Tax and Legal Advantages
Supporting organizations are separate legal entities under the Area Foundation's group tax exemption. Supporting organizations enjoy tax and legal advantages not available to private foundations. We handle the administrative oversight, including Form 990 tax returns, annual audits, governance, administrative and legal support.
In simplest terms, a supporting organization can be described as a "hybrid" of a donor-advised fund and a private foundation.
Supporting organizations enjoy the following benefits:
- Independence- A supporting organization has its own Board of Directors and makes its own decisions about investments, spending policy and grant making that align with the Area Foundation's strategic priorities.
- Efficiency and cost-savings -Gifts to supporting organizations entitle the donor to maximum tax benefits including full deduction for contributions of real estate and closely held stock. There is no excise tax on investment income. The Area Foundation can perform a variety of back-office functions that can decrease or eliminate paid staff.
- Flexibility - Unlike private foundations, there is no 5% minimum annual distribution requirement. The amount of support provided by the Area Foundation (and associated fees) are based upon the supporting organization's needs.
- Longevity - The Area Foundation’s Board of Directors appoints the majority or all board members. The supporting organization’s Board of Directors has a duty to carry out the supporting organization's mission as defined in its certificate of formation and bylaws. This ensures donor intent is preserved in perpetuity.
A private foundation can convert into a "public charity."
A supporting organization continues as a separate legal entity. It continues to administer its program and can continue to invest its assets in an independent manner. It must meet certain requirements imposed by Section 509(a)(3) of the Internal Revenue Code.