Private Operating Foundations
A private operating foundation (“POF”) is a type of private foundation that directly conducts tax-exempt activities (i.e.g, activities that can be described as charitable, educational, religious, scientific, and other Section 501(c)(3) exempt purposes).
Unlike a private nonoperating (grant-making) foundation, which is required to distribute funds in furtherance of tax-exempt purposes, a POF may only devote a small portion of its resources towards grant-making.
Like a public charity, a POF must meet the Section 501(c)(3) organizational and operational tests. Unlike a public charity, however, a POF does not have to demonstrate that it is publicly supported.
Let’s say a founder is considering creating an exempt organization from a single funding source or a handful of funding sources (such as a contribution from one or several individuals and/or companies), and the organization's main focus will be to develop and operate programs, rather than to distribute funds to other exempt organizations. In this example, the organization will (i) spend a significant portion of its funding to create a public information campaign that increases awareness about new health insurance options available under the Affordable Care Act, and (ii) spend a small portion of its funding to award grants to other organizations that play a strategic role in implementing this public information campaign. This type of exempt organization described here would be a good candidate for POF status.
Two significant benefits of POF status: (1) a POF is not required to annually distribute income like a grant-making foundation is required to do, and (2) contributions to a POF are generally deductible by donors to the extent of 50 percent of the donor’s adjusted gross income, whereas contributions to all other private foundations are generally limited to 30 percent of the donor’s adjusted gross income.