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Community foundations (or how to give away your cake and eat it, too).

When it comes to charitable contributions, taxpayers want the best of both worlds-they want to give money or property away (to get a deduction) and at the same time control how this money or property is used. One option that may accomplish both these objectives is a community foundation.

A community foundation is an aggregation of individual funds and resources, the income from which is used to meet the charitable needs of a community (however that community is so defined).

Tax advantages. Because community foundations are exempt organizations, contributors receive the tax benefits normally available from donations (that is, permissible deductions of up to 50% of adjusted gross income and increased deductions for gifts of appreciated property).


The major advantage a gift to a community foundation has over other types of charitable contributions is the amount of control over the property or money contributed. Typically, once a gift to an established operating charity is made, the donor loses all control over the property; if the charity's purpose changes or otherwise becomes unworthy of support (in the donor's eyes), the donor can do little. If, on the other hand, a gift is made to a community foundation with the general intention of supporting a particular charity, some degree of influence is retained.

Because a community foundation can be a group of funds, a donor may suggest the specific charity or charities that will receive the income of the gift. A donor also can set up a fund for a specific purpose or area of concern and direct the field of interest to which the income from the gift will be applied.


A donor has many options when considering community foundations.

A named fund. A donor establishes and names a fund within a community foundation and designates the charity to receive the income earned by the principal. If the charity stops delivering the services the donor wished to support, the foundation changes the use of the income to more effectively serve the donor's charitable interests.

A field-of-interest fund. Rather than name one or more existing charities to receive the income from a gift, the donor can specify a field of interest (such as education, health, social services, the arts or preservation-conservation) within which the income will be distributed. Such a field may be broad and general or relatively narrow and specific, as the donor wishes.

A supporting organization. If a donor wishes to make a substantial contribution and feels strongly that the donor, the donor's spouse and/or the donor's children should participate in the ongoing management of the fund's income, a supporting organization set up in conjunction with the foundation may be available. Recognized as a public charity for tax purposes, such an organization is a separate legal entity and has a separate governing body (typically the donor and members of the donor's family). In this manner, the donor may exert some degree of control over the distribution of the income earned on the assets contributed but avoid the restrictions normally applicable to private foundations.

A donor-advised fund. Such a fund enables donors occasionally to make suggestions about fund distributions without requiring forming a separate entity. While ultimate authority for grant making must lie with the foundation, the donor can make nonbinding recommendations each year as to the use of the fund's income. These then can be considered by the group within the foundation responsible for distributing the fund's income.

For a detailed discussion of community foundations and other current developments, see the Tax Clinic department, edited by Gerald Padwe, in the March 1992 issue of The Tax Adviser
COPYRIGHT 1992 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Fiore, Nicholas J.
Publication:Journal of Accountancy
Date:Mar 1, 1992
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