Some individuals and corporations choose to establish and administer independent private foundations. These philanthropic organizations (there are more than 70,000 in the United States) offer their sponsors maximum control over grant-making and investments, and allow them to build a legacy of giving.

A Private Foundation is just like any other charity. The IRS classifies all charities as "Public Charities" or "Private Foundations" solely on the basis of the organizations' source of funds. If a charitable organization has only one donor (such as a charity established by a family) the IRS calls the charity a "Private Foundation." To establish a private foundation, you must create the organization, establish a board, and apply to the IRS for tax-exempt status. Once approved, the foundation is subject to requirements such as: 

  •  Paying an excise tax of 2% (in the usual case) of net investment income. 
  •  Filing IRS Form 990-PF each year and meeting other reporting requirements. 
  •  Distributing at least 5% of net investment assets to qualified charities and 
     organizations each year.

Establishing and maintaining a foundation requires the assistance of lawyers, accountants, and administrators. Grants from private foundations are a matter of public record, and their donors are subject to lower deduction limits than public charity donors.