Glossary of Philanthopic Terms

Publication date: 
January, 2008

 

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501(c)(3):
Section of the Internal Revenue Code that designates an organization as charitable and tax-exempt. Organizations qualifying under this section include religious, educational, charitable, amateur athletic, scientific or literary groups, organizations testing for public safety or organizations involved in prevention of cruelty to children or animals. Most organizations seeking foundation or corporate contributions secure a Section 501(c)(3) classification from the Internal Revenue Service (IRS). Note: The tax code sets forth a list of sections 501(c)(4-26) to identify other nonprofit organizations whose function is not solely charitable (e.g., professional or veterans' organizations, chambers of commerce, fraternal societies, etc.).

509(a):
Section of the tax code that defines public charities (as opposed to private foundations). A 501(c)(3) organization also must have a 509(a) designation to further define the agency as a public charity. (See Public Support Test).

Accountability:
In the context of philanthropy, accountability is the philosophy of openness, responsiveness, fairness and trust that an organization exhibits to maintain public trust. (See Transparency).

Affinity Group:
A group of grantmakers that act collectively to support a particular population, region, interest, or other identifying characteristic.

Annual Report:
A voluntary report issued by a grantmaking organization that provides financial data and descriptions of its grantmaking activities. Annual reports vary in format from simple typewritten documents listing the year's grants to detailed publications that provide substantial information about the grantmaker's grantmaking programs.

Articles of Incorporation:
A document filed with the secretary of state or other appropriate state office by persons establishing a corporation. This is the first legal step in forming a nonprofit corporation.

Assets:
Cash, stocks, bonds, real estate or other holdings of a foundation. Generally, assets are invested and the income is used to make grants. (See Payout Requirement).

Audit:
An independent examination of the accounting records and other evidence relating to an organization to support the expression of an impartial expert opinion about the reliability of the financial statements.

Bequest:
A sum of money committed to an organization and donated upon the donor's death.

Bylaws:
Rules governing the internal operation of a nonprofit corporation. Bylaws often provide the methods for the selection of directors, the creation of committees, and the conduct of meetings.

Capital Campaign:
An organized drive to collect and accumulate substantial funds to finance major needs of an organization, such as a building, major repair project or endowment.

Challenge Grant:
A grant that is made on the condition that other funding be secured, either on a matching basis or some other formula, usually within a specified period of time, with the objective of encouraging expanded fundraising from additional sources.

Charity:
In its traditional legal meaning, the word "charity" encompasses religion, education, assistance to the government, promotion of health, relief of poverty or distress and other purposes that benefit the community. Nonprofit organizations that are organized and operated to further one of these purposes generally will be recognized as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and will be eligible to receive tax-deductible charitable gifts.

Community Foundation:
A community foundation is a tax-exempt public charity organized and operated as a permanent collection of endowed funds for the long-term benefit of a defined geographic area.

Conflict of Interest:
A situation in which the private interests of someone involved with an organization could cause him or her to make decisions that are not in the best interest of the organization.

Corporate Foundation:
A corporate (company-sponsored) foundation is a private foundation that derives its grantmaking funds primarily from the contributions of a profit-making business. The company-sponsored foundation often maintains close ties with the donor company, but it is a separate, legal organization, sometimes with its own endowment, and is subject to the same rules and regulations as other private foundations.

Corporate Giving Program:
A corporate giving program is a grantmaking program established and organizations from the corporation. Corporate giving programs do not have a separate endowment; their expense is planned as part of the company’s annual budgeting process and usually is funded with pre-tax income.

 

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Designated Fund:
A type of restricted fund in which the fund beneficiaries are specified by the grantors.

Discretionary Funds:
Grant funds distributed at the discretion of one or more trustees that usually do not require prior approval by the full board of directors. The governing board can delegate discretionary authority to staff.

Disqualified Person (Private Foundation):
Substantial contributors to a private foundation, foundation managers, certain public officials, family members of disqualified persons and corporations and partnerships in which disqualified persons hold significant interests. The law bars most financial transactions between disqualified persons and foundations.

Disqualified Person (Public Charity):
As applied to public charities, the term disqualified person includes (1) organization managers, (2) and any other person who, within the past five years, was in a position to exercise substantial influence over the affairs of the organization, (3) family members of the above, and (4) businesses they control. Paying excessive benefits to a disqualified person will result in the imposition of penalty excise taxes on that person, and, under some circumstances, on the charity's board of directors.

Donee:
The receiving organization of a donor's resources. (Also known as a grantee.)

