Nonprofit Sector Glossary

Financial Trends Glossary

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Nonprofit Sector Glossary

The following is a comprehensive but not exhaustive glossary of terms that are frequently used in the nonprofit sector and by Candid.  Candid has resources on fundraising and nonprofit management if you want to learn about these terms.

501(c)(3)  The section of the tax code that defines nonprofit, charitable, tax-exempt organizations. 501(c)(3) organizations are further defined as public charities, private operating foundations, and private non-operating foundations. See also: operating foundation; private foundation; public charity.

Annual report  A voluntary report issued by a foundation or corporation that provides financial data and descriptions of its grantmaking activities. Annual reports vary in format from simple typewritten documents listing the year's grants to detailed publications that provide substantial information about the grantmaker's grantmaking programs.

Assets  The amount of capital or principal -- money, stocks, bonds, real estate, or other resources -- controlled by a foundation or corporate giving program. Generally, assets are invested and the resulting income is used to make grants.

Beneficiary  In philanthropic terms, the donee or grantee receiving funds from a foundation or corporate giving program is the beneficiary, although society may benefit as well.

Bricks and Mortar  An informal term for grants for buildings or construction projects.

Capital support  Funds are provided for endowment purposes, buildings, construction, or equipment.

Challenge grant  A grant that is paid only if the donee organization is able to raise additional funds from other sources. Challenge grants are often used to stimulate giving from other donors. See also: matching grant.

Community foundation  A 501(c)(3) organization that makes grants for charitable purposes in a specific community or region. The funds available to a community foundation are usually derived from many donors and held in an endowment that is independently administered. Income earned by the endowment is then used to make grants. Although a community foundation may be classified by the IRS as a private foundation, most are public charities and are thus eligible for maximum tax-deductible contributions from the general public. See also: 501(c)(3); public charity.

Community fund  An organized community program which makes annual appeals to the general public for funds that are usually not retained in an endowment but are instead used for the ongoing operational support of local agencies. See also: federated giving program.

Company-sponsored foundation (also known as a corporate foundation)  A private foundation whose assets are derived primarily from the contributions of a for-profit business. While a company-sponsored foundation may maintain close ties with its parent company, it is an independent organization with its own endowment and as such is subject to the same rules and regulations as other private foundations. See also: private foundation.

Corporate foundation  See company-sponsored foundation.

Cooperative venture  A joint effort between or among two or more grantmakers. Cooperative venture partners may share in funding responsibilities or contribute information and technical resources. Also known as a funder collaborative.

Corporate giving program  A grantmaking program established and administered within a for-profit corporation. Because corporate giving programs do not have separate endowments, their annual grant totals generally are directly related to company profits. Corporate giving programs are not subject to the same reporting requirements as corporate foundations.

Distribution committee  The committee responsible for making grant decisions. For community foundations, the distribution committee is intended to be broadly representative of the community served by the foundation.

Donee  The recipient of a grant. Also known as a grantee or a beneficiary.

Donor  An individual or organization that makes a grant or contribution to a donee. Also known as the grantor or grantmaker.

Employee matching grant  A contribution to a charitable organization by an employee that is matched by a similar contribution from his or her employer. Many corporations have employee matching-gift programs in higher education that encourage their employees to give to the college or university of their choice.

Endowment  Funds intended to be invested in perpetuity to provide income for continued support of a not-for-profit organization.

Expenditure responsibility  In general, when a private foundation makes a grant to an organization that is not classified by the IRS as a "public charity," the foundation is required by law to provide some assurance that the funds will be used for the intended charitable purposes. Special reports on such grants must be filed with the IRS. Most grantee organizations are public charities and many foundations do not make "expenditure responsibility" grants.

Family foundation  An independent private foundation whose funds are derived from members of a single family. Family members often serve as officers or board members of family foundations and have a significant role in their grantmaking decisions.

Federated giving program  A joint fundraising effort usually administered by a nonprofit "umbrella" organization that in turn distributes the contributed funds to several nonprofit agencies. United Way and community chests or funds, the United Jewish Appeal and other religious appeals, the United Negro College Fund, and joint arts councils are examples of federated giving programs. See also: community fund.

