Glossary

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Certain definitions are defined by law.

A

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 the 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).

990:

The federal information tax return form required of all nonprofit organizations with annual gross receipts exceeding $25,000.

990-PF:

The federal information tax return form used for all private foundations filing under tax-exempt status.

990-T:

The federal tax form that must be filed by any nonprofits (including private foundations) that have gross unrelated trade or business income of $1,000 or more (see Unrelated Business Income Tax below).

Accountability:

Foundations must be accountable to the public because foundation donors and the institutions they create receive important tax benefits and are consequently required to serve valid public purposes as defined by law. Foundations are stewards of public as well as private trusts, and must reflect this stewardship in everything they do.

Advisory Board:

A group of individuals, who offer advice, inform or notify. An advisory board differs from an elected board in that they do not have any oversight responsibilities.

Affiliate Funds:

Affiliate funds operate like freestanding community foundations for smaller communities. By affiliating with a local community foundation, these communities can enjoy the benefits of a community foundation without having to file incorporation papers, apply to the IRS for Section 501(c)(3) status, arrange for annual audits, or raise funding for staff. Affiliates have a local board of directors who raise the initial investment, create awareness about the foundation within their communities, and determine recipients for grants.

Affinity Group:

A separate and independent coalition of grantmaking institutions (or individuals associated with such institutions) that shares information or provides professional development and networking opportunities to individual grantmakers with a shared interest in a particular subject or funding area.

Altruism:

Altruism, like passion, is the key intent that philanthropy expresses; a concern for the welfare of others; selflessness.

Annual Report:

A voluntary report published by a foundation or corporation describing its grant activities. It may be a simple, typed document listing the year’s grants or an elaborately detailed publication. A growing number of foundations and corporations use an annual report as an effective means of informing the community about their contributions, activities, policies, and guidelines. (The annual contributions report is not to be confused with a corporation’s annual report to the stockholders.)

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.

B

Bequest:

A sum of money made available upon the donor’s death.

Board of Directors:

An organized body of advisors with oversight responsibility.

Board of Trustees:

An organized body of trustees with oversight responsibility.

“Bricks and Mortar”:

An informal term indicating grants for buildings or construction projects.

Building Campaign:

A drive to raise funds for the construction or renovation of buildings.

Bylaws:

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

C

Capital Campaign:

Also referred to as a Capital Development Campaign, a capital campaign is an organized drive to collect and accumulate substantial funds to finance major needs of an organization such as a building or major repair project.

Challenge Grant:

A grant is made on the condition that other monies must be secured on a matching basis or via some other formula, usually within a specified period and objective to stimulate giving from additional sources.

Charitable Gift Annuity:

With a charitable gift annuity, the donor contributes cash or marketable securities in exchange for a contractual promise to pay the donor (and/or another annuitant) a guaranteed income for life. The rate of that income is based on the age(s) of the annuitant(s). A charitable gift annuity pays a fixed, guaranteed amount for life to one or two persons. In almost every instance, a portion of the payments will be tax-free, plus the donor receives an income tax deduction for a portion of the value of the assets contributed.

Charitable Gift Fund:

Charitable gift funds are vehicles for giving that are established as charitable affiliates of for-profit financial institutions such as banks and mutual fund companies. These funds are donor-advised funds; therefore, distribution is made to nonprofit organizations at the advice of the donor, with final authority in the board of the charitable affiliate.

Charitable Giving Plan:

A plan that best reflects one’s life experiences, values, goals and passions that structures giving to charitable organizations.

Charitable Lead Trust:

A legal device used to set aside the money or property of one person for the benefit of one or more persons or organizations. Specifically, this type of trust allows for a regular, fixed amount to go to a charity for a specific number of years. At the end of that time, the remainder of the trust passes to one’s heirs.

Charitable Remainder Trust:

A legal device used to set aside money or property of one person for the benefit of one or more persons or organizations. Specifically, this type of trust allows one to take a deduction for a gift to the trust in the year in which the trust is formed. One receives income from this type of trust for life and after one’s death, the assets pass to the charity you designated.

Charity:

In its traditional legal meaning, the word “charity” encompasses religion, education, government assistance, health promotion, 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 (see 501(c)(3)) and will be eligible to receive tax-deductible charitable gifts.

Civic sector:

Often used to describe nongovernmental organizations, sometimes used interchangeably with “nonprofit sector.”

Collective Impact

Participants share a vision of change and a commitment to solve a complex problem by coordinating their work.

