Originally published in the Wisconsin Philanthropy Network’s blog.
Many company foundations (and even some family foundations) want to know whether their private foundation can accept contributions from people or entities other than the donor (and his family) or the company that created the private foundation.
Yes—a private foundation can raise money from “outsiders”, including family friends, company vendors and employees. A private foundation is a section 501(c)(3) organization, and while private foundations have special rules, no rule prohibits the organization from receiving charitable contributions. However, there are a few issues that a private foundation should consider when fundraising.
First, the charitable income tax deduction limitations are different. For instance, a cash gift can only be deducted by the donor up to 30% of his or her adjusted gross income (instead of 60% of AGI for a public charity).
Second, a contributor who makes a significant gift may become a “substantial contributor” and therefore a “Disqualified Person” with regard to the private foundation. Disqualified persons are subject to the self-dealing rules. A substantial contributor is any person who has contributed more than $5,000 to a private foundation, if that contribution is also more than 2% of the total contributions received by the foundation (since the inception of the private foundation). Because of the attribution rules under section 4946, if a contributor is a “substantial contributor”, then a business owned by a substantial contributor and family members of the substantial contributors may also be Disqualified Persons. If a business is a substantial contributor / Disqualified Person, then owners of the business may be Disqualified Persons as well.
Status as a Disqualified Person matters mostly in that the DPs cannot enter into most kinds of transactions with the private foundation. For example, if the private foundation were having a fundraising event and a vendor became a DP because of a gift, the private foundation would not be able to contract with the vendor to provide catering to the private foundation event.
Thirdly, if a private foundation solicits for contributions among the public, it should be registered to solicit contributions. Most states require some type of registration for charities and others soliciting funds for charitable purposes. Typically, state charitable solicitation statutes require charitable organizations that solicit for contributions to register and annually report on their contributions. There may also be required disclosure language.
Wisconsin requires charitable solicitation registration. This is completed on Form #296 located on the Wisconsin Department of Financial Institution website. Once registered, the organization must file annual reports (which mostly include information from the organization’s Form 990).
Foundations oftentimes want to fundraise via the internet. The National Association of State Charity Officials has issued guidelines about when a charitable organization’s website and other fundraising activities require registration in a state where the organization lacks a physical presence.
If a charitable organization has a website that allows the website visitor to make a donation on-line, the charitable organization should register in the state if:
The organization specifically targets persons located in the subject state for solicitation (i.e., by sending e-mail messages or other communications that promote the site), or
The organization receives contributions from the state on a “repeated and ongoing basis or a substantial basis” through its website.