Philanthropy

What is Philanthropy? Philanthropy can be defined in many ways. The word comes from the Greek, meaning “love for mankind.” Modern definitions include the concept of voluntary giving by an individual or group to promote the common good and improve the quality of life.

Philanthropy Basics

In the United States, the term “philanthropy” is used to describe the granting of money to nonprofit organizations by foundations and corporations. This type of giving is often referred to as organized philanthropy or grantmaking.

What is a foundation?
A foundation is a nonprofit organization that supports charitable activities in order to serve the common good. Foundations are often created with endowments - money given by individuals, families or corporations. They generally make grants or operate programs with the income earned from investing the endowments.

For information on the Life Cycle of a Private Foundation click here.

What limits are there on foundation grantmaking?

  • Some foundations have broad discretion regarding the charitable causes to which their grants can be directed. Others are sharply limited-often legally-by the mandate of the foundation donor.
  • Some foundations are restricted to making grants only to specific causes; others must restrict their grantmaking to a specific geographic area.

How are foundations regulated?
Private foundations are governed by stricter regulations than public charities, which generally raise money from the public to operate institutions or programs. Both foundations and public charities might use the term “foundation” in their titles, but very different laws apply to each. The IRS requires that private foundations:

  • Pay out at least 5 percent of the year-end fair market value of their assets.
  • Pay an excise tax of 1 or 2 percent on their earnings.
  • Give money only to other 501(c)(3) organizations, with a few rare exceptions.
  • Nearly all community/public foundations are considered public charities by the IRS. As such, they are not subject to the same regulatory provisions as independent and corporate foundations.