The Nebraska Community Foundation works with community, organizational and donor-advised affiliated funds serving 250 communities located in 80 counties. NCF and its affiliated funds have reinvested $269 million in Nebraska since 1994.
The frequently asked questions and their answers which are listed below provide affiliated funds of the Nebraska Community Foundation with information regarding the allowable uses of fund assets in accordance with Internal Revenue Service rules and other legal requirements applicable to charitable organizations.
|Because the tax laws are complex, this document cannot address all possible situations. Please call the Nebraska Community Foundation for further guidance when you have questions on grantmaking and disbursements. In addition, we would encourage you to contact us once you have made a preliminary decision on grants but before you have announced them, in order to make sure that your grants are in compliance with tax rules.|
This information applies to both “grants” and “disbursements.”
In general, “grants” are amounts awarded by your affiliated fund to another organization for that organization’s charitable activities (for example, a grant to the local high school to pay part of the cost of an entrepreneurship class). Grants are typically awarded either by your fund advisory committee identifying community needs and the organizations that can best fulfill those needs, or through a grant application process.
Depending on the circumstances, grants may be made
“Disbursements” are payments made directly for a charitable activity (for example, a payment to a vendor to purchase playground equipment for a city park) or for the furtherance of the purpose of your affiliated fund (for example, advertising your fund’s annual meeting in the local newspaper).
Typically, grants will be made from an endowment account and disbursements will be made from non-endowed accounts that may have been set up for a specific purpose.
In addition, grants and disbursements must be made to support activities specified by the donor, to the extent that there is a donor designation for a specific purpose.
Charitable purposes do not include expenditures that provide more than minor personal benefit to one or more individuals (versus benefit to the public).
Charitable purposes also do not include political activities.
Grants and disbursements from your affiliated fund for charitable purposes may take several forms:
Nonprofit status is a state law concept that may make an organization eligible for certain state-level benefits, but it does not automatically grant the organization exemption from federal income tax. Ask to see the tax exemption letter that the organization received from the IRS. If the tax exemption letter states that the organization is tax-exempt under Section 501(c)(3) of the Internal Revenue Code and the organization certifies on its grant application that it remains a qualified 501(c)(3) organization, you may grant to them. If the organization is not tax-exempt or its exemption letter states that it is exempt under a different code section, you may grant only for specific charitable activities of the organization following the procedures described in paragraph c) of Question 2 above.
Only organizations granted tax-exempt status pursuant to Sec. 501(c)(3) are “charitable.”
There are many types of organizations that are tax-exempt but that are not charitable. See the table below for examples. Grants to these organizations may only be made for specific charitable activities of that organization following the procedures described in paragraph c) of Question 2 above.
|Types of Non-Charitable Tax-Exempt Organizations||Exempt Under Sec. 501|
|Chamber of Commerce||(c)(6)|
|Membership club (e.g., golf course or recreation club)||(c)(7)|
|Organization of past and/or present members of the armed services (e.g., American Legion, VFW)||(c)(19)|
If your affiliated fund uses a grant application process, your grant application form should include all of the information included on the attached sample grant application. If you identify organizations to which you wish to make grants, you should ask the organization if it qualifies as a 501(c)(3) public charity and to provide you a copy of its determination letter (sometimes also referred to as an “exemption letter”) from the IRS.
Unfortunately, you cannot. There are many worthwhile causes that do not meet the IRS definition of “charitable.” In the situation described here, because the identity of the beneficiary of the funds raised is known at the outset (in contrast to giving to a Red Cross disaster relief fund, for example), it would not be considered charitable, so the funds raised could not be granted by your affiliated fund to the affected persons. Because of the non-charitable nature of the activity and the fact that those donating would not be eligible for a charitable contribution tax deduction, the most effective way to handle such a situation is to ask people who want to assist to make payment directly to the affected individual(s).
Additional requirements must be followed for grants from donor-advised funds. Please contact the Nebraska Community Foundation for more details if you have a donor-advised fund.
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