Direct Charitable Activities

A client came to us with a great idea. She wanted to use her private foundation to purchase mittens, gloves, and scarves for underprivileged schoolchildren and distribute them directly, without the aid of a charitable organization other than her own. She wanted to leverage her own relationships, labor, and funding to carry out this task, but did she need to rely on a grantee partner?

We explained that because private foundations are legally empowered to undertake their own charitable activities, she didn’t need to work through an outside organization. There is a misconception that foundations must support good works only through grants to 501(c)(3) public charities. The truth is that the foundation itself can play a central role in running its own programs.

There’s a second misconception: If you want to run your own programs, it is best to establish an “operating” foundation. This is not true. A private foundation does not need to be classified as operating in order to carry out its own hands-on programs, commonly called direct charitable activities (DCAs). In fact, the IRS gives non-operating foundations wide latitude to directly fund or actively participate in running their own programs. And non-operating foundations offer greater flexibility, since they are permitted to make grants as well as run programs. Moreover, there is no strict limit on the number of DCAs that a non-operating foundation may undertake.

Operating foundations may make sense for those who want to solely operate their own programs; however, donors would be well advised to think carefully about their objectives before opting to establish this less versatile charitable vehicle. Operating foundations are subject to a series of annual tests to ensure that the bulk of their resources go toward running their own programs. Moreover, grants to public charities do not count toward an operating foundation’s minimum distribution requirement.