Private Foundation Conversion

Advantages of Private Foundation Conversion

 

The IRS, through a 2003 Revenue Ruling, created a penalty free process of converting a private foundation to an affiliated fund within a public foundation such as the PineBelt Community Foundation. Click here for a chart of the advantages of using a Community Foundation vs. a Private Foundation.

The advantages of such a conversion include:

  • Not being bound by the 5% annual disbursement rule
  • Eliminates the annual excise tax on net investment income
  • Reduces costs of administration by not having to comply with IRS required tax filings and audits
  • Continued involvement of family members in the grant making process
  • Increased privacy, the PineBelt Foundation can set up an anonymous fund.
  • Greater tax benefits for future contributions

The Conversion Process for Private Foundations
The PineBelt Community Foundation is a 501(c)(3) public charity with permanent status. If all of the assets of a private foundation are transferred to the PineBelt Community Foundation, the private foundation may terminate and will not owe any Sec. 507(c) tax and is not required to give notice to Treasury (or the IRS). The steps in this process include:

  • Draft an agreement with PineBelt Foundation that will govern the new affiliated fund. This will specify directions for disbursements from the affiliated fund and suggestions for the investment of the assets.
  • The private foundation board needs to approve the concept and the agreement drafted for the new affiliated fund at PineBelt Foundation. This is often expressed through a resolution drafted by the private foundation’s attorney.
  • The private foundation transfers its remaining assets to the new affiliated fund at PineBelt Foundation.
  • The private foundation files a final tax return for the private foundation.

 

For more information please contact Theresa Erickson, Executive Director at contact@PineBeltFoundation.org or call 601.583.6180