Fiscal sponsorship  Affiliation with an existing nonprofit organization for the purpose of receiving grants. Grantseekers may either apply for federal tax-exempt status or affiliate with a nonprofit sponsor.

Form 990  The public information return that public charities file with the Internal Revenue Service (IRS).

Form 990-PF  The public information return that all private foundations are required by law to submit annually to the Internal Revenue Service (IRS).

General/operating support  A grant made to further the general purpose or work of an organization, rather than for a specific purpose or project. Also called an unrestricted grant or basic support.

General purpose foundation  An independent private foundation that awards grants in many different fields of interest. See also special purpose foundation.

Grantee financial report  A report detailing how grant funds were used by an organization. Many corporate grantmakers require this kind of report from grantees. A financial report generally includes a listing of all expenditures from grant funds as well as an overall organizational financial report covering revenue and expenses, assets and liabilities. Some funders may require an audited financial report.

Grassroots fundraising  Efforts to raise money from individuals or groups from the local community on a broad basis. Usually an organization's own constituents -- people who live in the neighborhood served or clients of the agency's services -- are the sources of these funds. Grassroots fundraising activities include membership drives, raffles, auctions, benefits, and a range of other activities.

Guidelines  Procedures set forth by a funder that grantseekers should follow when approaching a grantmaker.

Independent foundation  A grantmaking organization usually classified by the IRS as a private foundation. Independent foundations may also be known as family foundations, general purpose foundations, special purpose foundations, or private non-operating foundations. See also: private foundation.

In-kind contribution  A contribution of equipment, supplies, or other tangible resource, as distinguished from a monetary grant. Some corporate contributors may also donate the use of space or staff time as an in-kind contribution.

Letter of inquiry  A brief letter outlining an organization's activities and its request for funding that is sent to a prospective donor in order to determine whether it would be appropriate to submit a full grant proposal. Many grantmakers prefer to be contacted in this way before receiving a full proposal.

Matching grant  A grant that is made to match funds provided by another donor. See also: challenge grant; employee matching gift.

Operating foundation  A 501(c)(3) organization classified by the IRS as a private foundation whose primary purpose is to conduct research, social welfare, or other programs determined by its governing body or establishment charter. An operating foundation may make grants, but the amount of grants awarded generally is small relative to the funds used for the foundation's own programs. See also: 501(c)(3).

Payout requirement  The minimum amount that private foundations are required to expend for charitable purposes (including grants and, within certain limits, the administrative cost of making grants). In general, a private foundation must meet or exceed an annual payout requirement of 5 percent of the average market value of its total assets.

Private foundation  A nongovernmental, nonprofit organization with funds (usually from a single source, such as an individual, family, or corporation) and program managed by its own trustees or directors. Private foundations are established to maintain or aid social, educational, religious, or other charitable activities serving the common welfare, primarily through the making of grants. See also: 501(c)(3); public charity.

Program amount  Funds that are used to support a particular program administered internally by a foundation or corporate giving program.

Program officer  A staff member of a foundation who reviews grant proposals and processes applications for the board of trustees. Only a small percentage of foundations have program officers.

Program-related investment (PRI)  A loan or other investment (as distinguished from a grant) made by a foundation to another organization for a project related to the foundation's philanthropic purposes and interests.

Proposal  A written application, often accompanied by supporting documents, submitted to a foundation or corporate giving program in requesting a grant. Most foundations and corporations do not use printed application forms but instead require written proposals; others prefer preliminary letters of inquiry prior to a formal proposal. Consult published guidelines.

Public charity  A nonprofit organization that qualifies for tax-exempt status under section 501(c)(3) of the IRS code. Public charities are the recipients of most foundation and corporate grants. Some public charities also make grants. See also: 501(c)(3); private foundation.

Qualifying distributions  Expenditures of a private foundation made to satisfy its annual payout requirement. These can include grants, reasonable administrative expenses, set-asides, loans and program-related investments, and amounts paid to acquire assets used directly in carrying out tax-exempt purposes.

