If you’re contemplating establishing a private foundation in order to run charitable programs, it might be unclear whether an operating or non-operating foundation would be the best choice. You might assume that an operating foundation would make the most sense if you primarily want to engage in some kind of “hands-on” work, such as running a food bank. However, there are excellent reasons why you might prefer a non-operating foundation instead. To fully understand which is best for you, this report details how operating and non-operating foundations compare.

First, it helps to understand how operating and non-operating foundations compare. All private foundations share these commonalities:

  • They are established for charitable purposes and to provide donors with a tax deduction for their contributions.
  • They receive most of their support from a small number of contributors and are normally controlled by their founders or substantial donors.
  • They must make charitable distributions throughout their taxable year.
  • They can run programs, provide services, and conduct direct charitable activities.

There are, however, significant differences between the two distinct categories of private foundations. At the most basic level, the primary difference between non-operating foundations and operating foundations is the extent to which a foundation’s resources and operations are dedicated directly to charitable activities and services, and whether such operations are carried on continuously or merely sporadically.