Community Foundation:

A community foundation is a tax-exempt, nonprofit, autonomous, publicly supported, philanthropic institution composed primarily of permanent funds established by many separate donors of the long-term diverse, charitable benefit of the residents of a defined geographic area. Typically, a community foundation serves an area no larger than a state. Community foundations provide an array of services to donors who wish to establish endowed funds without incurring the administrative and legal costs of starting independent foundations. According to Foundation Center, there are more than 800 community foundations across the United States today. The Cleveland Foundation is the oldest; the Silicon Valley Community Foundation is the largest.

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. There are more than 2,000 corporate foundations in the United States holding some $11 billion in assets. (see Corporate Giving Program)

Corporate Giving Program:

A corporate giving (direct giving) program is a grantmaking program established and administered within a profit-making company. Gifts or grants go directly to charitable organizations from the corporation. Corporate foundations/giving programs do not have a separate endowment; their expense is planned as part of the company’s annual budgeting process and is usually funded with pre-tax income. Candid (formerly the Foundation Center) has identified more than 700 corporate foundations/giving programs in the United States; however, it is believed that several thousand are in operation.

D

Decline:

Also referred to as Denial, a decline is the refusal or rejection of a grant request. Some declination letters explain why the grant was not made, but many do not.

Demonstration Grant:

A grant made to establish an innovative project or program that will serve as a model, if successful, and may be replicated by others.

Designated Funds:

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, which 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. (see Self-Dealing)

Disqualified Person: (Public Charity)

As applied to public charities, the term disqualified person includes (1) organization managers, (2) any other person who, within the past five years, was in a position to exercise substantial influence over the affairs of the organization, (3) donors and donor advisors with regard to transactions with a particular donor-advised fund, (4) investment advisors to assets of donor-advised funds, (5) and disqualified persons of supporting organizations who are also disqualified persons of the supported organization, (6) family members of the above, and (7) 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 (see Intermediate Sanctions).

Donee:

see Grantee.

Donor:

see Grantor

Donor-Advised Fund:

A fund may be classified as donor-advised if it has at least three characteristics: (1) a donor or person appointed or designated by the donor has, or reasonably expects to have, advisory privileges with respect to the fund’s distributions or investments, (2) the fund is separately identified by reference to contributions of the donor(s), and (3) the fund is owned and controlled by a sponsoring organization, such as a community foundation. A fund possessing these characteristics may be exempt from the donor-advised fund classification if it grants to one single public charity or government unit or if the fund meets certain requirements applicable to scholarship funds.

Donor Circle:

A term sometimes used interchangably with “giving circle.” Donor circles, however, often refer to a group of donors giving to a single organization, such as a university.

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.

Donor Networks

An extended group of donors who interact and remain in informal contact for mutual assistance or support. Some donor networks are targeted to specific audiences in philanthropy (such as Women’s Donor Network, which focuses on women donors or Resource Generation, which focuses on younger donors), while others seek to be inclusive of a broader array of audiences (such as Exponent Philanthropy). Donor networks provide opportunities for donors to connect with others and learn about giving with and from peers. Some also offer opportunities for donors to give together to address strategic opportunities.

Donor Restriction:

A stipulation that the donated assets to a foundation must be maintained permanently, permitting expenditure of only the income or net appreciation of the donated assets. A gift for endowment is a donor restriction.

Due Diligence:

The process through which a grantmaker researches a nonprofit’s financial and organizational health to guide a grantmaking decision.

E

Earmarking:

A grant is earmarked if the grantee is required to use the grant funds for a specific purpose or recipient, or if the grantor has the right to impose such a requirement.

Effective Altruism

The use of high-quality evidence and careful reasoning to work out how to help others as much as possible.

Endowment:

The principal amount of gifts and bequests that are accepted subject to a requirement that the principal be maintained intact and invested to create a source of income for a foundation. Donors may require that the principal remain intact in perpetuity for a defined period of time or until sufficient assets have been accumulated to achieve a designated purpose.

Excise Tax:

The annual tax of 1.39 percent of net investment income that must be paid to the IRS by private foundations.

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 purposes 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.

F

Family Foundation:

“Family foundation” is not a legal term, and therefore, it has no precise definition. Yet, approximately two-thirds of the estimated 44,000 private foundations in this country are believed to be family-managed. The Council on Foundations defines a family foundation as a foundation whose funds are derived from members of a single family. At least one family member must continue to serve as an officer or board member of the foundation, and as the donor, they or their relatives play a significant role in governing and/or managing the foundation throughout its life. Most family foundations are run by family members who serve as trustees or directors on a voluntary basis-receiving no compensation; in many cases, second- and third-generation descendants of the original donors manage the foundation. Most family foundations concentrate their giving locally, in their communities.