RFP  Acronym for Request for Proposal. When the government issues a new contract or grant program, it sends out RFPs to agencies that might be qualified to participate. The RFP lists project specifications and application procedures. While an increasing number of foundations use RFPs in specific fields, most still prefer to consider proposals that are initiated by applicants. For a current listing of selected RFPs, see our RFP Bulletin.

Seed money  A grant or contribution used to start a new project or organization. Seed grants may cover salaries and other operating expenses of a new project.

Set-asides  Funds set aside by a foundation for a specific purpose or project that are counted as qualifying distributions toward the foundation's annual payout requirement. Amounts for the project must be paid within five years of the first set-aside.

Special purpose foundation  A private foundation that focuses its grantmaking activities in one or a few areas of interest. See also: general purpose foundation.

Sustainable Development Goals (SDGs)  The United Nations' Sustainable Development Goals (SDGs) aim to address global challenges such as poverty, inequality, climate change, and peace. NGOs often tailor their projects and initiatives to align with one or more of these 17 goals, thereby contributing to a global effort towards sustainable development.

Tax-exempt  Refers to organizations that do not have to pay taxes such as federal or state corporate tax or state sales tax. Individuals who make donations to such organizations may be able to deduct these contributions from their income tax.

Technical assistance  Operational or management assistance given to nonprofit organizations. This type of help can include fundraising assistance, budgeting and financial planning, program planning, legal advice, marketing, and other aids to management. Assistance may be offered directly by the staff of a foundation or corporation, or it may be provided in the form of a grant to pay for the services of an outside consultant. See also: in-kind contributions.

Trustee  A foundation board member or officer who helps make decisions about how grant monies are spent. Depending on whether the foundation has paid staff, trustees may take a more or less active role in running its affairs.

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Financial Trends Glossary

The following list defines terms found in a Form 990 and formulas for calculating financial trends. To learn more about reading a Form 990, refer to Candid’s Highlights of IRS Form 990. 

Business model  The expression of how an organization makes and spends money in service of its mission. 

Profitability  An indicator of an organization's business model performance by showing whether it realized a surplus or experienced a deficit in a given year. Surpluses are essential to nonprofit financial health. 

Unrestricted surplus (deficit) after depreciation  A measure of profitability. In this report, this metric is calculated from the balance sheet due to the use of IRS Form 990 data. It is important for organizations to aim for surpluses that exceed their expenses including depreciation. Depreciation is a non-cash expense, which, for property owners, can be sizable. Unrestricted surplus (deficit) may not always reflect the amount available for operations if non-operating items, such as capital campaign contributions released from restriction and gains/losses on investments, are present. 

Calculation: Balance Sheet, Line 27B (Unrestricted net assets, end of year) - Line 27A (Unrestricted net assets, beginning of year) 

Unrestricted surplus (deficit) before depreciation  Same as above but calculated before annual depreciation expense. It may be helpful to look at profitability without the effects of depreciation, a non-cash expense that serves as a proxy for future replacement needs on fixed assets. 

Calculation: Balance Sheet, Line 27B (Unrestricted net assets, end of year) - Line 27A (Unrestricted net assets, beginning of year) + Statement of Functional Expenses, Line 22A (Depreciation) 

Total revenue (restricted and unrestricted)  The sum of all income sources received within a given year. The Form 990 does not distinguish between unrestricted and restricted revenues; therefore it is possible that a portion of revenues reported here are restricted for future use and unavailable for use in the year received. 

Statement of Revenue, Line 12A (Total revenue) 

Program services revenue  Funds received by an organization in exchange for providing the services for which it received tax-exemption (e.g., tuition, fees, or admissions). Government revenue is considered program service revenue if the government, rather than the public, is the primary beneficiary of the services. Most government contracts should be booked under government grants since the beneficiary is the general public. However, it is not uncommon for nonprofits to book contracts as program services revenue. Medicare and Medicaid payments should be considered program services revenue since the insurance coverage is with the individual who contracts with the nonprofit organization for service. May also include earned revenue from sales of inventory for hospitals, colleges and universities only and revenue from certain unrelated trade and business activities. 

