DAF vs. Private Foundation
The following chart provides a detailed look at the differences between a private foundation and a fund at the community foundation. The first section compares the two options as charitable giving vehicles. The second section looks at these options from an investment standpoint.| A Donor Advised Fund at the Community Foundation for Northern Virginia | A Private Foundation | |
|---|---|---|
| Annual Costs | Foundation Support Fees: 1.25% for funds from $10,000 to $1,000,000 1% for funds from $1,000,000 to $3,000,000 0.75% for funds above $3,000,000 |
Substantial expenses for administration, accounting, taxes, investment, and legal advice. |
| IRS charitable status | Shares the tax-exempt status of the Community Foundation 501(c)(3) & 509(a)(1) (public charity) |
Must apply for tax-exempt status via IRS Form 1023. 501(c)(3) (private foundation) |
| Governing body | An advisor to the fund may be established. A committee of family members and/or others can be named as advisors. Successive generations may participate in future giving. The Community Foundation has final approval for grants and administrative matters. |
Governing body may consist of donor and related persons. Governing body must approve all grants and administrative matters. |
| Tax treatment of cash gifts | Deductible up to 50% of adjusted gross income (AGI). | Deductible up to 30% of AGI. |
| Tax treatment of gifts of appreciated publicly-traded securities | Full market value deductible up to 30% of AGI. | Full market value deductible up to 20% of AGI. |
| Tax treatment of closely held stock or real estate | Full market value deductible up to 30% of AGI or cost basis up to 50 percent of AGI. | Deduction limited to donor's cost basis, up to 20% of AGI. |
| Deduction carry-over available | Five additional years | Five additional years |
| Ease of establishment, incorporation and tax exemption | One signed document, can be done in 24 hours or less. (Instrument of Transfer) Automatically covered by the Community Foundation's tax exempt status |
Corporation or trust required Must apply to IRS for tax-exempt status using Form 1023. (IRS may take six months or longer to process) |
| Investment | Professionally invested by Board-level committee. Funds established at $100,000 or more may continue to be managed by the donor's professional advisor. | Must secure and pay for investment advice. |
| Excise tax on investment income and net realized capital gains | None | Generally 2%; may be reduced to 1% under special circumstances. |
| Self dealing rules | Not applicable | Strict prohibition under IRC Section 4941. |
| Minimum payout requirements | None (can accumulate toward a sizable project or grant with no required payout). A Community Foundation fund has the flexibility to hold low yield property. | Yes (minimum 5% of average asset value each year under IRC Section 4942) A private foundation must meet the minimum distribution rules whether or not the foundation's investments earn that amount. |
| Restriction on private investment | Yes | Yes (in addition, you cannot engage in acts that may violate strict self dealing rules that apply only to private foundations) |
| Restriction on holding interests in business enterprises | No | Yes |
| Application of expenditure responsibility procedures for grants to organizations and programs that are not public charities | No | Yes (under IRC Section 4945 - taxable expenditure retax for failure to make "expenditure responsibility" investigations) |
| Possibility of advisory role for donor and family in grantmaking | Yes | Yes |
| Separate annual IRS tax return required | No | Yes |
| Privacy | Yes. Individual donors' fund assets size, gifts and grantmaking are kept private and confidential. No public disclosure of individual grants or donations is required. Donors are generally recognized for grants disbursed, but grants may be made anonymously. If a donor wishes, the Community Foundation can serve as the buffer between donors and grant-seekers. | No. (IRS Form 990-PF which is open to public inspection). Private foundations are required to file detailed tax returns on grants issued, investment fees, trustee fees, staff salaries, asset size, etc. and then publish a notice to the public that the tax return is available for public viewing. These are public records and are often compiled into grant-seeker directories. |
| Investment, accounting, audit and tax returns | The Community Foundation handles all investments and accounting, files annual tax return and provides annual independent audit. | Trustees must perform, contract or hire staff for these services. |
| General administration | The Community Foundation handles all financial and administrative management. | Trustees must perform, contract or hire staff for these services. |
| Grant administration | If donor wishes, the Community Foundation can identify potential recipients, investigate applicants, make grant payments and monitor performance. | Trustees must perform, contract or hire staff for these services. |
| Liability and insurance | Advisors to funds are covered by Community Foundation's liability and office insurance policies. Fundraising events and other activities will require insurance. | Any Directors and Officers liability insurance, employee bonding, and office insurance must be separately purchased. |
If you have any questions that have not been answered in this section, please contact us for more information.
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