Nonprofit Glossary

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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 preventing 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 define the agency as a public charity further.

See Public Charity Support Test.

C

Capital 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.

Related Term(s):

Capital Development Campaign

Capital Grant

A grant that is used for building costs, equipment, or materials.

Challenge Grant

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

CHARITABLE DONATION

A gift, often in the form of cash, to a nonprofit organization to assist the nonprofit in its expansion and conducting activities/holding events. The donor receives nothing in return but can deduct the donation from federal tax returns.

Charitable Lead Trust

A Charitable Lead Trust (CLT) pays the trust income to a charity first for a specified period, with the principal reverting to the donor or going to another person (s) at the end of the period.

Charitable Remainder Trust

A gift plan that provides income to one or more beneficiaries for their lifetimes, a fixed term of not more than 20 years, or a combination of the two. Assets, usually cash, securities, or real estate, are transferred to a trust which pays income to the beneficiaries for the term of the trust. When the trust term ends, the remainder of the trust passes to a nonprofit organization. It can also be established as a Charitable Remainder Unitrust (CRUT) with a variable payout.

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 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 various 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 was the first community foundation established in 1914.

CONFLICT OF INTEREST

Nonprofits adopt a conflict of interest policy to resolve problems that may occur. A Conflict of Interest policy is required by IRS Form 990.

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. Still, it is a separate, legal organization, sometimes with its own endowment, and is subject to the same rules and regulations as other private foundations. More than 2,000 corporate foundations in the United States hold some $11 billion in assets.

Related Term(s):

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 usually is funded with pre-tax income. The Foundation Center has identified more than 700 corporate foundations/giving programs in the United States; however, several thousand are believed to be in operation.

CORPORATE SPONSORSHIP

This is a form of payment a business or company provides to a nonprofit to assist in fulfilling its mission and vision. The nonprofit would then recognize the business for donating at the sponsored event or via a different platform.

D

Decline

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.

Related Term(s):

Denial

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.

Direct Lobbying

Refers to attempts to influence a legislative body through communication with a member or employee of a legislative body or with a government official who participates in formulating legislation.

Discretionary Fund

Grant funds that are distributed at the discretion of one or more trustees, which usually do not require prior approval by the entire 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.

Related Term(s):

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) family members of the above, and (4) businesses they control. Paying excessive benefits to a disqualified person will impose penalty excise taxes on that person and, under some circumstances, on the charity’s board of directors.

Related Term(s):

Intermediate Sanctions

DONOR

The personal or entity that makes the gift to the nonprofit organization.

DONOR DATABASE

A working list of individuals and entities that have given to the nonprofit organization. The database will include contact information, the amount donated, if donations were recurring, etc.

Donor or Committee 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 must be free to accept or reject the recommendations.

E

Employer Identification Number (EIN)

A nine-digit number assigned by the Internal Revenue Service (IRS), its purpose is to track a nonprofit’s annual returns and tax accounts. Every IRS-designated tax-exempt nonprofit organization has its own EIN.

Endowment

The principal amount of gifts and bequests accepted is 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 or until sufficient assets have been accumulated to achieve a designated purpose.

RELATED TERM(S):

Permanent Fund

Excise Tax

The annual tax of 1 or 2 percent of net investment income 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; therefore, it has no precise definition. Yet, approximately two-thirds of the estimated 44,000 private foundations in the United States 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. 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 voluntarily, 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.

Field of Interest Fund

See Area of Interest Fund.

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 a grantee organization used grant funds. Most foundations require a financial report from grantees.

Fiscal Sponsor

A fiscal sponsor is a nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects. Fiscal sponsorships are useful for organizations that are not yet recognized as tax-exempt under Internal Revenue Code Section 501 (c)(3) or that simply have decided that operating under the umbrella of another tax-exempt organization makes sense.

Fiscal Year

A 12-month period around which an organization operates. Most organizations operate either on a calendar year (January – December) or a fiscal year (July – June).

Funder

A donor, corporation, community foundation, etc. that provides a grant to a nonprofit organization for projects and/or programs.

Related Term(s):

Donor, Grantor

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 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. This funding does not need to be paid back; therefore, the organization or individual can use it to conduct activities, host events, and grow. 

Grant Evaluation

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

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.

Grantmaking

The giving of funds for a specific purpose.

GRANTOR

A user registered on behalf of their federal grant-making agency to post funding opportunities or manage submissions to these funding opportunities.

RELATED TERM(S):

Donor, Funder

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.

Grassroots Lobbying

Attempts to influence legislation by attempting to affect the opinion of the public with respect to the legislation and encouraging the audience to take action with respect to the legislation.

Guidelines

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

I

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.

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.

