Foundation (United States Law) - Types

Types

In the United States, an entity with "foundation" in its name would generally be expected in most cases to be a charitable foundation. However, an organization may have the word "foundation" in its name and not be a charitable foundation of any sort. However, state law may impose restrictions. For example, Michigan permits its use only for nonprofits with "the purpose of receiving and administering funds for perpetuation of the memory of persons, preservation of objects of historical or natural interest, educational, charitable, or religious purposes, or public welfare." The distinction between charitable organizations and non-profit organizations elaborates on this point.

The Internal Revenue Code defines many kinds of non-profit organizations which do not pay income tax. However, only charitable organizations can receive tax-deductible contributions and avoid paying property and sales tax. For instance, a donor would receive a tax deduction for money given to a local soup kitchen if the organization was classified as a 501(c)(3) organization, but not for giving money to the National Basketball Association, even though the NBA is a non-profit association. Neither a public charity nor a foundation can pay for or participate in partisan political activity, unless they surrender tax-exempt status including voiding the deductibility of any tax deductions for donors after the surrender or revocation date.

Tax-exempt charitable organizations fall into two categories: public charities and private foundations. A community foundation is a public charity. The US Tax Code in 26 USCA 509 governs private foundations. Meanwhile 26 USCA 501(c)(3) governs public charities.