A private foundation cannot make a grant for a purpose not described in section 170(c)(2)(B) of the Internal Revenue Code. Permitted purposes are religious, charitable, scientific, literary or educational, fostering national or international amateur sports competition (but only if no part of the activities involve providing athletic facilities or equipment), and preventing cruelty to children or animals. Section 501(c)(3) describes organizations that are organized and operated exclusively for these purposes. Grants for nonpermitted purposes are taxable expenditures. Thus, a private foundation may not make a grant to an organization that is not described in section 501(c)(3) unless (1) making the grant itself is a direct charitable act or a program-related investment, or (2) the grantor is reasonably assured that the grant will be used exclusively for the purposes of an organization described here. If a private foundation makes a grant that is not a transfer of assets to any organization (other than an organization described in section 501(c)(3) that is not exclusively organized and operated for testing for public safety), the grantor is reasonably assured that the grant will be used exclusively for section 170(c)(2)(B) purposes (described earlier) only if the grantee organization agrees to keep these funds in a separate fund dedicated to section 170(c)(2)(B) purposes. In addition, the grantor must comply with the expenditure responsibility requirements. If a private foundation makes a transfer of assets under any liquidation, merger, etc., to any person, the transferred assets will not be considered to be used exclusively for section 170(c)(2)(B) purposes unless the assets are transferred to a fund or organization described in section 501(c)(3) (other than an organization organized and operated for testing for public safety). Return to Life Cycle of a Private Foundation
