A Corporate Donor-Advised Fund or a Corporate Private Foundation? Which is Right for Your Company?

hawkins@growyourgiving.org Corporate Giving

A Corporate Donor-Advised Fund or a Corporate Private Foundation? Which is Right for Your Company?

As any corporate leader or director knows, in most cases there is more than one way to reach established company goals. When the goal is to streamline and maximize corporate charitable giving, the decision comes down to creating a private foundation or a corporate donor-advised fund.

Like retirement accounts, both have an end goal, but there are different types of accounts from which to choose, and your choice depends on needs, use and financial implications. To establish a corporate charitable foundation, you have two options.

Option 1: Establish a Private Corporate Foundation

The Internal Revenue Service (IRS) defines a corporate foundation as a nonprofit itself. A nonprofit has many managerial tasks that must be completed, as well as legal obligations to fulfill and tax rules to follow, including, but not limited to:

    • It must be a separate legal entity
    • It must have board members acting in its best interest
    • It must file quarterly reports with the IRS
    • It must register with and file financial statements at the state level
    • It must abide carefully by the IRS’s self-dealing rules
  • It might be required to register and renew annually to solicit charitable contributions in a majority of states in order to raise funds

In general, a private foundation is right for your company if your company wants to make grants directly to individuals in need or will need to pay administration staff from foundation assets. Keep in mind grants cannot begin to be distributed until the private foundation is registered with the IRS, which can take six to 18 months. Also, all grants distributed and to which nonprofits is public knowledge.

Option 2: Open a Corporate Donor-Advised Fund

A corporate donor-advised fund can act as a foundation, granting funds to causes your company supports. It is not a separate legal entity, so there are fewer rules by which to abide. A corporate donor-advised fund has tax advantages, such as:

  • Higher AGI tax deduction limitations
  • A fair market value deduction for gifts of real estate and closely held stock
  • Avoiding annual excise tax payments
  • Avoiding excise taxes on the sale of highly appreciated gifts

And, it creates efficiencies, including:

  • Saving the expense of corporate foundation registrations, renewals, filings and careful compliance oversight
  • Minimal time and effort on your staff’s part for foundation administrative duties
  • All charitable donations coming from one account for which you’ll receive one year-end statement for accounting purposes

Greater Horizons can set up a corporate donor-advised fund in as few as five days, allowing grants as soon as the fund is open. Since grants are distributed under the Greater Horizons name, giving is private.

A Side-by-Side Comparison of Corporate Donor-Advised Funds and Private Foundations

ADMINISTRATION & COST Corporate Donor-Advised Fund Private Foundation
Ease and Cost of Set Up
  • No set up costs at Greater Horizons
  • No minimum initial contribution
  • Foundation set up in a day or two
  • Complex set up
  • Legal costs and IRS 1023 application fees and expenses
  • Waiting period for IRS approval
Support
  • Greater Horizons provides personal service and acts as an extension of your team
  • Educational and networking opportunities
  • Company must provide internal or external administrative staff support
FLEXIBILITY & PRIVACY Corporate Donor-Advised Fund Private Foundation
Reporting
  • None
  • Greater Horizons provides recordkeeping and tax filing
  • Privacy maintained
  • Annual filing of IRS Form 990PF required disclosing grant recipients, financial information, staff salaries and more
Governance
  • Company-selected fund advisors suggest grant recipients and make investment decisions
  • Option to name advisory committee members
  • Required to name a board of directors
Investment Options
  • Fund assets invested in Greater Horizons pools
  • Funds >$100,000 may be invested through financial advisor
  • Maximum flexibility
Payment of Expenses
  • Cannot use donor-advised funds to pay fundraising or other expenses
  • May use foundation funds to pay legal, fundraising, administration and other expenses
Pay Staff/Family

No

Yes

Grant Recipients
  • Grant to 501(c)(3) charities in the United States, including educational institutions and religious organizations
  • Grant directly to individuals in need
TAX ISSUES & REGULATIONS Corporate Donor-Advised Fund Private Foundation
AGI Tax Deduction Limitations – Cash

60%

30%

AGI Tax Deduction Limitation – Long-Term Capital Gain Property (Publicly Traded Stock, Closely Held Stock and Real Estate)

30%

20%

Gifts of Qualified Appreciated Securities (i.e., Publicly Traded Stock)

Fair Market Value Deduction

Fair Market Value Deduction

Gifts of Real Estate of Closely Held Stock

Fair Market Value Deduction

Cost Basis Deduction

Excise Taxes on the Sale of Appreciated Gifts

No

Yes

Annual Excise Tax Payments

None

1.39% of Net Investment Income

Annual Minimum Distribution Requirement

None

5%

Need Guidance with Your Corporate Charitable Giving?

Greater Horizons has helped hundreds of companies across the country establish their corporate charitable foundations. Count on our experts to handle the administrative aspects, as well as guide you through strategic planning, trends in corporate giving, engaging employees, IRS compliance, matching gifts, making grants and whatever else you need to give back to the community that supports your company.

To learn more about corporate charitable foundations or if you would like our team to help you effectively and efficiently reach your charitable objectives, contact us.


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