Community Foundation Basics

A community foundation is a publicly supported philanthropic institution governed by a board of private citizens chosen to be representative of the public interest and for their knowledge of the community. It administers individual funds contributed or bequeathed to it by individuals, other agencies, governments, corporations and other sources.

Community foundations uniquely serve three publics: donors, the nonprofit sector and the community as a whole. Individual community foundations may focus to some extent on one of these publics over the other two (leading to considerable diversity in the field) but by structure and by regulation the community foundation must always serve all three.

Its purposes are to:

  1. Professionally manage and distribute income, and portions of the principal when permitted, from donors’ charitable gifts and bequests in a manner consistent with donors’ specific and general interests;
  2. Maintain and enhance the educational, social, cultural, health and civic resources of the community, through the support of qualified nonprofit organizations; and
  3. Through the actions of board and staff, provide philanthropic leadership and help create and promote efforts among the citizens to improve the quality of life in the community.

A community foundation can generally also be said to be characterized by the following:

Governance

  • The community foundation has a name conveying the concept of an endowment fund to support charitable activities.
  • It directs its efforts to raising a permanent charitable endowment consisting of an aggregation of funds.
  • It has a common instrument governing all funds.
  • The community foundation has a common governing board with specified powers including the power to modify restrictions or conditions on the distribution of funds (the variance provision).
  • It has a governing board representing the broad interests of the public.

Donors

  • The community foundation encourages and helps donors achieve their charitable objectives.
  • The community foundation attracts and accepts from all kinds of donors (individuals, corporations, foundations and other charitable agencies and government units) gifts and bequests of funds which are counted as “components” of the community foundation.
  • The governing board of a community foundation accepts private funds to be applied: a) at the discretion of the board, or b) to a particular field of concern, or c) after considering advice offered from time to time by a donor or advisory group, or d) designated for named charities or purposes.
  • If at some future time such purposes are incapable of fulfillment, not feasible, unnecessary or no longer meeting the needs for which given, the board may modify the purposes of the funds so they will be used for other charitable needs.

Charitable Purposes

  • The community foundation has an orientation to carry out its charitable purposes primarily within a specified geographic area.
  • It has grantmaking policies which serve broad charitable purposes.

Pertinent IRS Treasury Regulations

  • The legal regulations covering the community foundation include IRS section 501(c)(3), definitions of public support described in IRS sections 170(b)(1)(a)(vi), and section 509(a)(1), and descriptions of required characteristics for most community foundations in IRS Treasury Regulations 1.170 A-9(e)(10) and (11).


Reprinted with permission from the Council on Foundations.