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For new nonprofits
How to start a private foundation
A private foundation is a 501(c)(3) usually funded by a single source, a family, individual, or company, that mostly makes grants rather than running its own programs.
The setup looks much like any nonprofit, but once you are running, the IRS treats foundations differently: stricter rules, an annual payout requirement, and a different tax form. Here is what is the same, what is different, and how to decide.
This is general information, not legal or tax advice. Foundations carry rules a professional can help you navigate.
Private foundation basics
| What it is | A 501(c)(3) funded by one source that mostly makes grants |
| Versus a public charity | Public charities draw broad public support; foundations do not |
| Federal form | IRS Form 1023, the full version (rarely the EZ) |
| Annual filing | Form 990-PF, not the standard 990 |
| Payout rule | Distribute about 5% of assets each year |
| Excise tax | About 1.39% on net investment income |
Is a private foundation the right structure?
Start here, because it is easy to over-build. If you want to run programs and raise money from the public, a public charity is simpler and comes with lighter rules. A private foundation fits when one source funds it and its main activity is grantmaking, and when the funder wants lasting control. If you mostly want to give money away, a donor-advised fund at a community foundation does that with almost none of the overhead.
What is the same as any nonprofit
The formation steps are the standard ones: incorporate in your state, get an EIN, adopt bylaws, and apply to the IRS. Our how-to-start guide and the state guides cover that path in full.
Where a foundation differs
Two big differences at setup. First, most foundations file the full Form 1023. The short 1023-EZ is open only to a small foundation (gross receipts of $50,000 or less a year and assets of $250,000 or less) that is not a private operating foundation. Second, the IRS treats you as a private foundation by default unless you can show broad public support, so you do not elect it so much as fall into it.
The rules that make a foundation a foundation
- The 5% payout. Each year you must distribute roughly 5% of your assets for charitable purposes.
- Form 990-PF. Foundations file this specialized annual return, which is more detailed than the standard 990.
- Excise tax. A small tax (about 1.39%) applies to net investment income.
- Self-dealing rules. Transactions between the foundation and insiders are tightly restricted.
- Grants to individuals. Allowed, but they require advance IRS-approved procedures.
The simpler alternative
If the goal is simply to give, a donor-advised fund lets you recommend grants without forming or running an entity. Many families start there and only create a foundation when scale or control makes the overhead worth it.
Ember Spark
Ember Spark is a free, step-by-step checklist for starting a nonprofit, and each step explains why it matters. In Ember it drafts your bylaws, conflict-of-interest policy and Form 1023 narrative for you to finish, and puts your state filing deadlines on Ember's compliance calendar. It does not track Form 990-PF yet, so keep that date with your accountant. Turn on Ember Compliance and it emails you a reminder before each filing it can date. For any marked 'Date to confirm', add the date and the reminders start. Unlimited users on every tier.
General information for people starting or running a nonprofit, not legal or tax advice. Rules change; confirm specifics with the IRS, your state, or a qualified professional.
Sources: IRS, private foundations · IRS, Form 990-PF · councilofnonprofits.org. Verified August 2026.