Donor:
Anyone who gives resources - financial, social, intellectual and time - to a nonprofit organization, public charity or fund. (Also known as a grantor.)

Donor Advised Fund:
A fund held by a community foundation or other public charity, where the donor (or a committee appointed by the donor), may recommend eligible charitable recipients for grants from the fund. The public charity's governing body must be free to accept or reject the recommendations.

Donor Designated Fund:
A fund held by a community foundation where the donor has specified that the fund's income or assets be used for the benefit of one or more specific public charities. These funds are sometimes established by a transfer of assets by a public charity to a fund designated for its own benefit, in which case they may be known as grantee endowments. The community foundation's governing body must have the power to redirect resources in the fund if it determines that the donor's restriction is unnecessary, incapable of fulfillment or inconsistent with the charitable needs of the community or area served.

Donor Intent:
The vision, legacy and intentions of a foundation’s original donor for the foundation’s mission.

Endowment Fund:
A fund of permanent capital or principal, only the income of which is used for charitable purposes, and/or includes a fund invested on a total return basis as contemplated by MCL 451.1203 and/or pursuant to a written investment and distribution policy that is intended and expected to maintain the corpus of the fund over time. (Michigan Department of Treasury definition)

Excise Tax:
An annual federal tax that private foundations must pay on one or two percent of their investment income. The IRS can also impose penalty excise taxes on private foundations, and in some cases their managers, for violations of certain federal laws.

Expenditure Responsibility:
When a private foundation makes a grant to an organization that is not classified by the IRS as tax-exempt under Section 501(c)(3) and as a public charity according to Section 509(a), it is required by law to ensure that the funds are spent for charitable purpose and not for private gain or political activities. Such grants require a pre-grant inquiry and a detailed, written agreement. Special reports on the status of the grant must be filed with the IRS, and the grantees must be listed on the foundation’s IRS Form 990-PF.

Family Foundation:
A family foundation is one whose funds are derived from members of a single family. Family members represent the majority of the board, and control the board. Trustees usually serve on a locally, in their communities.

Financial Report:
An accounting statement detailing financial data, including income from all sources, expenses, assets and liabilities. A financial report may also be an itemized accounting that shows how grant funds were used by a donee organization. Most foundations require a financial report from grantees.

Field of Interest Fund:
A fund held by a community foundation that is used for a specific charitable purpose such as education or health research.

Fiscal Agent:
An organization or a legal entity managing the funds for a nonprofit organization.

Form 990/Form 990-PF:
The IRS forms filed annually by public charities and private foundations respectively. The letters PF stand for private foundation. The IRS uses this form to assess compliance with the Internal Revenue Code. Both forms list organization assets, receipts, expenditures and compensation of officers. Form 990-PF includes a list of grants made during the year by private foundations. These forms are available for public inspection.

Funding Cycle:
A chronological pattern of proposal review, decisionmaking and applicant notification. Some donor organizations make grants at set intervals (quarterly, semi-annually, etc.), while others operate under an annual cycle.

 

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Giving Circle:
A pooled fund that makes grants and is managed by the fund's donors. Giving circles pool time, talent and resources among people who share a common interest in a social cause or issue, and allow for a wide range in charitable styles, philosophies and politics, structure, size, and focus through a very hands-on approach.

Giving Pattern:
The overall picture of the types of projects and programs that a donor has supported historically. The past record may include areas of interest, geographic locations, dollar amount of funding or kinds of organizations supported.

Grant:
An award of funds to an organization or individual to undertake charitable activities.

Grant Agreement:
A legally binding written understanding between a grantmaker and a grantee specifying terms for a grant's expenditure and reporting.

Grantee:
An individual or organization that receives a grant.

Grantmaker:
An individual or organization that awards a grant.

Grantmaking:
The word “grant" refers to the monetary awards made to nonprofits by foundations, corporations, or government agencies. The term “grantmaking" therefore refers to the practice of giving money.

Grantmaking Guidelines:
A statement of a foundation's goals, priorities, criteria and procedures for applying for a grant.

Grantor:
The individual or organization that makes a grant.

Grantseeking:
The practice of raising money.

Grassroots Fundraising:
Efforts to raise money from individuals or groups from the local community on a broad basis. Usually an organization does grassroots fundraising within its own constituency—people who live in the neighborhood served or clients of the agency's services. Grassroots fundraising activities include membership drives, raffles, bake sales, auctions, dances and a range of other activities.

In-Kind Contribution:
A donation of goods or services rather than cash or appreciated property.

