Generally, it is possible for an existing private foundation to become a supporting organization of a community foundation. Donors considering a private foundation will also want to consider the supporting organization option as a way to reduce administrative costs and headaches. Besides easing the administrative and cost burdens of managing a private foundation, supporting organizations have “public charity” status by virtue of their relationship to the Community Foundation. Public charity status can be substantially more beneficial to the donor than private foundation status in terms of tax benefits and regulatory burdens. For example, a gift of real estate to a supporting organization will receive a full market value deduction whereas a gift of the same real estate to a private foundation will receive only a cost basis deduction.
Section 507 of the Internal Revenue Code permits termination of a private foundation in either trust or corporate form with distribution of its assets to a public charity. The two primary requirements for the termination of a private foundation are that the private foundation must distribute all of its net assets to one or more tax-exempt organizations and that each organization has been in existence for a continuous period of at least five years preceding the distribution. The Community Foundation of Northern Colorado fulfills both of these requirements and the private foundation's assets typically form a permanent donor advised fund under a similar name.
The supporting organization option requires careful consideration by your client and the Community Foundation of Northern Colorado Board of Directors. Please contact our staff
for more information on this option, or to discuss a particular client's needs.