Perhaps because the work of the philanthropic
sector touches on a broad and varied scope of human activity, those
who work in philanthropy seek to unify in part under a common language.
Culled from the halls of academia and government or invented along
the way, many of the terms used in philanthropy are meant to convey
succinct ideas or actions, but can seem like babble to the uninitiated.
One of the goals of the Donors Forum is to educate about philanthropy,
and this mission extends to the words we use in doing our jobs.
In publishing this glossary, the Donors Forum presents definitions
for common terms used within our field. These terms and definitions
were gathered from a variety of sources in philanthropy and
in the nonprofit sector. We hope, in doing so, to make philanthropy
a little more familiar to all who engage in it.
You may download
this glossary. To open it, you need Adobe® Acrobat® Reader™
software. If you do not have this software, download it here
at no cost.
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.)
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.
AGI (Adjusted Gross Income)
Includes income from salary and wages, investments and capital gains.
annual report
A voluntary report published by a foundation or corporation describing
its grant activities. Annual reports range from simple, typed documents
listing the year's grants to elaborately detailed publications.
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.
asset-based community development
Different from "needs-based" assessment, ABCD aims to identify existing
community strengths and build upon them.
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.)
beneficiary
In philanthropic terms, the donee or grantee receiving funds from
a foundation or corporate giving program is the beneficiary, although
society benefits as well.
bequest
A sum of money made available upon the donor's death.
"bricks and mortar"
An informal term indicating grants for buildings or construction
projects.
bylaws
Rules governing the operation of a nonprofit corporation. Bylaws
often provide the methods for selecting directors, creating committees
and conducting meetings.
capital campaign
An organized drive to collect and accumulate substantial funds to
finance major needs of an organization such as a building or major
repair project. Also referred to as a capital development campaign.
capital support
Funds provided for endowment purposes, buildings, construction or
equipment.
case statement
Used instead of a proposal when conducting a capital
campaign, the case statement "makes a case," in a clear and
compelling way, for a program or project. It states the project's
mission and goals and show how the program will meet those goals.
challenge grant
A grant made on the condition that other funding must be secured,
either on a matching basis or via some other formula, usually within
a specified period of time, with the objective of stimulating giving
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.
committed funds
A portion of a donor's budget that has already been pledged for
future allocation.
community foundation
A tax-exempt, nonprofit, autonomous, publicly supported, philanthropic
institution composed primarily of permanent funds established by
many separate donors for 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.
There are more than 500 community foundations across the United
States today. The Cleveland Foundation is the oldest; the New York
Community Trust is the largest.
community fund
An organized community program that makes annual appeals to the
general public for funds that are usually not retained in an endowment
but are instead used for the ongoing operational support of local
agencies. (See also Federated
Fund.)
company-sponsored foundation
Another term for corporate foundation
cooperating collection
A member of the Foundation Center's network of libraries, community
foundations and other nonprofit agencies. This network provides
a core collection of Foundation Center publications, as well as
other supplementary materials and services in areas useful to grantseekers.
cooperative venture
A joint effort of two or more grantmakers. Cooperative venture partners
may share funding responsibilities or contribute information and
technical resources.
contributions committee
A corporate group organized to make grant decisions usually with
the guidance of a corporate foundation or contributions administrator.
Typical responsibilities include setting and interpreting policy,
approving an annual budget and reviewing grant requests.
corporate contributions
A general term referring to charitable contributions by a corporation.
Usually this term is used to describe cash contributions only, but
may also include other items, such as the value of loaned executives,
products and services.
corporate foundation
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 legally separate 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 also
corporate giving program.)
corporate giving program
A grantmaking program established and administered within a profit-making
company. Gifts or grants go directly to charitable 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. The
Foundation Center has identified more than 700 corporate giving
programs in the United States; however, it is believed that several
thousand are in operation.
declining grant
A multi-year grant that becomes smaller each year, in the expectation
that the recipient organization will increase its fundraising from
other sources.
demonstration grant
A grant made to establish an innovative project or program that,
if successful, will serve as a model and may be duplicated 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 also self-dealing.)
disqualified person (public charity)
As applied to public charities, the term 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) 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.
distribution committee
The committee responsible for making grant decisions. For community
foundations, the distribution committee is intended to be broadly
representative of the community served by the foundation.
donee
A person or organization that receives money. (See also grantee.)
donor
A person or organization that gives money. (See also grantmaker.)
donor-advised fund
A fund held by a community foundation, public charity or other entity,
where the donor or a committee appointed by the donor recommends
eligible charitable recipients from the fund.
