Terms to Know
Lexicon of Terms
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.).
Affiliate Community Foundation:
A component fund of the Community Foundation with a mission to
increase philanthropy in a particular geographic area. The Affiliate
Community Foundation has a local group of community members that serve
on the governing committee that make grant recommendations for
charitable dollars impacting their communities and also serve as
representatives raising dollars to benefit their local community
organizations. By signing an affiliate agreement, the Affiliate
Community Foundation falls under the legal auspices of the host
Community Foundation which handles the administration, investment and
the daily office tasks to maintain the affiliate. The affiliate is not a
separate entity but instead is a legal component of the foundation.
Annual Report:
A report published by the Community Foundation describing its grant activities and donors.
Articles of Incorporation:
A document filed with the Secretary of State 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 Spending Rule.)
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.
Building Campaign:
A drive to raise funds for construction or renovation of buildings.
Bylaws:
Rules governing the operation of a nonprofit corporation. Bylaws
provide the methods for the selection of directors, the creation of
committees and the conduct of meetings.
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 that is made on the condition that other monies 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 (see 501(c)(3)) and will be eligible to receive tax-deductible
charitable gifts.
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. There are more than
700 community foundations across the United States today.
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 (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 usually is funded with pre-tax income. 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.
Decline:
Also referred to as Denial, a decline is the refusal or rejection of a grant request.
Designated Funds:
A type of restricted fund at the Community Foundation in which the
fund beneficiaries are specified per the agreement of the fund.
Donor Advised Fund:
A fund held by a Community Foundation where the donor, or a committee
appointed by the donor, may recommend eligible charitable recipients
for grants from the fund. The Community Foundation's governing body has
final approval 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 charitable organizations. The Community Foundation's board has
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.
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.
Excise Tax:
The annual tax of 1 or 2 percent of net investment income that must be paid to the IRS by private foundations.
Field of Interest Fund:
A fund held by the 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 an 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.
Grant:
An award of funds to an organization for charitable activities.
Grant Report:
The final report on the results of the activities funded by a grant
with the objective of determining that the terms and conditions of the
grant were met.
Grantee:
The individual or organization that receives a grant.
Granting Cycle:
A chronological pattern of application review, decision-making and applicant notification.
Grantor:
The individual or organization that makes a grant.
Grant 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.
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 Revenue Service (IRS):
The federal agency with responsibility for regulating foundations and their activities. On-line at www.irs.gov.
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.
Operating Support:
A contribution given to cover an organization's day-to-day, ongoing expenses, such as salaries, utilities, office supplies, etc.
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.
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.
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.
Spending Policy:
Frequently dubbed as "granting policy" or "spending rate," the
spending policy is the percentage that can be distributed form a
permanent endowment fund. The State of Iowa has mandated that any fund
that has offered donors the Endow Iowa Tax Credit cannot exceed a 5%
spending policy.
Unrestricted Funds:
Grant funds distributed at the discretion of Community Foundation based on community needs that are changing.
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