Most philanthropies do not provide
grants to organizations that do not qualify for 501(c)(3) status from the Internal Revenue
Code. 501(c)(3) organizations are exempt from federal taxes and are generally categorized as public charities, private
foundations, and private operating foundations. Donations to 501(c)(3) organizations are considered
tax-deductible. To obtain 501(c)(3) status, organizations will need to submit an application
to the Internal Revenue Service (IRS). More information about this process can be found at Stay Exempt: Tax Basics for Exempt Organizations.
501(c)(3) organizations that have obtained “public charity” status may also need to be thoughtful
about how they manage their funding streams. To maintain public charity status, which provides tax
advantages and allows donors to deduct their contributions, an organization generally needs to
receive at least
one third of its revenues from government sources and/or the general public. A large grant from a
single private philanthropic partner, known as “tipping,”
can upset this balance. Public charities should consult with their accounting and tax advisor(s) when
receiving sizable grants to ensure that they are able to maintain their status.