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.
employee matching grant
A contribution to a charitable organization by an employee that
is matched by a similar contribution from his or her employer. (See
also matching gifts
program.)
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, or for a defined
period of time or until sufficient assets have accumulated to achieve
a designated purpose.
e-philanthropy
This term describes the variety of methods of giving using the Internet.
Many sites have been developed that accept donations in addition
to providing information regarding nonprofit groups. Many e-commerce
sites (e.g., charity malls) incorporate fundraising efforts by donating
a percentage of their proceeds to charity. Such sites can serve
as a clearinghouse for large numbers of organizations and for information
that would otherwise be difficult to access.
excise tax
The annual tax of 1 or 2 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 Internal Revenue Service 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.
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. Family
foundations tend to concentrate their giving locally.
feasibility study
A method of determining whether a project or program is both possible
to do and likely to have its desired effect. A feasibility study
involves gathering, analyzing and evaluating information on a small
scale.
federated fund
Another term for federated giving program.
federated giving program
A centralized fundraising effort usually administered by a nonprofit
"umbrella" organization that distributes the contributed funds to
several nonprofit agencies. Some examples of this: United Way and
community chests or funds, the United Negro Collect Fund and joint
arts councils. (See also community fund.)
flow-through funds
Contributions to a foundation that are used primarily for direct
grantmaking, rather than for endowing the foundation permanently.
Most corporate foundations depend on these funds each year rather
than on income produced from endowment funds.
Form 990/Form 990-PF
The IRS forms filed annually by public charities and private foundations,
respectively. (PF stands for "private foundation.") The IRS uses
these forms 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.
foundation
A foundation is a non-governmental, nonprofit organization that
has its own funds or endowments. Foundations are managed by their
own trustees or directors and are usually founded to benefit educational,
charitable, social, religious or other activities serving the common
good. There are many types of foundations defined in this glossary:
- community foundations
- corporate foundations
- corporate giving programs
- family foundations
- operating foundations
- public foundations
- private independent foundations
funding cycle
A chronological pattern of proposal review, decision making and
applicant notification. Some donor organizations make grants at
set intervals (quarterly, semiannually, etc.), while others operate
under an annual cycle.
general 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 (sometimes also referred to as operating support).
general purpose foundation
An independent private foundation that awards grants in many different
fields of interest, as opposed to a special purpose foundation.
giving circle
Also called philanthropic social clubs, these autonomous groups
come together to give as a group, meeting regularly, sharing information,
and making joint giving decisions. A guide to starting a giving
circle can be found at www.newenglandgiving.org.
grant
An award of funds to an organization or individual to undertake
charitable activities.
grantee
Also referred to as a grantseeker, the individual or organization
that receives a grant. (See also donee.)
grantmaker
Also referred to as a grantor, the individual or organization that
makes a grant. (See also donor.)
grantee financial report
A report detailing how grant funds were used by an organization.
Many grantmakers require this kind of report from grantees. A financial
report generally includes a listing of all expenditures from grant
funds as well as an overall organizational financial report covering
revenue and expenses, assets and liabilities.
grassroots fundraising
Efforts to raise money from individuals or groups from the local
community on a broad basis. Usually an organization's own constituents
-- people who live in the neighborhood served or clients of the
agency's services -- are the sources of these funds. Grassroots
fundraising activities include membership drives, raffles, auctions,
benefits and a range of other activities.
guidelines
A statement of a foundation's goals, priorities, criteria and procedures
for applying for a grant.
in-kind contribution
A donation of goods or services rather than cash or appreciated
property.
independent foundation
A private foundation usually founded by one individual, often by
bequest. Independent foundations are occasionally termed "nonoperating"
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.
The Rockefeller Foundation and the John D. and Catherine T. MacArthur
Foundation are two examples of well-known "independent" private
foundations.
Internal Revenue Service (IRS)
The federal agency responsible for regulating foundations and their
activities (online at www.irs.gov).
joint funding
A grant project supported by more than one donor, each of whom may
provide monies for a specific component of the overall project or
who may contribute to a common pool of funds.
letter of inquiry
Also referred to as a letter of intent, 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
also preliminary proposal.)
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."
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.
