Research Administration Office

University of California

Memo Operating Guidance

No. 83-33

Supplement No. 1

January 19, 1993

SUBJECT: Exempt Status of The Regents of the University of California--Clarification

Contract and Grant Memo No. 83-33 (December 2, 1983) provided documentation concerning the University' s tax exempt status under Section 501(c)(3) of the Internal Revenue Code, and IRS acknowledgment that the University is not a private foundation within the meaning of Section 509(a)(1) of the Code. Tax laws governing private foundations are more burdensome than those governing other kinds of charitable organizations.

Recently, one campus was asked to complete a tax-exempt certification which asked for further information about the University' s status as "not a private foundation," with reference to 170(b)(1)(A) of the Code. A brief background on the meaning of "private foundation" is given in Enclosure 1, which is copied from pp. 436-7 of The Law of Tax Exempt Organizations by Bruce R. Hopkins (John Wiley & Sons, 1987). Note that in 21.1 the text states that organizations deemed not to be private foundations are listed in the Code at 170(o)(I)(A)(1) through (v) . Enclosure 2 is a copy of a form filed by the University in 1970 stating that it is not a private foundation because it is "a governmental unit, 170(b)(1)(A)(v)."

Thus the answer to the question about the University's status as not a private foundation is that the University is not a private foundation pursuant to 170(b)(1)(A)(v) of the Code. We hope this information will help other campuses that may have to complete a similar tax-exempt status form.

Refer: William Sellers


Subject Index: 13

Organization Index: U-115

David F. Mears


Research Administration Office


Enclosure 1

"Private Foundations" and "Public Charities"

Prior to enactment of the Tax Reform Act of 1969, there was no statutory definition of the term "private foundation." However up to that time, a private foundation generally was recognized as a charitable organization to which contributions could be made which were deductible in an amount up to 20 percent of an individual donor's adjusted gross income, in contrast to contributions to churches, schools, hospitals, and other public charities, which were deductible to the extent of 30 percent of the donor's adjusted gross income. [Footnote 1]

This 30 percent/20 percent distinction was introduced in the federal tax law in 1964. Before that, it was not until 1954 that Congress acted in recognition of the fact that there are distinctive differences in the nature of charitable organizations, In that year, Congress permitted an extra ten percent deduction (from 20 to 30 percent) for contributions to operating educational institutions, churches, and hospitals, and enacted other provisions in their favor. In 1964, the privileged class of "30 percent organizations" was expanded to include other public and publicly supported organizations and a five-year carryover of excess contributions was added for gifts to these organizations.

By the mid-1960s, the likelihood that alleged private foundation abuses would eventually result in statutory modifications was on the increase. A Treasury Department Report on Private Foundations, issued in 1965, emphasized the view that there was a need for more public involvement in the operation of philanthropic institutions that benefit from preferential treatment under the tax laws. Failing such direct public involvement, the Treasury Report stated that there must be an assurance through other means (namely, governmental regulation) that funds set aside for appropriate charitable purposes will find their way promptly into the hands of those institutions where there is assurance of public control and operation.

Congress, having become convinced that there were problems concerning charitable organizations that needed remedy, believed that these problems were especially prevalent in the case of organizations in the 20 percent deduction category. On the other hand, it was also apparent that certain organizations in the 30 percent deduction group were not involved in these problems. Consequently, in enacting a definition of the term "private foundation," Congress conjured up a statute which provides that a private foundation is any domestic or foreign charitable organization [footnote 2], other than four categories of organizations. [Footnote 3] The classification of the organizations which are deemed not to be private foundations--and hence are "public charities"--is the subject of IRC 509(a).

The organizations which fall into the categories of IRC 509(a)(1), (2), or (3) are those which either have broad public support or actively function in a supporting relationship to public charities. [Footnote 4] The fourth category. of nonprivate foundation is the organization organized and operated exclusively for testing for public safety, as described in IRC 500(a)(4). Contributions to public safety testing organizations are not deductible and therefore, according to the 1965 Treasury Report, they are more analogous to business leagues, social welfare organizations, and similar tax-exempt groups than to private foundations.

Despite the technicalities of the term "private foundation" accorded to it by Congress, a private foundation essentially is a charitable organization that is funded from one source (usually, one individual, family, or corporation), that receives its ongoing funding from investment income (rather than a consistent flow of contributions), and that makes grants for charitable purposes to other persons rather than conduct its own programs. The "private" aspect of a private foundation, then, principally looks to the nature of its financial support, rather than to the nature of its governance.

21.1 "Public" Institutions

Organizations which are deemed not to be private foundations by reason of IRC 509(a)(I) are essentially those in the old 30-percent deduction category. [Footnote 5] These organizations, that may be termed the "public" institutions, are described in IRC 170(b)(l)(A)(i) through (v). Other organizations in other categories of nonprivate foundation status may also have the attributes of "institutions" but the entities in the "public" institution definition are those that are there because they satisfy--per se--the requirements of at least one category of "public" institution.


1. IRC 170(b)(1) (pre-l969 Act).

2. That is, an organization described in IRC 501(c)(3) (and exempt from federal income taxation under IRC 50l(a) for that reason).

3. Reg 1.509(d)-1, 1.509(e)-1.

4. Reg. 1.509(a)-1.

5. Reg. 1.170(A)-9(a)(3), 1.509(a)-3.

Enclosure 2

Notification Concerning Foundation Status

[Block 6 checked: A Governmental unit, Section 170(b)(1)(A)(v).]

[signed by the Secretary of The Regents of the University of California, 11/30/70]