A Private Operating Foundation (POF) is a special type of private foundation that actively conducts its own charitable programs - rather than primarily funding the work of other nonprofits.
Most “private foundations” are non-operating foundations. These are typically set up by individuals or families to make grants to public charities. A Private Operating Foundation, by contrast, carries out its own charitable activities directly - for example, running a museum, research institute, educational program, or direct-service initiative.
Private Foundation vs. Private Operating Foundation
Feature | Private Foundation (Non-Operating) | Private Operating Foundation |
Primary Purpose | Makes grants to other charities | Directly conducts charitable programs |
Board Control | Usually family-controlled or closely held | Same - can retain family/insider control |
Payout Requirement | Must distribute 5% of assets annually to charity | Must spend at least 85% of income or investment return on its own programs |
Public Perception | Viewed as donor-funded grantmaker | Viewed like a public charity (program-operating) |
Deduction Limits for Donors | Cash: up to 30% of AGI | Cash: up to 60% of AGI |
IRS Qualification Tests
To qualify as a Private Operating Foundation, the IRS requires the organization to meet:
The Income Test:
The foundation must spend at least 85% of its adjusted net income or minimum investment return directly on charitable program activities.One of the Following Three Tests:
Assets Test: Most assets are used directly in charitable activities.
Endowment Test: At least two-thirds of the foundation’s adjusted net income is spent on direct programs.
Support Test: More than 85% of support (other than investment income) comes from the general public and 5+ unrelated donors.
Your organization must demonstrate ongoing compliance with these tests each year through proper recordkeeping and reporting.
Key Benefits of Private Operating Foundation Status
Higher Donor Deductibility
Donors may deduct up to 60% of AGI for cash gifts and 30% for appreciated property, compared to 30%/20% for non-operating foundations.Direct Program Focus
Your expenditures on charitable programs count toward your payout requirement - streamlining compliance and emphasizing impact.Control + Credibility
Retain the family or founder control typical of a private foundation while earning the “operating” credibility of a public charity.Excise Tax Advantages
Smaller operating foundations often qualify for relief or reduction of the 1.39% investment income excise tax.
Examples of Private Operating Foundations
A family foundation that operates a museum, nature preserve, or scholarship program.
A faith-based foundation that runs its own community outreach initiatives.
A research foundation that conducts scientific studies with in-house staff and labs.
Staying in Compliance
Private Operating Foundations must maintain detailed records showing that they meet the IRS income and activity tests each year. This includes:
Tracking program expenses separately from administrative or investment costs
Documenting direct charitable activities
Filing the correct version of Form 990-PF, including required schedules
How Instant Nonprofit Can Help
We’ll guide you through:
Structuring your programs and budget to meet IRS requirements
Maintaining annual records to demonstrate ongoing compliance
Preparing your Form 1023 and supporting documents to establish or maintain operating status
Whether you’re transitioning from a traditional private foundation or launching a new one, our experts can help ensure your foundation remains compliant and impactful year after year.