Private foundations are nongovernmental, nonprofit organizations having principal funds of their own, each managed by its own trustees and directors, and established to maintain or aid charitable, educational, religious, or other activities serving the public good, primarily by making grants to other nonprofit organizations.

Some foundations may use different words in their names, such as "fund," "trust," or "endowment," but these terms indicate no legal or operational differences. Private foundations are usually created and organized as corporations or charitable trusts under state laws and receive their federal tax-exempt status under the Internal Revenue Code. The Tax Reform Act of 1969, the first major legislation dealing with foundations, introduced the term "private foundation."

Typically, private foundations have broad charters, allowing them to move into new fields in response to changing social priorities. In practice, though, private foundations often limit their giving to a few fields of interest.

All private foundations, regardless of size, are required to file the IRS Form 990-PF and make the document available to the public. They are also required to pay out annually five percent of the market value of their investment assets. Every year, private foundations receive thousands of requests for funding, and competition for foundation resources is intense. It is estimated that only 10 percent of these requests ultimately result in receiving funding. Therefore, it is essential that grant seekers research carefully prospective foundations to determine which foundations have a mission that matches well with the applying organization's mission.

Additional Information
The concept of private philanthropy dates back to ancient times, but legal provision for the creation, control, and protection of charitable funds (the forerunners of today's foundations) was not established until 1601 when England enacted the Statute of Charitable Uses; this granted certain privileges to private citizens or groups of citizens in exchange for their willingness to serve the public good by performing or supporting acts of charity.

Most early foundations were established for the benefit of particular institutions or to answer specific social problems, such as feeding or housing the poor. In the late nineteenth and early twentieth centuries, a different approach to foundation philanthropy was introduced in the United States, represented by the establishment of the Carnegie Corporation of New York (1911) and The Rockefeller Foundation (1913).

The number of foundations established in the U.S. has grown significantly since those early days. In the decade following World War II, there was a large increase in the number of foundations established, which has been attributed to the high tax rates resulting from the war, the emergence of company-sponsored foundations, and a new emphasis on family foundations with living donors. As of 2000, there were 56,582 foundations in the United States. They awarded $27.6 billion and held assets of $486.1 billion.

The 1999 Foundation Directory lists foundations with assets of at least $2 million or $200,000 in annual giving. Meeting this criteria and listed in the directory are 75 private foundations in Iowa, but there are literally hundreds of smaller foundations in our state.

While the foundation statistics presented in the preceding paragraphs may seem impressive, it is important to keep them in perspective. Private foundation giving represents a small portion of all giving in the United States. In 2001, that portion was only 12.2 percent.