IRS Publication 5525 – IRS Form, Instructions, Pubs 2026

IRS Publication 5525 – Are you forming, managing, or advising a private foundation? IRS Publication 5525, the Exempt Organizations Technical Guide TG 3-20, delivers the authoritative introduction to private foundations and the critical special rules under IRC Section 508. Revised August 1, 2024 (published August 8, 2024), this guide remains the most current IRS resource on the topic as of 2026.

This article breaks down every key section of Publication 5525 (download the full PDF here: https://www.irs.gov/pub/irs-pdf/p5525.pdf), with clear explanations, compliance requirements, excise tax overviews, and practical insights. Whether you’re a founder, trustee, tax professional, or nonprofit advisor, you’ll find actionable guidance drawn directly from this trusted IRS technical guide and cross-referenced with official IRS resources on private foundations.

What Is a Private Foundation? IRS Definition and Classification

According to TG 3-20 (and IRC Section 509(a)), every organization exempt under Section 501(c)(3) qualifies as a private foundation unless it falls into one of the public charity categories under Section 509(a). These include:

  • Institutions like hospitals, universities, or schools.
  • Organizations with broad public support.
  • Supporting organizations that actively support public charities.

Private foundations typically receive funding from a small number of donors (often one family or corporation) and focus on grant-making rather than direct program operation. Once classified as a private foundation, the status generally continues until properly terminated under Section 507.

Note: Certain nonexempt charitable trusts under Section 4947(a)(1) are also treated as private foundations for Chapter 42 excise tax purposes.

TG 3-20 emphasizes that private foundation status begins upon IRS recognition of exemption (via Form 1023 determination letter) unless the organization properly notifies the IRS of public charity status.

Brief History of Private Foundation Rules

The modern framework stems from the Tax Reform Act of 1969, which introduced Chapter 42 of the Internal Revenue Code. This act imposed strict oversight, excise taxes, and penalties to prevent abuse by foundations controlled by a few individuals.

Subsequent laws refined these rules:

  • Pension Protection Act of 2006 (P.L. 109-280).
  • Bipartisan Budget Act of 2018 (P.L. 115-123).
  • Taxpayer Certainty and Disaster Tax Relief Act of 2019, which permanently reduced the net investment income tax rate to 1.39% (effective for years beginning after December 20, 2019) and eliminated the former 1% reduced rate.

Publication 5525 provides this historical context to help readers understand the ongoing regulatory framework.

Types of Private Foundations

TG 3-20 distinguishes three main types:

  1. Private Non-Operating (Grant-Making) Foundations — The most common; primarily make grants to other charities.
  2. Private Operating Foundations (IRC Section 4942(j)(3)) — Must spend at least 85% of adjusted net income (or minimum investment return, if lower) directly on active exempt activities (income test) plus one of: assets test, endowment test, or support test. These enjoy more favorable deduction limits for donors (up to 50% of AGI vs. 30%).
  3. Exempt Operating Foundations (IRC Section 4940(d)) — A subset of operating foundations meeting additional tests (e.g., 10+ years of public support or pre-1983 status, broadly representative governing body, no disqualified person officers). They are exempt from the Section 4940 investment income tax.

Determining the correct type is essential, as not all Chapter 42 rules apply equally.

Exemption and Filing Requirements for Private Foundations

To obtain 501(c)(3) exemption:

  • File Form 1023 (full application) or Form 1023-EZ (streamlined, with limitations).
  • Private operating foundations generally cannot use Form 1023-EZ.
  • Include user fee and (if applicable) power of attorney.

Annual filing:

  • Every private foundation (including nonexempt trusts treated as such) must file Form 990-PF by the 15th day of the 5th month after the close of the tax year (May 15 for calendar-year foundations).
  • Electronic filing is required in most cases.
  • Failure-to-file penalties: $20/day ($100/day for large organizations), up to $10,000/$50,000 or 5% of gross receipts.
  • Additional Form 990-T required if unrelated business income ≥ $1,000.

Publication 5525 stresses that even inactive foundations must file.

Key Differences: Private Foundations vs. Public Charities

Private foundations face stricter rules than public charities:

  • Subject to Chapter 42 excise taxes.
  • Must meet special governing instrument requirements under Section 508(e).
  • Donor deduction limits are generally lower (30% of AGI for cash vs. 60% for public charities).
  • Cannot be tax-exempt or receive deductible contributions without proper Section 508 compliance.

