Article
How to qualify for and retain your status as a private operating foundation
April 28, 2021 · Authored by Mike Lumsden, Pam Alexanderson
A private operating foundation could be a great tool to direct funding to a specific cause while affording a donor a larger charitable donation deduction. But first, a private foundation has to qualify for this status.
Below, learn how to qualify for operating status, why it’s beneficial to do so, and how you can retain that status over time.
What is a private operating foundation?
A private operating foundation is a private foundation that conducts charitable activities as opposed to solely making charitable grants. Because of this emphasis on charitable activities, a private operating foundation receives many of the same tax benefits as a public charity without needing to adhere to the public support test requirements.
An organization must meet a number of requirements and restrictions to qualify as a private operating foundation — and to enjoy the numerous benefits associated with this status.
How do you qualify as a private operating foundation?
A foundation must annually meet an income test and one of three other tests to qualify for and retain its status as a private operating foundation. As an exception to this rule, a foundation in its first year of existence may be treated as an operating foundation if it makes a good-faith determination that it’ll meet the tests in its first year.
How can a private foundation become a private operating foundation?
If a private foundation’s main activity is running one or more charitable programs, it can be classified as a private operating foundation.
For a more detailed overview of private foundations, including distribution rules and income classifications, please read
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