Federated Fund:

A centralized campaign whereby one organization raises money for its member agencies. These annual workplace giving campaigns raise millions of dollars for distribution to local, state, and national nonprofit organizations. The United Way campaign and Community Works are examples.

Fiduciary:

An individual or entity responsible to manage assets for the benefit of others.

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.

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.

Financial Statements:

Presentation of financial data including balance sheets, income statements and statements of cash flow, or any supporting statement that is intended to communicate an entity’s financial position at a point in time and its results of operations for a period then ended.

Fiscal agent:

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

Fiscal sponsor:

An arrangement where an established nonprofit provides financial support for a project that may be independent or which has yet to obtain its own tax-exempt status.

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.

Forum of Regional Associations of Grantmakers:

The Forum of Regional Associations of Grantmakers (the Forum) is a national philanthropic leader and a network of 32 regional associations of grantmakers. It supports philanthropy by strengthening the ability of all regional associations to fulfill their missions; these associations promote the growth and effectiveness of philanthropy in order to improve life in their communities.

Funder Collaboration:

Term used by the Forum referring to collaborations between a regional association of grantmakers and funder networks with a presence in the area the regional association serves.

Funder Network:

Also referred to as “affinity groups,” funder networks are groups of grantmakers that act collectively to support a particular population, region, interest, or other identifying characteristic.

Funding Cycle:

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

G

Giving Circles

A form of participatory philanthropy where groups of individuals donate their own money or time to a pooled fund, decide together where to give these away to charity or community projects and, in doing so, seek to increase their awareness of and engagement in the issues covered by the charity or community project*. Many circles, in addition to donating their money, also contribute their time and skills to support local causes. A giving circle can be a subset of members in a donor network collaborating on a strategic initiative, or can also be a donor network unto itself.

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, the dollar amount of funding, or the 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.

Grant Monitoring:

The ongoing assessment of the progress of the activities funded by a donor, with the objective of determining if the terms and conditions of the grant are being met and if the goal of the grant is likely to be achieved.

Grantee:

The 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.

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. Foundation managers often feel that successful grassroots fundraising indicates that an organization has substantial community support.

Guidelines:

A statement of a foundation’s goals, priorities, criteria, and procedures for applying for a grant.

H

I

Identity Funds:

Identity funds, or focus funds as they are sometimes called, are grantmaking organizations created by people who are connected not just by location, but by shared experience and culture, such as race, ethnicity, gender, or sexual orientation.

Impact-driven Philanthropy

The practice of strategically using time, talents and resources to make meaningful, measurable change.

Impact-Giving

The action of solving problems and making a commitment to partnering with the people closest to the issues philanthropists aim to solve.

Impact Investing

Placing capital in enterprises that generate social or environmental goods, services, or ancillary benefits, with expected financial returns ranging from the highly concessionary to above market.

In-Kind Contribution:

A donation of goods or services rather than cash or appreciated property.

Independent Foundation:

These private foundations are usually founded by one individual, often by bequest. They are occasionally termed “non-operating” because they do not run their own programs. Sometimes individuals or groups of people, such as family members, form a foundation while the donors are still living. Many large independent foundations, such as the Ford Foundation, 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. Private foundations make grants to other tax-exempt organizations to carry out their charitable purposes. Private foundations must make charitable expenditures of approximately 5 percent of the market value of their assets each year. Although exempt from federal income tax, private foundations must pay a yearly excise tax of 1 or 2 percent of their net investment income. The Rockefeller Foundation and the John D. and Catherine T. MacArthur Foundation are two examples of well-known “independent” private foundations.

Intermediate Sanctions:

Penalty taxes applied to disqualified persons of public charities (see Disqualified Person) that receive an excessive benefit from financial transactions with the charity. An excessive benefit may result from overcompensation for services or from other transactions such as charging excessive rent on property rented to the charity. Unlike private foundations, public charities are not barred from engaging in financial transactions with disqualified persons as long as the transaction is fair to the charity. Penalty taxes also may apply to organization managers, such as the charity’s board, that knowingly approve an excess benefit transaction.

Internal Control:

Process designed to provide reasonable assurance regarding achievement of various management objectives, such as the reliability of financial reports.

