Both foundations and endowments can be used for educational activities. In which circumstances is the foundation the preferred choice? Clearly the endowment has two distinct advantages over the foundation:
Flexible spending rate not mandated by law
Tax exempt
Why would anyone choose to use foundation over endowment?
Foundation when you are funding multiple causes/beneficiaries than just funding a particular firms operating expenses?
Both foundation and endowment can have a single cause (e.g. educational activities) with multiple beneficiaries (e.g. individual schools), cant they?
Yup. Foundation are generally funded by single person or corporate. Endowments can take further donations like public charities making them better to fund education.
Aren’t both tax exempt…
Nope. Foundations must pay tax, although not as high as regular corporate tax rates. Endowments pay absolutely none.
Tax considerations. Except for the fact that investment income of private foundations is currently taxed at 1% in the United States, foundations are not taxable entities.
Yeah I am quite positive that foundations as per CFAI are tax exempt. Only unrelated business income is taxable.
The problem is that if the case does not explicitly say anything about taxes then what do we put under “Taxes” IPS constraints:
Saying “No tax information provided” might not be good solution. Could we say, “Foundation is tax exempt as long as it meets annual spend requirement” and “endownments are tax exempt”? would it do…