Independent Foundation:
Independent foundations are usually founded by one individual, often by bequest. The members from the founding family, if any, represent a minority of the board and do not control the board. Many large independent foundations are no longer governed by members of the original donor’s family but are run by boards made up of community, business and academic leaders. Independent foundations are occasionally termed "non-operating" because they do not run their own programs.

Intermediate Sanctions:
Fines imposed by the IRS on certain individuals associated with a tax-exempt organization who receive compensation in excess of reasonable compensation for the services provided. Intermediate Sanctions were sought by the IRS to provide authority to penalize persons improperly benefiting from transactions with public charities and civic organizations without resorting to revocation of exempt status of the organization.

 

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Legacy:
The gift that an individual leaves, both in the details of their will and in the tradition of giving they shared with their descendents.

Letter of Inquiry:
A brief letter outlining an organization’s activities and a request for funding sent to a prospective donor to determine if there is sufficient interest to warrant submitting a full proposal. This saves the time of the prospective donor and the time and resources of the prospective applicant.

Letter of Intent:
A grantor's letter or brief statement indicating intention to make a specific gift.

Leverage:
A method of grantmaking practiced by some foundations and individual donors, leverage occurs when a small amount of money is given with the express purpose of attracting funding from other sources or of providing the organization with the tools it needs to raise other kinds of funds; sometimes known as the "multiplier effect."

Lobbying:
Efforts to influence legislation by influencing the opinion of legislators, legislative staff and government administrators directly involved in drafting legislative proposals. The Internal Revenue Code sets limits on lobbying by organizations that are exempt from tax under Section 501(c)(3). Public charities may lobby as long as lobbying does not become a substantial part of their activities. Private foundations generally may not lobby except in limited circumstances such as on issues affecting their tax-exempt status or the deductibility of gifts to them. Conducting nonpartisan analysis and research and disseminating the results to the public generally is not lobbying for purposes of these restrictions.

 

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Matching Gifts Program:
A grant or contributions program that will match employees' or directors' gifts made to qualifying educational, arts and cultural, health or other organizations. Specific guidelines are established by each employer or foundation. (Some foundations also use this program for their trustees.)

Matching Grant:
A grant or gift made with the specification that the amount donated must be matched on a one-for-one basis or according to some other prescribed formula.

Nonprofit Organization:
A term describing the Internal Revenue Service's designation of an organization whose income is not used for the benefit or private gain of stockholders, directors, or any other persons with an interest in the company. A nonprofit organization's income must be used solely to support its operations and stated purpose.

Operating Foundation:
An operating foundation is a private foundation that uses the bulk of its income to provide charitable services or to run charitable programs of its own. It makes few, if any, grants to outside organizations. To qualify as an operating foundation, specific rules, in addition to the applicable rules for private foundations, must be followed.

Operating Support:
A grant made to further the general purpose or work of an organization, rather than for a specific purpose or project; also called an unrestricted grant.

 

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Pass-Through Foundation:
The pass-through foundation is a private grantmaking organization that distributes all of the contributions it receives each year (not just the minimum five percent of assets). The pass-through election may be made or revoked on a year-to-year basis.

Payout Requirement:
The minimum amount that a private foundation is required to expend for charitable purposes (includes grants and necessary and reasonable administrative expenses). In general, a private foundation must pay out annually approximately five percent of the average market value of its assets.

Philanthropy:
Philanthropy is defined in different ways. The origin of the word philanthropy is Greek and means love for mankind. Today, philanthropy includes the concept of voluntary giving by an individual or group to promote the common good. Philanthropy also commonly refers to grants of money given by foundations to nonprofit organizations. Philanthropy addresses the contribution of an individual or group to other organizations that in turn work to improve the quality of life for all citizens or residents. Philanthropic giving supports a variety of activities, including research, health, education, arts and culture, as well as alleviating poverty.

Private Foundation:
A nongovernmental, nonprofit organization with funds (usually from a single source, such as an individual, family or corporation) and program managed by its own trustees or directors, established to maintain or aid social, educational, religious or other charitable activities serving the common welfare, primarily through grantmaking. U.S. private foundations are tax-exempt under Section 501(c)(3) of the Internal Revenue Code and are classified by the IRS as a private foundation as defined in the code.

Professional Advisor:
Individuals who assist in planning and executing charitable giving through providing information on giving options according to one's specific financial situation. Types of professional advisors include: attorney, accountant, estate planner, financial planner, stockbroker, insurance broker, planned giving officer, and philanthropy consultant.

