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TOOLS FOR DONORS AND FINANCIAL PLANNERS Private Foundation Conversion I. ADVANTAGES OF PRIVATE FOUNDATION CONVERSION The IRS, through a 2003 Revenue Ruling, created a penalty free process of converting a private foundation to an affiliated fund within a public foundation such as, the Nebraska Community Foundation (NCF). The advantages of such a conversion include: ¨ Not being bound by the 5% annual disbursement rule ¨ Eliminates the annual excise tax on net investment income ¨ Reduce cost of administration by not having to comply with IRS required tax filings and audits ¨ Continued involvement of family members in the grant making process ¨ Increased privacy as an affiliated fund at the Nebraska Community Foundation is not made public knowledge unless requested by the family ¨ Greater tax benefits for future contributions
II. IMPORTANT CONSIDERATIONS This conversion to an affiliated fund of NCF would not create noticeable change; it would be a seamless process: ¨ All grant making decisions will made by the Fund Advisory Committee of the new fund, usually the existing board of the private foundation ¨ Investment decisions will continue to be made by the fund advisory committee ¨ The “public face” of the affiliated fund will be determined by the fund advisory committee.
III. THE CONVERSION PROCESS FOR PRIVATE FOUNDATIONS As NCF is a 501(C)(3) public charity with permanent status (a charity that has been in existence for at least 60 months and is deemed to be in full and current compliance). If all of the assets of a private foundation are transferred to NCF, the private foundation may terminate and will not owe any Sec. 507 (c) tax and is not required to give notice to Treasury (or the IRS). The steps in this process include: ¨ Draft an agreement with NCF that will govern the new affiliated fund. This will specify the Fund Advisory Committee members, (usually existing board of the private foundation). Plus, directions for disbursements from the fund and suggestions for the investment of the assets. ¨ The private foundation board needs to approve the concept and the agreement drafted for the new fund at NCF. This is often expressed through a resolution drafted by the private foundation’s attorney. ¨ The private foundation transfers its remaining assets to the new affiliated fund at NCF. ¨ The private foundation files a final tax return for the private foundation.
For more information, contact: Doug Friedli, Development Director, at 402/323-7343 or dougfriedli@nebcommfound.org, or Jim
Gustafson, Planned Giving Director, at 402/323-7341 or jgustafson@nebcommfound.org.
This
information is of a general character only and is not intended as legal
advice. |
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Nebraska Community Foundation PO Box 83107 Lincoln, NE 68501 Phone: (402) 323-7330 Fax: (402) 323-7349 E-mail: webmaster@nebcommfound.org |
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