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 staff and trustees.)
matching grant
Another term for a matching gifts program.
operating foundation
An endowed private foundation that uses the bulk of its income to
provide charitable services or to run charitable programs of their
own (such as a school or camp). Operating foundations 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. Also called private operating foundations.
operating support grant
A grant to cover the regular personnel, administrative and miscellaneous
expenses of an existing program or project. See also general/operating
support.
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 can be 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 and corporate giving
programs 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.
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.
post-grant evaluation
A review of the results of a grant, with the emphasis upon whether
or not the grant achieved its desired objective.
preliminary proposal
Sometimes referred to as a concept paper, a brief draft of a grant
proposal used to learn if there is sufficient interest to warrant
submitting a proposal. (See also letter
of intent.)
pretax net income
A corporation's annual net income before it has paid taxes. The
Internal Revenue Service currently allows corporations to deduct
charitable contributions as much as 10 percent of their pretax net
income.
private foundation
A nongovernmental, nonprofit organization with funds (usually from
a single source, such as an individual, family or corporation) and
programs 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.
program officer
A staff member of a foundation who reviews grant proposals and processes
applications for the board of trustees. Only a small percentage
of foundations have program officers.
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.
proposal
A written application, often accompanied by supporting documents,
submitted to a foundation or corporate giving program in requesting
a grant. Most foundations and corporations do not use printed application
forms but instead require written proposals; others prefer preliminary
letters of inquiry prior to a formal proposal. Consult a grantor's
published guidelines for specific details.
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
(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
A nonprofit organization that receives at least one-third of its
annual income from the general public (including government agencies
and foundations). Public foundations may make grants or engage in
charitable activities. 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 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 may still 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.
qualifying distributions
Expenditures of a private foundation made to satisfy its annual
payout requirement. These can include grants, reasonable administrative
expenses, set asides, loans, program-related investments and amounts
paid to acquire assets used directly in carrying out tax-exempt
purposes.
restricted funds
Income or assets that are restricted in their use, in the types
of organizations that may receive grants from these funds, or in
the procedures used to make grants from such funds.
RFP
An acronym for Request For Proposal. When grantmakers create new
program areas or initiatives, an RFP is occasionally used to solicit
applications from nonprofit organizations working within the project
specifications.
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 results
in an initial penalty tax equal to 5 percent of the amount involved,
payable by the self-dealer.
set-asides
Funds set aside by a foundation for a specific purpose or project
that are counted as qualifying distributions toward the foundation's
annual payout requirement. Amounts for the project must be paid
within five years of the first set-aside.
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 enterprise
A nonprofit venture that combines the passion of a social mission
with the discipline, innovation and determination commonly associated
with for-profit businesses. This includes, but is not limited to,
new revenue generating ventures, for-profit subsidiaries and other
alternatives to traditional funding sources.
social entrepreneurs
Individuals who engage in social enterprise and draw upon the best
thinking in both the business and nonprofit worlds in order to advance
their social agenda.
social venture fund
Charitable funds whose donors invest their expertise as well as
their money, providing support and requiring accountability of nonprofit
organizations just as venture capitalists do in business enterprises.
(See also venture philanthropy.)
socially responsible investing
Also referred to as ethical 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.
special purpose foundation
A private foundation that focuses its grantmaking activities in
one or a few areas of interest, as opposed to a general purpose
foundation.
sponsorship
Affiliation with an existing nonprofit organization for the purpose
of receiving grants. Grantseekers may either apply for federal tax-exempt
status or affiliate with a nonprofit sponsor.
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.
tax-exempt organizations
Organizations that do not have to pay state and/or federal income
taxes. Organizations other than churches seeking recognition of
their tax-exempt status under Section 501(c)(3) of the Internal
Revenue Code must apply to the Internal Revenue Service. These organizations
may also be exempt from sales and local property taxes.
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.
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.
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.
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
The philanthropic application of venture capital principles and
practices. Venture Philanthropy assists nonprofit organizations
in the planning, launch and management of new programs or social
purpose enterprises. In addition to grants, Venture Philanthropists
provide networking, management advice and an array of other supports
to organizations within a given portfolio of charitable investments.
(See also social venture fund.)
virtual foundation
Refers to the transition from grantmaking through mail and face-to-face
meetings to grantmaking by email and internet transfers. Such a
foundation may exist only on the internet and be capable of transferring
money from philanthropists to organizations globally.
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