Options for Transferring a Private Foundation to The Community Foundation:

The Donor Advised Fund Option

Assets of a private foundation may be used to establish a donor advised fund, unrestricted fund, field of interest fund , scholarship or designated fund at the Community Foundation. In the donor advised format, the private foundation Board of Directors may become advisors to the fund and thereby work with the Community Foundation to set priorities for grant-making and request specific grant disbursements to be made.

The Supporting Organization Option

Generally, it is possible for a private foundation to become a supporting organization of The Community Foundation. Besides easing the administrative and cost burdens of managing a private foundation, transferring it to The Community Foundation will permit your client take advantage of the Foundation's public charity status. Section 507 of the Internal Revenue Code permits termination of a private foundation in either trust or corporate form with distribution of its assets to a public charity. The two primary requirements for the termination of a private foundation are that the private foundation must distribute all of its net assets to one or more tax-exempt organizations and that each organization has been in existence for a continuous period of at least five years preceding the distribution. The Community Foundation fulfills both of these requirements. When the public charity is The Community Foundation, the private foundation's assets typically form a permanent donor advised fund under a similar name.

Steps to Terminate a Private Foundation and  Transfer Assets to a Fund at The Community Foundation

A private foundation termination into a component fund at The Community Foundation is fairly simple. A private foundation will be terminated if it distributes all of its net assets to a component fund. There is no need to notify the IRS in advance. However, there is a final income tax return that the private foundation must file. The transfer must be of all rights, title and interest to all of its net assets.

If the private foundation is liable for any taxes, the liability carries over to The Community Foundation. While the contribution to The Community Foundation cannot have any material restrictions, it is not a material restriction for The Community Foundation to pay these taxes. (see section 507 of the Internal Revenue code and related Treasury Regulations). Consequently, the component fund at The Community Foundation established with the transfer of the private foundation's net assets can be charged with any taxes or other obligations associated with the private foundation.