Michigan Business Lawyer Blog

A private foundation is a separate legal entity that is recognized as a charitable organization by the Internal Revenue Service. Generally, most private foundations are set up as nonprofit corporations, although it is possible to set up a private foundation as a trust. A corporation is formed by filing the required paperwork with the designated state agency. In Michigan, that paperwork is called the "Articles of Incorporation" and the state agency to which the Articles must be submitted is called the Michigan Department of Labor and Economic Growth. Certain "magic" language must be included in the Articles regarding the foundation's charitable purpose in order for it to be able to qualify as a recognized private foundation under IRS rules.

After a trust or non-profit corporation is created, the foundation's purpose clause is further developed in the Bylaws. The Bylaws contain the internal rules for governing the foundation and adminstering it so that it accomplishes its charitable purposes. The Bylaws cover many topics, such as selection and operation of the Board of Directors and appointing officers to oversee the foundations day-to-day activities. As with any enterprise, it is important to carefully designate a Board of Directors and develop a succession plan.

Once these items have been taken care of, Michigan private foundations must file the Charitable Solicitation Questionnaire with the State of Michigan to inform the Attorney General whether the foundation intends to solicit funds from the public. An Application for Recognition of Exemption/Form 1023 is then submitted to the IRS. It takes approximately 3 months for the IRS to grant written approval of the foundation as a tax-exempt organization. Annually, Form 990PF must be submitted to the IRS to report financial information, including contributions received, income and expenses.

My next (and last) post on this subject will go over some of the excise tax issues that private foundations must deal with.