US and cross-border corporate philanthropy structures

Options for corporate philanthropy

Corporate philanthropy has long been recognised as a way to increase an entity’s brand and reputation. Many US businesses conduct their philanthropy via direct gifts to US-recognised charities, exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code (the Code). Such gifts are tax deductible up to 10% of a corporation’s taxable income (with a 5-year carry-forward for amounts above that). In entities taxed as partnerships, the deductions flow through to the members. 

However, direct corporate giving programmes do not permit a charitable tax deduction for certain activities, such as gifts to entities that aren’t US recognised public charities and direct grants to individuals, such as scholarships and employee disaster or hardship programmes. 

Also, effective for 2026, OB3 imposed a 1% “floor” on charitable deductions for corporations, meaning that they may only deduct the amount that is in excess of 1% of taxable income. 

Other options include establishing a donor advised fund (DAF), and making gifts through charitable intermediaries. These options are easier to establish and manage, yet aren’t as flexible as a corporate foundation. (See the chart below.) 

Pros and cons of forming a corporate foundation

Corporate foundations attain recognition of federal tax exemption under Section 501(c)(3) of the Code. These entities are recognised as either a “public charity” under Code Section 509(a) because they receive a proportion (typically, 1/3) of their funds from a variety of unrelated sources (in this context, employees, vendors and the general public); or, more commonly, as a “private foundation” because contributions are mainly or entirely from the corporation itself. Private foundations have more limited deductibility for gifts other than cash or marketable securities, and are subject to additional rules. 

In addition to facilitating deductible gifts to individuals and foreign charities, a corporate foundation permits a business to maximise charitable deductions (especially with the new 1% floor), while at the same time maintaining an even level of corporate giving despite the level of earnings in a given year. This is because gifts to a foundation are deductible in the current year although most of the assets may be maintained for granting in future years. 

Corporate foundations are not without challenges. As noted, they are subject to rules that don’t apply to public charities. They must annually distribute at least 5% of their net investment income for charitable purposes, as defined by the Code. They pay a 1.39% tax on net investment income. There are limitations on the amount of voting stock or beneficial interests a corporate foundation and its “disqualified persons” (generally, officers, directors, key employees, and major contributors) may hold in an operating business. 

The most complicated private foundation restriction involves the self-dealing rules under Code Section 4941. Broadly defined, with limited exceptions, self-dealing prohibits the assets of a foundation benefiting disqualified persons, even if beneficial to the foundation (e.g. significantly discounted rent paid to a disqualified person). Common self-dealing issues that arise in corporate philanthropy involve the use of tickets to sponsored events, promoting corporate volunteerism, and sharing of employees and office space.  However, all may be conducted within certain guardrails. 

Corporate philanthropy options comparison chart

May conduct (and is tax deductible)	Direct giving	Corporate foundation	Donor-advised fund (DAF) – note that DAF sponsor rules differ and must be verified.	Charitable intermediary
Direct scholarship grants (including for employees)		X
Federally qualified disaster relief for employees		X	X
Employee Hardship Program (See Article)				X
International grants		X	X	X
Event sponsorship	X	X

Banks need to use caution when using foundation activities toward Community Reinvestment Act (CRA) compliance. Intangible benefits – such as a boon to the business’s reputation stemming from the gifts – are deemed acceptable. The penalties for a breach of the private foundation rules are draconian and may bring personal liability not eligible for indemnification, nor covered by directors and officers (D&O) insurance.

Another effect of OB3 is that corporate executives volunteering with the foundation may inadvertently subject their corporate salaries to the tax on compensation over USD 1 million under Code Section 4960. 

Conclusion

Despite the fact that care must be taken in legal and tax compliance, a corporate foundation is often the most flexible option by which businesses may conduct their philanthropy. 

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Jennifer Miller Oertel co-chairs Bodman’s Exempt Organisations and Impact Investing Practice. With 28 years of legal experience, Jennifer combines her experience in corporate and securities with her expertise in tax-exempt organisations to assist clients with legal compliance and aligning their investments with their values and mission. Bodman was a GGI Member Firm of the Year in 2025