IRC Election 501(h):

A section of the Internal Revenue Code that provides specific guidance on how much a public charity can spend on lobbying activities. Any charity that files IRS Form 5768 can choose to be treated under the lobbying expenditure test in Section 501(h), which many organizations find more advantageous than other federal laws on lobbying expenditures. (The 501(h) election does not apply to private foundations.)

Internal Revenue Service (IRS):

The federal agency with responsibility for regulating foundations and their activities. Online at www.irs.gov.

Issue Fund

Funds that are managed by expert fund managers who build a portfolio of philanthropic investments in nonprofits all aimed at solving a particular social or environmental issue.

J

Jeopardy Investment:

An investment that risks the foundation’s ability to carry out its exempt purposes. Although certain types of investments are subject to careful examination, no single type is automatically a jeopardy investment. Generally, a jeopardy investment is found to be made when a foundation’s managers have failed to exercise ordinary business care and prudence. The result of a jeopardy investment may be penalty taxes imposed upon a foundation and its managers. (see Program Related Investment)

K

L

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. (See bequest)

Letter of Intent:

A grantor’s letter or brief statement indicating an intention to make a specific gift.

Letter of Inquiry:

Also referred to as a query letter, this is 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.

Leverage:

A method of grantmaking practiced by some foundations. 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.”

Life Insurance Gift:

A gift of life insurance may be made either by designating a charity as a beneficiary of a policy or by arranging for it to become the owner of the policy. The former entails many of the same advantages as a bequest, whereas the latter can result in current income tax savings.

Limited-Purpose Foundation:

A type of foundation that restricts its giving to one or very few areas of interest, such as higher education or medical care.

Loaned Executives:

Corporate executives who work for nonprofit organizations for a limited period of time while continuing to be paid by their permanent employers.

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 (see Public Charity) may lobby as long as lobbying does not become a substantial part of their activities. Private foundations (see Private Foundation) 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.

Lobbyist:

A person who is compensated for multiple lobbying contacts and whose lobbying activities constitute at least 20 percent of his or her services for an organization during any six-month period.

M

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.

Memorialize:

To commemorate; to present a memorial to; to honor the memory of an individual or group by donating resources or establishing a fund that reflects the gifts, values or concerns of the individual or group.

N

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.

O

Operating Foundation:

Also called private operating foundations, operating foundations are private foundations that use the bulk of their income to provide charitable services or to run charitable programs of their own. They make 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. The Carnegie Endowment for International Peace and the Getty Trust are examples of operating foundations.

Operating Support:

A contribution given to cover an organization’s day-to-day, ongoing expenses, such as salaries, utilities, office supplies, etc.

P

Passion:

Boundless enthusiasm; deep and positive emotion; fervent expression of hope; belief in the essential connection of individual and community; and love of humanity. Passion, like altruism, is essential to the action of giving and the purpose of philanthropy.

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 5 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 for the causes of poverty or social problems-improving the quality of life for all citizens. Philanthropic giving supports a variety of activities, including research, health, education, arts and culture, as well as alleviating poverty.

Philanthropist:

A person who loves humanity, is committed deeply to making society a better place, who believes that each individual, each dollar and each action makes a difference.

Pledge:

A promise to make future contributions to an organization. For example, some donors make multiyear pledges promising to grant a specific amount of money each year.

Pooled Income Fund:

A pooled income fund is a life-income arrangement wherein the income from the donor’s gift is paid to the donor (and/or designated friends and family members) for life at the rate earned by the total pool of gifts. A pooled income fund contribution has some of the same features as a mutual fund investment. Upon the death of the last beneficiary, the remaining funds pass to the charity or charities designated.

Post-Grant Evaluation:

A review of the results of a grant, with an emphasis on whether or not the grant achieved its desired objective.

Preliminary Proposal:

A brief draft of a grant proposal used to learn if there is sufficient interest to warrant submitting a proposal.

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 private foundations 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:

A loan or other investment made by a private foundation to a profitmaking or nonprofit organization for a project related to the foundation’s stated purpose and interests. Program-related investments are an exception to the general rule barring jeopardy investments. Often, program-related investments are made from a revolving fund; the foundation generally expects to receive its money back with limited, or below-market, interest, which then will provide additional funds for loans to other organizations. A program-related investment may involve loan guarantees, purchases of stock, or other kinds of financial support.

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 (see Public Support Test) to be considered public charities, or must be formed to benefit an organization that is a public charity (see Supporting Organization). Charitable organizations that are not public charities are private foundations and are subject to more stringent regulatory and reporting requirements (see Private Foundation).

