Hunton Law

Legal Counsel for Nonprofit & Tax-Exempt Organizations

Legal Counsel for Nonprofits, Foundations & Social Enterprises

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.