James and Karen Hood Foundation

The legal definition of charitable organization (and of charity) varies according to the country and in some instances the region of the country in which the charitable organization operates. The regulation, tax treatment, and the way in which charity law affects charitable organizations also varies.

In the United States, a charitable organization is an organization that is organized and operated for purposes that are beneficial to the public interest, however a distinction is made between types of charitable organizations.

Every U.S. and foreign charity that qualifies as tax-exempt under Section 501(c)(3) of the Internal Revenue Code is considered a “private foundation” unless it demonstrates to the IRS that it falls into another category. In a general sense, any organization that is not a private foundation (i.e., it qualifies as something else) is usually a public charity as described in Section 509(a) of the Internal Revenue Code.

In addition, a private foundation usually derives its principal fund from an individual, family, corporation, or some other single source and is more often than not a grantmaker and does not solicit funds from the public. In contrast, a foundation or public charity generally receives grants from individuals, government, and private foundations and although some public charities engage in grantmaking activities, most conduct direct service or other tax-exempt activities.

This leads to another distinction: Foundations that are generally grantmakers (i.e., they use their endowment to make grants to other organizations, which in turn carry out the goals of the foundation indirectly) are usually referred to as “grantmaker” or “non-operating” foundations. These of course tend to be private foundations. Some private foundations however, (and most public charities) use their received funds to directly engage in service activities themselves and achieve their goals “personally,” so-to-speak.