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So what is an operating foundation, anyway?

By June 14, 2019 No Comments

Philanthropiece is a private operating foundation that qualifies for exempt status as a 501(c)(3).  What does that mean? There are pages and pages of IRS and other documents that describe what that means, but let’s try to boil it down into something manageable.

First, as a charitable organization or nonprofit, our primary objectives are philanthropy and social well-being.  We focus on making warm hearts rather than cold cash.

Nonprofits are exempt from paying sales and property taxes, and the further 501(c)(3) status means that Philanthropiece is exempt from federal taxes.  That also means that our donors are allowed to write off their charitable donations to our organization. We still have to pay employee taxes (Social Security and Medicare) and file tax returns.  In fact, the 990-PF return required by those with the 501(c)(3) status is even more extensive than a regular tax return.

The fact that we are funded privately rather than through public means makes us a private foundation.  We will happily accept public donations to apply to our mission to piece together a better world, but we don’t count on them.

Thanks to the savvy folks at our helm, the money that has been endowed to Philanthropiece is being managed in various investments in order to maximize the return available for us to use in the work that we do.  The “operating” part means that most of the money we spend (at least 85 percent of those investment returns) is put directly toward the active conduct of our exempt or charitable activities. In other words, rather than granting money to other organizations to do work we believe in, we have our own staff actively creating and maintaining programs that meet the needs of our communities. The reasonable administrative and operational costs associated with that staff and those programs are also covered by our investment returns.

There are further nuances, restrictions, and requirements with all of this (we are talking about tax laws, of course), but suffice it to say that Philanthropiece is grateful for the means and those very tax laws that allow us to get in there and make the best contributions we can in the communities we love.  

Still want more information? Connect with us or check out these sources to learn more about operating foundations:

Chris Mendenhall is a Consultant for Philanthropiece, and can currently be found following one crazy little idea that she had to expand her universe.