How to Terminate a Private Foundation
Internal Revenue Code Section 507 permits termination of a private foundation and the distribution of its assets to a qualified public charity, such as the Lehigh Valley Community Foundation (LVCF). LVCF welcomes the transfer of private foundations. There are various reasons as to why its necessary to terminate a private foundation and LVCF can assist in the process.
How To Terminate a Private Foundation
If you wish to terminate your private foundation and distribute your assets to LVCF, please consider the following steps:
1. Determine whether the private foundation has current obligations regarding any of the following:
- Investment income excise taxes, unrelated business income taxes, or private foundation penalty taxes. (Note that private foundations must make quarterly estimated payments of these taxes.)
- Outstanding grants that are subject to expenditure responsibility (see IRS Form 990-PF).
- Fees for accountants, lawyers, investment managers or other service providers.
- Filing of IRS Form 990-PF and related forms with the IRS and State Attorney General.
2. Sign a corporate resolution in accordance with State law authorizing the termination of the private foundation and distribution of assets to LVCF.
3. Determine all current private foundation obligations and create a reserve for anticipated expenditures through the completion of the termination process. Provide LVCF with written documentation of the plan to satisfy obligations.
4. Identify any donor-imposed restrictions that apply to private foundation assets. These might include purpose and/or endowment restrictions. Provide appropriate documentation of these restrictions to LVCF.
5. Work with LVCF to prepare a fund agreement that will spell out the terms of the new fund. The fund agreement will reflect the purpose, identify the fund advisors, if any, and outline the administrative procedures that apply to the fund.
6. Submit a letter to the State Office of the Attorney General requesting a waiver to the objections to the transfer of the private foundation’s assets to the Lehigh Valley Community Foundation.
7. Petition State court, when applicable, to approve the termination of the private foundation and transfer of assets to LVCF.
8. Sign a final LVCF fund agreement and transfer all of the private foundation assets, except for the reserved funds, to the new LVCF fund (this transfer may take the form of a grant).
9. Satisfy the remaining obligations of the foundation, including the preparation of a final Form 990-PF. File a statement with the IRS after all assets have been transferred indicating the private foundation’s intent to terminate its private foundation status as the result of a transfer of all of the private foundation’s net assets to an organization described in Section 509(a)(1). Submit copy of the final990-PF to LVCF.
The steps outlined above are a guide provided by LVCF. They are not intended to provide legal advice. For assistance please call the Community Foundation at (610) 351-5353.
ASK ERIKA | Ask me how the Community Foundation can help you and your clients create a lasting legacy and make a difference in the community....
Erika Riddle Petrozelli, CPA
Vice President of Philanthropy
840 West Hamilton Street, Suite 310, Allentown, PA 18101
610 351-5353 Ext. 13 | Erika@lvcfoundation.org