Charitable giving options

Can private foundations give to individuals?

Yes, absolutely! While the majority of private foundation grants are directed towards public charities, the Internal Revenue Code permits foundations to award grants to individual recipients as well. However, certain guidelines must be followed to ensure the grants serve a charitable purpose and are distributed on an objective and nondiscriminatory basis. The foundation's governing documents must also authorize grants to individuals, and in some cases, advance approval from the IRS for grantmaking policies and procedures may be necessary.

Notably, certain types of grants to individuals, such as those aimed at disaster relief, economic distress, or recognizing artistic achievements, do not require pre-approval by the IRS, provided the foundation complies with the appropriate rules and procedures. Likewise, advance approval from the IRS is not needed if a private foundation runs a scholarship program by outsourcing the administration and selection of the winners to a third party such as a community foundation or a school. However, foundations that wish to directly manage their own scholarship program and participate in selecting recipients must obtain IRS approval in advance.

Beyond the common grants for disaster relief, other justifiable reasons for direct aid to individuals include supporting those affected by family illness, domestic violence, and job loss. Grants can be provided in various forms, such as cash stipends or physical items like food, clothing, blankets, and toiletries.

One compelling advantage of using private foundations to aid individuals and families in need is that the original donors can claim a tax deduction. This deduction is only allowable if the funds are first channeled into the foundation. Directly giving funds to the person in need without involving the foundation would not qualify for a tax deduction.

It is vital for foundations to adhere to the self-dealing rules, ensuring that neither the foundation leaders nor their families directly or indirectly benefit from the grants. Additionally, foundations must ensure that the group of eligible recipients is sufficiently large to prevent benefiting only a small, pre-selected set of individuals.

Supporting families and individuals directly can add a deeply personal dimension to philanthropy, potentially offering more rewarding experiences than sending grants solely to large nonprofit organizations.

Seeking expert guidance? We're here to help!

At CPA KPA, we're passionate about magnifying the positive impact of private foundations. Feel free to reach out to us anytime at 888-402-1780 for a complimentary and obligation-free conversation. You can also conveniently submit your questions and inquiries through our contact page. Let's connect today and explore how we can help your foundation have a lasting and meaningful impact!

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Charitable giving options