Question: May corporate grantmakers make grants to units of government such as public schools or local parks departments?
Answer: Yes, both corporate giving programs and corporate foundations may make grants to units of government so long as the grants are restricted to charitable purposes.
What is a unit of government? Generally, units of government are defined as federal, state and local governments and their political subdivisions. Examples include public schools, local parks departments, and some fire departments that are subject to the jurisdiction and financial support of a local government. Tribal governments recognized by the Secretary of the Treasury are also treated as governments. Revenue Procedure 2002-64 lists tribal governments that are treated as states and Revenue Procedure 84-36 lists recognized political subdivisions of tribal governments.
What are the guidelines for providing grants to government? Grants to units of government from a corporate giving program are deductible and grants from company foundations do not require expenditure responsibility. Two key guidelines to remember when making a grant to government are documentation and grant restrictions. First, corporate grantmakers should obtain and retain documentation demonstrating that the grantee is a unit of government. Second, because governments conduct both charitable and non-charitable activities, corporate grantmakers should restrict the use of grant funds to charitable uses. For example, a grant awarded to maintain a public park or educate children would be considered charitable. On the other hand, a grant to government for a project to promote for-profit business activities would likely serve non-charitable purposes and would not be permissible.
More information is available in Grants to Government by Jane Nober.