My children attend a tiny, for-profit private school that has been owned and operated by the same family for 30 years. About 4 years ago, a few parents started a 501(c)(3) foundation to raise money for extras (laptops, iPads, cameras, extended programs). This year the Foundation has launched a campaign encouraging parents to donate large sums of money to build a whole new building on campus with the intention of it being completely funded by the parent group. If this is a capital improvement, shouldn't it be funded by the owner of the school? No one has seen a business plan and I don't know that most of the school community is even aware that the school is for-profit. Seems wrong.
There is always a question when a charitable foundation funds programs for patrons of a for-profit business. It has been particularly relevant over the last 20 years or so when charitable hospitals sell their assets to for-profit hospital chains and the ultimate “conversion foundations” that hold the proceeds of the sale want to make grants for healthcare purposes. It seems generally agreed that the foundations can make grants to aid specific individuals in need but cannot make general operating grants to the for-profit hospitals. They might make special grants for programs that the hospital wouldn’t otherwise provide, but they cannot be seen as primarily adding to the for-profit’s bottom line.
In your case, it appears that the original “extras” have helped the students more than the school. But making a grant to build a new building would certainly seem to be a private benefit to the family that owns the school, and could cost the foundation its exempt status. If the school really needs the building, perhaps the foundation could build it and rent it to the school on a long-term lease, or raise the money and lend it to the owners on a mortgage. That way the assets and the income would remain in the charitable organization and the kids would get the benefit of the new facility, but it wouldn’t be a give-away to the for-profit owners.