Realize that starting a charity foundation requires lots of time, dedication and money. It is a philanthropic contribution to society, and its success and reason for formation should not be based upon another foundation’s failure or successes.
Identify specific goals for your intended charitable foundation and who it will benefit. Write down and recognize these goals in order to determine where you will seek financial support. If you are choosing to help fund a museum versus funding the renovation of Detroit, your target audience may be different.
Decide where you will seek financial support. The source of a charitable organization’s support can range from personal funding to public contributions. A foundation can also choose to be funded by grants. Depending on your cause, one medium may be more efficient than the other.
Check with your state for its rules on the formation and operation of nonprofit organizations. All charity foundations must be formed under state law and registered with its respective state.
Determine whether or not the foundation will be formed as a trust or a corporation. This will play a role in how each foundation is structured and governed.
Seek IRS recognition as a tax-exempt charity so the charity foundation will not have to pay federal tax on its income and insure that the contributions it receives are tax-deductible. In most cases, an IRS Form 1023 the “Application for Recognition of Exemption Under Section 501(c)(3) of Internal Revenue Code” is needed for recognition.
Anticipate the decision from the IRS to take between four and six months maybe longer. The IRS decides whether or not to consider the charity organization a Section 501(c)(3) organization and whether it considers the foundation to be a private foundation or a public charity. Traditional charities like schools, churches, museums and community foundations are considered public charities. Private foundations typically receive funding from one or a few resources. These two classifications will determine how a foundation will be structured and its government rules regarding how contributions will be deducted.
Seek legal counsel. Written or web materials should not be a substitute for legal counsel in formation of a charity foundation.