How are foundations regulated?
The Internal Revenue Code governs the operations of both private foundations (including family, independent and company foundations) and public charities (community foundations and those nonprofit foundations that raise funds to make grants for specific types of programs). The rules governing private foundations are stricter in limiting foundation activities than are those for the public foundations. For example, private foundations: • Are required to pay out for charitable purposes each year an amount equal to 5% of the fair market value of their assets; • Pay an excise tax of 1% to 2% on their investment earnings; • Are prohibited from lobbying or political activity; • Are subject to very strict self-dealing or conflict of interest rules which make sure that there is no inappropriate private gain from the foundations activities; • File an annual information return with the IRS listing: all of the grants made during the year: their investment holdings: the names of those serving on th
