
- Grants Made: $43M
Coca-Cola Foundation - Our mission is to make a difference in communities around the world by investing in transformative ideas and institutions that address some of our most pressing global challenges.
- Tax-Exempt Year: 1984
- Contributions: $50M
- Total Assets: $95M
- Grants Made: $267M
ExxonMobil Foundation - Our strategic focus is to support education with an emphasis on math and science in the United States, promoting women as catalysts for economic development and ending deaths from malaria.
- Tax-Exempt Year: 1957
- Contributions: $0
- Total Assets: $131M
- Grants Made: $25M
GE Foundation - We are committed to inspiring the next generation of engineers to build a world that works.
- Tax-Exempt Year: 1985
- Contributions: $35M
- Total Assets: $3M
- Grants Made: $36M
Otter Cares Foundation - Our dream is to empower kids to turn their ideas into new products, processes and businesses. And to use those same ideas, lessons and methods to found more effective and self-sustaining nonprofit organizations.
- Tax-Exempt Year: 2011
- Contributions: $2M
- Total Assets: $8M
- Grants Made: $1M
UPS Foundation - Our mission is to create a more equitable and just world.
- Tax-Exempt Year: 1953
- Contributions: $53M
- Total Assets: $13M
- Grants Made: $48M
Verizon Foundation - Our mission is to solve critical issues in the areas of: Education - STEM education for K-12 youth, Domestic Violence Education and Prevention.
- Tax-Exempt Year: 1987
- Contributions: $6M
- Total Assets: $27M
- Grants Made: $6M