Related Term(s):

Disqualified Person (Public Charity)

Internal Revenue Service (IRS)

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

IRS FORM 990

The IRS forms filed annually by public charities and private foundations respectively. The IRS uses this form to assess compliance with the Internal Revenue Code. The form list organization assets, receipts, expenditures and compensation of officers.

IRS 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. The form list organization assets, receipts, expenditures and compensation of officers. Form 990-PF includes a list of grants made during the year by private foundations.

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.

L

Letter of Intent (LOI)

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

Leverage

A method of grantmaking practiced by some foundations. Leverage occurs when a small amount of cash 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.

Related Term(s):

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.

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 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.

Lobbying vs. Advocacy

Advocacy is when nonprofit organizations advise stakeholders, legislators, or citizens on their own behalf to affect some aspect of society integral to the nonprofit’s mission. All nonprofits can advocate for measures that will affect their mission or the health and well-being of their clients. Lobbying is when one seeks to influence legislation.

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.

MUSIC GRANT

A type of grant that provides a valuable source of funding for music artists, creators, and cultural and creative sectors, allowing the recipients to achieve their goals and continue to improve the quality of life for others through projects, programs, and services at a community, local, state, national or even global level.

RELATED TERM(S):

Music Grant Inc., Music Grant Funding, Music Grant Writer, 180 Deal

MUSIC GRANT FUNDING

Music Grant funding is one way that artists, creators, and the cultural and creative sectors (Nonprofit Organizations (NPO), Not-For-Profit Organizations (NFPO), Non-Governmental Organizations (NGO) and For-Profit Organizations (FPO), or Artists & Creators starting a 501(c)3) obtain the funding they need for continued operations to support the music sector.

RELATED TERM(S):

Music Grant Inc., Music Grant, Music Grant Writer, 180 Deal

MUSIC GRANT WRITER

A music grant writer is a professional who specializes in music grants and works with artists, creators, and cultural and creative sectors to secure funding for various services, programs, and projects. Music grant writers help connect these individuals and organizations with grant funding by writing proposals that identify how they will use the funds.

RELATED TERM(S):

Music Grant Inc., Music Grant, Music Grant Funding, 180 Deal

N

Nonpermanent Fund

A type of fund where both principal and income may be granted to a nonprofit organization.

O

Operating Support

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

P

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.

Planned Gift

Any gift given for any amount and for any purpose whether for current or deferred use, which requires the assistance of a professional staff person, a qualified volunteer or the donor’s advisors to complete. In addition, it includes any gift that is carefully considered by a donor in light of estate or financial plans.

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

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

PRESS RELEASE

Nonprofits compose short news stories and distribute them to various media outlets with the motivation for news coverage and exposure. 

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. They are not eligible for government assistance like public charities are, but they are still tax-exempt. Private foundations frequently contribute to other NGOs with money.

Program Grant

A grant that is used to fund a particular program usually including salaries or personnel related costs.

PROGRAM 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, write grant applications, review grant requests, manage the budget and process applications for the board of directors or contributions committee.

Related Term(s):

Corporate Affairs Officer, Program Associate, Public Affairs Officer, Community Affairs Officer

Program-Related Investment

A loan or other investment made by a private foundation to a profit-making or nonprofit organization for a project related to the foundation’s stated purpose and interests.

PROPOSAL

Written application for a grant that includes a budget, project plan, and list of who will execute the project.

R

Records Retention and Destruction Policy

Such a policy establishes guidelines for handling, backing up, archiving and destruction of documents. These guidelines foster good record keeping procedures that promotes data integrity. Here we are reporting on the existence of a policy as reported by the charity on its Form 990.

Restricted Fund

A type of fund in which the fund beneficiaries are specified by the donors.

S

Scholarship Fund

A type of fund that provides grants in the form of scholarships in which the criteria are established by the donor and the selection process jointly managed by the donor and Music Grant Inc. Scholarship funds may be either permanent (only a portion of the income is granted and principal grows in perpetuity), or nonpermanent (both principal and income may be granted).

Self-Dealing

Entering into a financial transaction that includes paying excessive benefits to a “disqualified person.” This includes organization staff, board members, family members of staff and board members, and the businesses they control.

Site Visit

Visiting an organization that has received a grant or is being considered for one. The purpose is to observe the organization, meet with staff, and get to know the program that will be or is being funded.

STRATEGIC PLAN

An official process designed by the nonprofit that outlines nonprofit goals and objectives for a defined period of time.

T

TAX EXEMPT STATUS

The right to exclude parts of income from being taxed. Nonprofits that achieve tax exempt status do not pay taxes at the federal level.

Tax-Exempt Organization

Organizations that do not have to pay state and/or federal income taxes.

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.

U

Unrestricted Fund

A fund that is not specifically designated to particular uses by the donor, or for which restrictions have expired or been removed.