What is a Foundation?

A Foundation is a not-for-profit charitable corporation, referred to as a 501 (c) corporation, which qualifies as a tax-exempt charity under Section 501(c) of the Internal Revenue code.  A properly organized and managed Foundation provides a vehicle for a high net worth individual’s philanthropic purposes.

A Foundation is not a means to gain a tax advantage or to employ family and friends.  However, a properly designed and managed Foundation does provide the opportunity to apply tax law for the benefit of the Foundation sponsor and thereby create a win-win situation for all parties involved.  In addition, a properly organized, managed and funded Foundation can lawfully achieve many collateral benefits, including employing family and friends, provided the compensation is reasonable for the services performed.
 

What is a 501(c) Corporation?

501(c) corporations receive an exemption from federal taxation under Section 501(c) of the Internal Revenue Code.  These are typically referred to as non-profit corporations.  Donations to these corporations are also tax deductible for the giver, making it easier for

these corporations to raise funds.  There are many classes of 501(c) organizations that can qualify under the IRS code for tax-exempt status, the most common for Foundations are those formed under Section 501(c) (3).
 

How is a 501 (c) Corporation formed?

As noted in the Services section, we manage every aspect of the client’s Foundation, including formation, management, fund-raising and charitable giving.  This begins with the formation of a 501 (c) non-profit corporation.

Steps taken to achieve 501 (c) non-profit status include the following:  incorporation must be completed and an application submitted to the IRS in order to be given 501 (c) status.  Once the IRS authorizes this status, it is necessary to comply with all the ongoing requirements such as holding timely meetings of the Board of Directors and recording these meetings with complete and accurate minutes.  In addition, all corporate finances must be closely reviewed to assure compliance with all 501 (c) regulations as listed in the IRS code.
 

What are the requirements to become a 501 (c) corporation?

There are specific requirements to qualify to become a 501 (c) corporation.  Generally speaking, relative to private Foundations, most are organized under Section 501 (c) (3) that contains three main requirements:

What are the benefits of forming a Foundation?

A Foundation gives control over one’s income.  Basically, there is a choice.  Choose to send your tax dollars to the Federal Government in Washington to be used for means you may not support or set up a private Foundation, keep your money in your community for the benefit of this and future generations and leave a legacy in your name forever

A Foundation is good finance.  Contributions to a Foundation are immediately tax-deductible and can fund charitable institutions through future years.  The founder remains in control of the funds in the Foundation, with the ability to invest money, let it grow  tax-free and donate it to select causes and charities over the course of many years.  A portion of salaries and/or endorsement fees may be paid directly to the Foundation in order to reduce personal income tax liability.  In addition, a properly organized and funded Foundation can serve as a post-professional career for the founder.

A Foundation is good business.  Charitable leadership stimulates good will.  Alliances with community organizations in the markets where celebrities/athletes perform can solidify relationships with business, sports team management, the news media and the fans.  A Foundation can qualify the athlete/celebrity to be included in “cause marketing” campaigns that bring together businesses, corporations, the news media and a selected cause, thereby further advancing the interests of the founder’s chosen cause.

A Foundation is a good working platform.  Once a celebrity/athlete’s Foundation is established, his or her representatives will have a ready-made vehicle in place to channel all requests for the celebrity’s time and/or donations.  All solicitations may be simply directed to the Foundation.  A Foundation also performs all the administrative functions of collecting, managing and donating money, under the direction of the founder and his or her representatives.

A Foundation is a powerful way of doing well by doing good.  The concrete demonstration of leadership in serving a cause satisfies the community and societal demands on high-earning sports and entertainment celebrities.  They can both share their good fortune and serve as role models to leverage their own contributions into greater public support for their selected causes.
 

How much time will be required?

The amount of time an athlete/celebrity elects to set aside for advancing the Foundation is strictly a personal matter and must rest with the overall obligation he or she has to other business and personal commitments.  The formation and operation of a private Foundation is just like any other business and requires the expenditure of some time to ensure its ongoing success. Although the management and operation of the Foundation is delegated to our firm, the founder must be willing to provide direction and to take an interest in advancing the Foundation’s purpose and mission.  To this end, the founder must commit to supporting the mission of the Foundation and be willing to actively participate in decision-making, attend Board meetings, attend special events and actively promote the objectives of the Foundation to the public at large.

In deciding to form a Foundation, or in the case where a Foundation already exists but is not being properly managed, we will work with the founder and his or her designated representatives to design a schedule that meets the founder’s needs.  The founder is free to decide just how much time he or she would like to devote.
 

How much is the founder required to contribute to a Foundation?

The amount contributed by the founder is entirely dependent on his or her goals and objectives.  It can be a very small sum or a substantial amount with the aim of minimizing personal income tax or estate tax liability.

A Foundation can be created with very little capital.  There is no “right” amount.  While many may say a Foundation must be funded with several hundred thousand dollars, this is simply not true.  Those professing this philosophy are often motivated by their own personal interest, e.g. fee income.  Our firm believes that money is only one of the reasons to form a Foundation.  For some founders, it may be tax driven.  For others, it may be a deep concern for a specific public interest or cause.  Accordingly, the amount of initial funding will vary.

An important issue, however, is the ability of the Foundation to attract outside third party funding to advance its interests.  Once established and a program is put in place to advance the Foundation, funding from the founder is completely his or her decision.

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