What distinguishes an operating foundation from other types?

The distinguishing feature of an operating foundation, compared to other types of foundations, is its requirement to spend a significant portion of its income on its charitable activities. Specifically, an operating foundation is mandated to distribute at least 85% of its net investment income—primarily from interest and dividends—toward its operational programs. This spending requirement ensures that operating foundations actively engage in charitable programming rather than solely granting funds to other organizations.

In contrast, other types of foundations, like grant-making foundations, may not have this specific obligation to spend income on their own operations. Instead, they might focus on distributing funds to various charitable entities without such a stringent expenditure requirement. This characteristic of operating foundations underlines their active role in direct charitable initiatives, aligning with their legal and financial responsibilities that govern their functioning within the charitable sector.