What’s the difference between a public charity and a private foundation?

Every exempt charitable organization is classified as either a public charity or a private foundation. In practice, the terms “foundation” and “charity” are sometimes used interchangeably. To further compound the confusion there are both grantmaking foundations, (which are often “private foundations”), and grant-seeking foundations. Many charitable organizations, such as colleges and hospitals, have separate foundations which seek gifts and grants to support the main charitable organization, and hold those funds as a separate endowment. Nevertheless, the Internal Revenue Code does contain precise definitions for tax purposes of what is a charity and what is a private foundation. The difference is important because there are special rules and penalty taxes that apply to private foundations, but not public charities.

See a helpful Web page from the IRS about the basic differences and the life cycles of public charities and private foundations.