The private foundation is a unique expression of Americans’ commitment to voluntary charitable giving. If you are interested in creating a foundation, be sure to seek advice from a knowledgeable attorney or other expert who is familiar with Pennsylvania law. Assistance from GWP is also available; please contact Barbara Taylor.
Why Establish a Foundation?
A critical question! Consider your philanthropic goals, the ways you’d like to give your time, the impact you’d like to have in your community and any tax considerations. With those in mind, you’ll be ready to select the appropriate vehicle for your giving.
Those interested in creating a foundation should give careful thought to the kinds of questions below:
- Why are we forming the organization: to give back to the community, create a vehicle for family philanthropy, get involved in solving community issues?
- Who will lead and manage it? Who will serve on the board of directors?
- Is our preference to create a permanent legacy or to set a certain time period to spend down the assets?
- Are we prepared to take on the administration and management, or do we want to delegate that work to staff or other professionals?
- What are the tax consequences (for income, gift and/ or estate taxes)?
These questions are a good starting point – but they do not substitute for professional advice and guidance. Feel free to contact GWP at 412-471-6488 for additional resources and information.
What are the Steps to Create a Foundation?
A charitable organization must first be created under state corporate law. The most common options are either a trust or a corporation. Whatever legal entity is ultimately selected, it will be regulated by state law, so it is important that you and your advisors ensure you comply with local filing requirements.
After the organization is formed, its leaders must apply to the IRS for it to be recognized as a tax-exempt charity. For most organizations, this will entail completing a Form 1023. The IRS reviews the 1023 application and determines whether the organization should be considered a 501(c)3 charitable organization, and if so, whether it should be considered a private foundation or public charity. Once the tax exemption is approved, the organization will not have to pay federal income tax and it will be able to accept tax-deductible gifts.