Statement of Revenue, Line 2g 

Membership dues  The portion of a charge for organizational membership that is not given in exchange for any goods or services. For example, a theater provides a donor with two tickets worth $50 for a $75 membership. Only $25 would be recognized in this line item. 

Statement of Revenue, Line 1b 

Investment income  Interest and dividend income from equity, debt, and bond securities. Excludes realized and unrealized gains and losses on investments. 

Calculation: Statement of Revenue, Line 3A (Investment income) + Line 4A (Income from investment of tax-exempt bond proceeds) 

Government grants  Government revenue, whether from local, state, federal or foreign government units, is considered a contributed grant if the primary beneficiary of services provided is the public, rather than the government unit itself. For the purposes of this report, due to the use of IRS Form 990 data, most government contracts should be booked under government grants since the beneficiary is the general public. However, it is not uncommon for nonprofits to book contracts as program services revenue. 

Statement of Revenue, Line 1e 

All other grants and contributions  For the purposes of this report, includes: support from federated campaigns (such as United Way), foundations, individuals, corporations, fundraising events (net of expenses) and other related organizations. May include restricted funds received for future years, and therefore not accurately represent revenue available for use in the given year. May also include funds not intended for operations, e.g., capital campaign dollars for a facility project or an endowment. 

Calculation: Statement of Revenue, Sum of Lines 1a (Federated campaigns), 1c (Fundraising events), 1d (Related organizations), 1f (All other contributions), 8c (Net income from fundraising events) 

Other revenue  For the purposes of this report, this category includes rental income, royalties, gaming, gains/losses on sales of assets and investments, sales of inventory items, and miscellaneous revenue. 

Calculation: Statement of Revenue, Sum of Lines 5A (Royalties), 6d (Net gain or loss, Gross Rents), 7d (Net gain or loss, sales of other assets), 9c (Net income or (loss) from gaming), 10c (Net income or (loss) from sales of inventory), 11e (Total miscellaneous revenue) 

Total expenses before depreciation  The annual costs of running operations and programming, excluding depreciation. Depreciation is an accounting estimate of the general wear and tear of land, buildings, equipment or other fixed assets over a defined useful life. Though it is a non-cash expense, it can help nonprofits plan for the maintenance and replacement of depreciated fixed assets. 

Calculation: Statement of Functional Expenses, Line 25A (Total functional expenses) - Line 22A (Depreciation) 

Personnel  Personnel expenses include salaries, payroll taxes and benefits. This category generally excludes costs associated with contract personnel, but depends on how the nonprofit filled out the Form 990. 

Calculation: Statement of Functional Expenses, Sum of Lines 5A (Compensation of current), 6A (Compensation not included), 7A (Other salaries and wages), 8A (Pension plan contributions), 9A (Other employee benefits), 10A (Payroll taxes) 

Professional fees  All contract professionals, such as teachers, artists, musicians, lawyers, accountants, architects, who do not have their taxes withheld by the organization nor do they receive benefits. 

Calculation: Statement of Functional Expenses, Sum of Lines 11a (Management), 11b (Legal), 11c (Accounting), 11d (Lobbying), 11e (Professional fundraising), 11f (Investment mgmt.), 11g (Other) 

Occupancy  All costs relating to the rent, utilities, insurance and maintenance of square footage occupied. Does not include periodic capital improvements to property (leased or owned), which would be capitalized on the balance sheet as assets. 

Statement of Functional Expenses, Line 16A 

Interest  The interest portion of loan payments, which are reflected in an organization's income statement or budget - does not include payments of loan principal which are captured on the balance sheet. 

Statement of Functional Expenses, Line 20A 

Pass-through  Funds either spent on behalf of, or passed through to, a secondary recipient. 

Statement of Functional Expenses, Lines 1A-4A 

All other expenses  For the purposes of this report, this expense category includes all expense line items not reflected in Personnel, Professional fees, Occupancy, Interest, and Pass-through expense categories. 

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