Public Foundation:

Public foundations, along with community 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 sector:

Those organizations in society other than for-profit corporations, or organizations that serve the public good, including government.

Public Support Test:

There are two public support tests, both of which are designed to ensure that a charitable organization is responsive to the general public rather than a limited number of persons. One test, sometimes referred to as 509(a)(1) or 170(b)(1)(A)(vi) for the sections of the Internal Revenue Code where it is found, is for charities like community foundations that mainly rely on gifts, grants, and contributions. To be automatically classed as a public charity under this test, organizations must show that they normally receive at least one-third of their support from the general public (including government agencies and foundations). However, an organization that fails the automatic test still may qualify as a public charity if its public support equals at least 10 percent of all support and it also has a variety of other characteristics–such as a broad-based board– that make it sufficiently “public.” The second test, sometimes referred to as the section 509(a)(2) test, applies to charities, such as symphony orchestras or theater groups, that get a substantial part of their income from the sale of services that further their mission, such as the sale of tickets to performances. These charities must pass a one-third/one-third test. That is, they must demonstrate that their sales and contributions normally add up to at least one-third of their financial support, but their income from investments and unrelated business activities does not exceed one-third of support.

Q

Qualified Terminable Interest Property (QTIP):

A qualified terminable interest property trust will provide the donor’s spouse the right to income for life. Upon the spouse’s death, the trust property will be passed on to a designated charity or charities. This arrangement is more flexible than the charitable remainder trust. Here, the trustee may be given broader powers including the right to invade trust principal for the support and comfort of the surviving spouse.

Query Letter:

Also referred to as a letter of inquiry, this is 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 (see Preliminary Proposal).

R

Regional Associations of Grantmakers:

A regional association (no abbreviation) is a staffed organization with a defined governance and financial structure that serves grantmakers in a metropolitan area, a single state, or a multi-state region. Its membership includes a variety of grantmaking institutions and programs.

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.

Risk Management:

A general term describing the process of analyzing risk in all aspects of an organization’s management and operations and developing strategies to reduce the exposure to such risks.

S

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 (see Disqualified Person). 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 10 percent of the amount involved, payable by the self-dealer.

Site Visit:

Visiting a donee organization at its office location or area of operation and/or meeting with its staff or directors or with recipients of its services.

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.

Strategic Giving:

Engaging in philanthropy in a strategic manner to make a major philanthropic impact through making better choices surrounding how much one spends, invests and gives back to society.

Supporting Organization:

A supporting organization is a charity that is not required to meet the public support test because it supports a public charity. To be a supporting organization, a charity must meet one of three complex legal tests that assure, at a minimum, that the organization being supported has some influence over the actions of the supporting organization. Although a supporting organization may be formed to benefit any type of public charity, the use of this form is particularly common in connection with community foundations. Supporting organizations are distinguishable from donor-advised funds because they are distinct legal entities.

T

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 aids 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 (see In-Kind Contribution).

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.

Tithing:

A belief, found in many faiths, of giving 10 percent – the first and best part – back to a place of worship.

Transparency:

Transparency is the opposite of privacy; an activity or organization is transparent if all information about it is open and freely available. Being transparent helps a private foundation fulfill its obligation to be accountable to the public, and can also help improve its effectiveness. When foundations make their information open and freely available, doing so can help them do their jobs better by clarifying the objectives they are seeking, informing potential grantees of priority interests, and making the general public aware of their accomplishments.

Trust:

A legal device used to set aside money or property of one person for the benefit of one or more persons or organizations.

Trustee:

The person(s) or institutions responsible for the administration of a trust.

U

Unrelated Business Income Tax (UBIT):

Federal tax on income that is the result of any legal trade or business conducted by a nonprofit organization to make money in a way not directly related to its tax-exempt mission.

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.

Unsolicited Grant Proposal:

A proposal sent to a foundation without invitation or prior knowledge on the part of the foundation, usually in response to a foundation’s application guidelines. Some foundations will not accept unsolicited proposals or applications.

V

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.

Voluntarism/Volunteerism:

Performing an act of kindness, freely giving of your talent, time, and effort for the simple fulfillment of community expectations. Voluntarism often refers to the field or study of volunteering; volunteerism often refers to concerns of the specific management or actions of volunteers.

W

Women’s Giving:

Considered by some to be the next frontier of the women’s movement, women’s giving builds on the tradition of volunteerism and is empowered with women’s financial resources.

X

Y

Z

Original Sources:

• the National Council on Federations
• the Giving Compass
• the United Philanthropy Forum