Public charities enjoy broader support tests, fewer restrictions, and lighter regulatory burden.

Overview of Excise Taxes on Private Foundations (Chapter 42)

TG 3-20 provides a concise overview of the major excise taxes:

  • Section 4940 — 1.39% tax on net investment income.
  • Section 4941 — Taxes on self-dealing (initial 10% on disqualified person; 5% on participating foundation manager).
  • Section 4942 — 30% tax on undistributed income (failure to distribute for charitable purposes).
  • Section 4943 — 10% tax on excess business holdings.
  • Section 4944 — 10% tax on jeopardizing investments.
  • Section 4945 — 20% tax on taxable expenditures (e.g., non-charitable grants, lobbying, political activity).
  • Section 4946 — Defines “disqualified persons.”

Additional rules apply to foreign organizations (Section 4948) and excess executive compensation (Section 4960).

These taxes are first-tier (initial) and can escalate to second-tier taxes if not corrected.

Special Rules Under IRC Section 508 for Private Foundations

Section 508 contains three key provisions beyond the general exemption application requirement (508(a)):

1. Section 508(b): Presumption of Private Foundation Status and Required Notice

  • Every 501(c)(3) organization is presumed to be a private foundation unless it timely notifies the IRS otherwise (typically via Form 1023 questions on public support).
  • 15-month filing window from formation (with automatic extensions possible).
  • The presumption is rebuttable even after the deadline by submitting public charity evidence.
  • Contributors and the organization may rely only on an IRS determination letter, not merely the filing of notice.

2. Section 508(e): Governing Instrument Requirements

  • A private foundation’s governing instrument (articles of incorporation/organization, not bylaws) must require the organization (and its disqualified persons) to avoid liability under Sections 4941–4945.
  • Most states’ laws automatically satisfy this requirement for domestic foundations.
  • If state law does not apply or contains conflicting provisions, specific language referencing the five Code sections must be included.
  • The instrument cannot prohibit distribution of corpus.
  • Special rules and one-year correction periods apply for newly classified foundations, pre-1970 organizations, or court reforms.

Exceptions and practical notes:

  • State law deemed compliance (Treas. Reg. 1.508-3(d)).
  • One-year grace periods for amendments or judicial proceedings.
  • Split-interest trusts (Section 4947(a)(2)) subject to rules when Chapter 42 applies.

Publication 5525 includes helpful examples of conflicting clauses and references to Revenue Rulings (e.g., Rev. Rul. 70-270) for compliant language.

3. Section 508(d): Disallowance of Charitable Deductions

  • Contributions are not deductible if:
    • Made to a foundation that fails Section 508(e) requirements in that year.
    • Made after notification of Section 507 termination tax or by a substantial contributor in the year termination tax is imposed.
    • Made during a period when the organization is not treated as 501(c)(3) due to failure to notify under 508(a).
  • Limited exception if the Section 507(c) termination tax is fully abated.

Certain asset transfers may also trigger disallowance rules.

Practical Compliance Tips from TG 3-20

  • Review governing documents against current state law and Section 508(e).
  • File Form 1023 promptly to establish status and rebut the private foundation presumption.
  • Monitor disqualified persons and self-dealing carefully.
  • Plan distributions to avoid Section 4942 tax (qualifying distributions).
  • Consult the full suite of IRS Technical Guides (e.g., TG 3-21 on private operating foundations, TG 63 on disqualified persons).
  • Always verify the latest updates on IRS.gov, as this guide is current only through its 8/1/2024 revision date.

Why This Matters for Donors, Founders, and Advisors?

Proper classification and compliance with IRC Section 508 ensure tax-exempt status, deductible contributions, and avoidance of costly excise taxes and penalties. Non-compliance can result in loss of exemption, disallowed deductions, and personal liability for managers.

IRS Publication 5525 (TG 3-20) serves as the essential starting point for anyone involved with private foundations.

Download the official PDF: https://www.irs.gov/pub/irs-pdf/p5525.pdf

For related guidance, visit the official IRS Private Foundations page: irs.gov/charities-non-profits/private-foundations.

Disclaimer: This article summarizes IRS Publication 5525 for educational purposes. It is not a substitute for professional tax or legal advice. Rules can change; always consult the latest IRS resources or a qualified advisor. Publication 5525 itself states it is not an official pronouncement of law.

Stay compliant, maximize impact, and leverage this comprehensive IRS technical guide for your private foundation success in 2026 and beyond.