What is a Foundation?

A foundation is a type of philanthropic organization set up either by individuals or institutions as a legal entity with the purpose of distributing grants to support causes in line with the goals of the primary donor or organization. Philanthropic organizations have existed for centuries and are represented throughout the world. Foundations in the United States date from the end of the 19^th Century. Today foundations typically grant money to nonprofit organizations to promote the common good and to improve the quality of life for all people.

Some foundations have broad discretion regarding charitable causes to which their grants can be directed, while others are limited by the mandate of the foundation donor. Some foundations are restricted to making grants for only specific causes like health, education, or culture and the arts. Other foundations restrict their grantmaking to a specific geographic area.

Foundations in the United States are created and organized under state law either as corporations or trusts and are exempt from federal tax. Since 1969, the United States Tax Code has drawn a clear distinction between public charities and private foundations. Both may use the term "foundation" in their titles, but depending on their IRS classifications, they are treated very differently under the tax laws. Private Foundations are governed by strict regulations. Public charities are not subject to the same regulatory provisions. The creators of foundations must become familiar with the Internal Revenue Code and state laws that govern the formation and regulate the activities of foundations.