How can I engage in grassroots grantmaking when I can't legally provide grants to organizations that have not been recognized as 501(c)(3)'s by the IRS?This session was led by led by Andrew Schulz, Deputy Counsel for the Council on Foundations. My assumption was that Andrew, an attorney, was going to present a list of "thou shalt nots". I was prepared to live with the idea that policy associated with philanthropy was going to continue to contribute to the proliferation of 501(c)(3)s that we've seen over the past fifty years - the same fifty years that organized philanthropy has seen tremendous growth in depth and breadth. So prepared, in fact, that I had already begun to write about the unintended consequences of well-intentioned policy. About how the expansion of the non-profit service-providing sector, fueled by foundation grants, has "clientized" so many of our communities.
I was surprised by Andrew's message. It was "start with what you want to do" vs. what you only think you can do. And, that much of the "thou shalt nots" are part of philanthropic mythology.
I was curious about the world of private foundations. And was surprised when Andrew said that private foundations also had a lot more leeway than is commonly believed. This is where he talked about myths associated with private foundation grantmaking. If you read the tax code just so far, it appears that a private foundation can't work outside of the 501(c)(3) realm. But if you read further, you find that they have a lot more flexibility.
It all boils down to what you want to do and what you are willing to do to do it. If you want to make grants that are as straight-forward as possible, have no possibility of raising any questions anywhere, and require as little staff time as possible, stay with grants to established 501(c)(3)s. But if you want to engage the community in a fuller and deeper way than is possible through a 501(c)(3) monofocal lens, you can legally make grants to groups that do not operate as 501(c)(3)s. Might be a little more trouble, might take more of a relationship, but you can do it.
So let's be clear when talking about providing grants to the types of resident-led groups that are central to the grassroots grantmaking picture. Whether or not you want to go that way is a choice. And, from my perspective, if you are a place-based funder and want to be creative AND legal, this is right choice.
A footnote: I asked Andrew what resource he would recommend to foundations who wanted to grant outside of the 501(c)(3) domain. He recommended Fiscal Sponsorship: Six Ways to Do It Right by Gregory Colvin.