26 Cfr § 564911-4 - Exempt Purpose Expenditures - Legal 2016-2024

26 Cfr § 564911-4 - Exempt Purpose Expenditures - Legal: What You Should Know

Tax Treatment of Expenditures by a Private Foundation. (a) Expenditures and Tax-Exempt Activities. Expenditures by a private foundation do not require an individual tax identification number (or even the identification of “a nonprofit organization” as defined in § 170(c)(2)(C)) and are not subject to Federal income tax. Exemption from the payment of tax, however, does depend on the exemption designation of the Foundation, the type (i.e. public or for- profit), and the period of time the foundation has been in existence. All of these determinations are made at the time of the foundation's initial foundation report as well as annually at the time the foundation makes a separate report of the status of its separate status to the IRS at IRS.gov/FAR. Public Foundation Exemption Procedures. (1) General Requirements. (i) Definition of a Foundation. Section 170(c)(4) provides that a Foundation is a private organization, not a public charity. § 170(c)(4) is discussed in greater detail elsewhere in this regulation in § 4911(a) — (c) of the tax regulations (the section to which this rule does not apply). (ii) Period of Time for Dedicated Functions. All foundations have a period of existence of five years from the date of its establishment. A period of years for an organization which does not have an established tax-exempt status is a one-year period. (iii) Effective Date for Foundation Reports. The IRS may require a foundation to include in its foundation report a detailed accounting of the foundation's activities before the last day of the Foundation's existence for purposes of determining the tax-exempt nature of the foundation during its life. See 26  § 51. ‐. (3) General Requirements. a. Determination of Tax Exemption by the IRS. The Foundation (or Foundation's independent legal custodian) must first determine the exempt purpose or the tax-exemption interest it is accorded. Section 45.2-202 outlines the process for determining the purpose of the foundation. This section also outlines the procedures for determining tax-exempt status by the IRS. (b) Tax-Exempt Activities. It shall be determined at the end of the five-year period that the purpose of the Foundation is primarily to provide a public benefit, not to make a profit, and will be sustained by a continuing series of dedicated services and programs.

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