Program Officer:
Also referred to as a corporate affairs officer, program associate, public affairs officer or community affairs officer, a program officer is a staff member of a foundation or corporate giving program who may do some or all of the following: recommend policy, review grant requests, manage the budget and process applications for the board of directors or contributions committee.

Program-Related Investment (PRI):
A loan or other investment (as distinguished from a grant) made by a foundation to another organization for a project related to the foundation's philanthropic purposes and interests.

Public Charity:
A nonprofit organization that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and that receives its financial support from a broad segment of the general public. Religious, educational and medical institutions are deemed to be public charities. Other organizations exempt under Section 501(c)(3) must pass a public support test to be considered public charities, or must be formed to benefit an organization that is a public charity. Charitable organizations that are not public charities are private foundations and are subject to more stringent regulatory and reporting requirements.

Public Foundation:
Public foundations are recognized as public charities by the IRS. Although they may provide direct charitable services to the public as other nonprofits do, their primary focus is on grantmaking.

Public Support Test:
This test is used to assure a minimum percentage of broad-based public support in an organization's total support pattern. So, the "one-third support test" means qualifying support divided by total support must equal at least one-third. An organization qualifies as publicly supported if it normally receives at least one-third of its total support from government, from contributions by the general public, or from a combination of these. (See IRS Publication 557 for full details).

Qualifying Distributions:
Expenditures of a private foundation made to satisfy its annual payout requirement. These can include grants, reasonable administrative expenses, loans, program-related investments and amounts paid to acquire assets used directly in carrying out tax-exempt purposes.

Restricted Funds:
Assets or income that is restricted in its use, in the types of organizations that may receive grants from it or in the procedures used to make grants from such funds.

Seed Money:
A grant or contribution used to start a new project or organization.

Self-Dealing:
A private foundation is generally prohibited from entering into any financial transaction with disqualified persons. The few exceptions to this rule include paying reasonable compensation to a disqualified person for services that are necessary to fulfilling the foundation's charitable purposes. Violations will result in an initial penalty tax equal to 5 percent of the amount involved, payable by the self-dealer.

Site Visit:
A fact-finding visit that a foundation’s staff and/or board members make to a grant applicant’s or grantee’s office location or area of operation. This may involve meeting with the nonprofit’s staff, directors, and/or recipients of its services. Site visits are normally conducted before a grant is approved, during project implementation and/or during project evaluation.

Social Investing:
Also referred to as ethical investing and socially responsible investing, this is the practice of aligning a foundation's investment policies with its mission. This may include making program-related investments and refraining from investing in corporations with products or policies inconsistent with the foundation's values.

Supporting Organization:
A tax-exempt 501(c)(3) nonprofit entity that is normally not controlled by its founder or principal donor and that qualifies as a public charity and not as a private foundation because of its ongoing, close relationship to the publicly-supported organization it supports and to which it gives up some degree of control. Its public charity status is 509(a)(3).
Types of supporting organizations:

  • Type I – Operated, supervised or controlled by the supported organization
  • Type II – Supervised or controlled in connection with the supported organization
  • Type III – Operated in connection with the supported organization
  • Type III (Functionally Integrated) - Carries out functions that normally would be carried out by the supported organization

 

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Tax-Exempt Organizations:
Organizations that do not have to pay state and/or federal income taxes. Organizations other than churches seeking recognition of their status as exempt under Section 501(c)(3) of the Internal Revenue Code must apply to the Internal Revenue Service. Charities may also be exempt from state income, sales and local property tax.

Technical Assistance:
Operational or management assistance given to a nonprofit organization. It can include fundraising assistance, budgeting and financial planning, program planning, legal advice, marketing and other aid to management. Assistance may be offered directly by a foundation or corporate staff member or in the form of a grant to pay for the services of an outside consultant.

Tipping:
The situation that occurs when a gift or grant is made that is large enough to significantly alter the grantee's funding base and cause it to fail the public support test. Such a gift or grant results in "tipping" or conversion from public charity to private foundation status.

Transparency:
The efforts of an organization to be accountable to the public by making their information open and freely available.

Trustee:
A foundation board member or officer who helps make decisions about how grant monies are spent. Depending on whether the foundation has paid staff, trustees may take a more or less active role in running its affairs.

Unrestricted Funds:
Normally found at community foundations, an unrestricted fund is one that is not specifically designated to particular uses by the donor or for which restrictions have expired or been removed.

Venture Philanthropy:
A philanthropy that borrows some of the best practices of the venture capital world to invest deeply in nonprofits to build their capacity effectively. Venture philanthropists value their donor dollars in terms of the social return of investment.

Resource type: