Terms: IRS & Tax-Related

This page is a continuation of the section on Important Grant-Related Terms. It includes terms that have to do with various rules and specifications of the Internal Revenue Service.

Expenditure Responsibility: As noted in the previous section on 501©(3)'s, foundations usually require that their grantees be officially classified as charities.

However, sometimes private foundations will in fact make grants to an entity that is not classified in that way. When they make such grants, they are required to do some specific things:

The IRS requires them to demonstrate that the funds they are providing will in fact be used for charitable purposes. This evidence must be submitted to the IRS in special reports.

For this reason most foundations do not make expenditure responsibility grants (who needs exra paperwork…?).

IRS Determination Letter: This is an official document from the IRS. This form states that you are in fact tax exempt. It's important because when you apply for a grant, you will use state incorporation papers or an IRS Determination Letter to prove your tax-exempt status.

IRS Topic 421 - Scholarships, Fellowship Grants and Other Grants: The IRS defines a scholarship as typically money that a student receives for studies at a qualified educational organization. A fellowship grant is similar to a scholarship but may be for research and/or studies. Pell Grants and Fulbright Grants are also educational grants. In some cases all or part of those monies received may qualify as tax free.

501©(3): This is a term you will often hear to describe an organization in phrases such as “applicants must be 501©(3) organizations”. The number actually refers to a section of the IRS code. This section defines non-profit, charitable, and therefore tax-exempt organizations. They may also be described as charities. Many Grant Makers require that applicants be 501©(3) organizations in order to be eligible to receive grants. As such they are recipients of most foundation and corporate grants.

Form 990-PF: This is a form that all private foundations are required to file each year with the IRS. These forms are public record, meaning anyone can access them. They can be an excellent source of information to help you learn more about a foundation to which you are applying for a grant. These forms almost always include a list of the oranizations which the foundation has funded in that particular tax year, the amount of money given to them, and sometimes the specific programs being funded. This data will give you some good insight into how well your requirement matches the types and amounts of grants the foundation actually makes (sometimes in contrast to its promotional material….). Here is a sample:

Tax Exempt: This term refers to organizations that are officially classified as charities and as such do not have to pay federal or state corporate tax or state sales tax. Individuals who make donations to such organizations may also be able to take such donations as deductions on their tax returns.