When the holidays roll around, your bank will surely collect coats and canned goods, donate turkeys to the local food bank, and cut a sizable check to a nonprofit doing some good in the community, but behind the feel-good photos runs finely-tuned machinery.

Consider charitable foundations, just one favorite vehicle by which businesses can put dollars back into their market areas.

Setting up a charitable foundation isn’t a simple process, said Barbara Freedman Wand, a partner at Day Pitney LLP who advises individuals and businesses on trusts and estate and philanthropic planning.

First one must set up an entity, a trust or corporation, as the basis for the foundation and then apply to the IRS for approval, which is necessary if contributions are to be deductible for income tax purposes. The IRS will likely to take several months to act on it, and after that point, the foundation must register with the attorney general of the state in which it’s headquartered and the foundation must file annual returns with the IRS.

In spite of the hurdles, there are a number of benefits to establishing a charitable foundation as a vehicle for giving money back to the community. For instance, a company can funnel more money into the foundation during a particularly profitable year without having to necessarily award all of those funds that same year, Wand said.

First County Bank in Stamford established its charitable foundation with an initial contribution of $1 million in 2001 as a way of celebrating its 150th anniversary, said Chief Marketing Officer Karen Kelly.

“As a mutual, we don’t have dividends, we don’t issue stock, so the foundation gave us the ability to pay a dividend back to the community,” she said.

The foundation focuses its giving in three areas: children and families; education; and housing and economic development. It gave away roughly $170,000 in its first year and now gives out anywhere from $600,000 to $650,000 annually.

Chelsea Groton Bank also has a foundation that it formed in 1998 with a $2 million contribution and has since given over $2 million in grants, said Lori Dufficy, the bank’s director of sales and service. Chelsea Groton’s foundation does not focus on specific areas.

“When you think about charitable grants, that is where the contributions usually have a very clear and measurable support for programs,” she said. “When the bank does sponsorships, we usually get something in return. We might get some promotion or marketing or some entertainment value.”

So when First County sponsors the Oyster Festival in Norwalk, as an example, the bank sets up a table or has employees on hand to hand out promotional materials and chat with festival attendees.

In some ways, Wand said, businesses have a greater ability to donate to charities than individuals do because they also have a marketing budget through which they can take deductible donations as a business expense.

Webster Bank in Waterbury also utilizes a number of different channels for its giving. The bank has a small private foundation named for its founder, Harold Webster Smith, that makes grants only within the city of Waterbury, but it does most of its giving through its corporate philanthropy office, said Kathy Luria, senior vice president of community affairs.

“When we think about giving back at Webster, we really focus our giving around making sure people have their basic needs met and making sure they have food and shelter,” she said.

Read The Fine Print

A bank or other business that’s interested in setting up a charitable foundation also needs to understand a few rules.

“Many transactions are prohibited between a charitable private foundation and donors and other disqualified persons,” including people who serve on the board or as managers of the foundation, she said. A donor cannot lease property (other than rent-free) or lend money (unless it’s a no-interest loan) to the foundation, for instance.

“All of these prohibited transactions are meant to get at abuses where foundation funds might be used for the benefit of private individuals,” Wand said.

There are more options than ever for giving back to your community, though.

Wand said that individuals and businesses can now also make charitable donations through a donor-advised fund, a public charity typically set up by a commercial institution or community foundation. A person or company can have a separate account within the donor-advised fund and can make recommendations for how their donations are spent, but it’s ultimately the fund that makes the decision about where to send the money.

Donor-advised funds can be an attractive option for charitable giving. For one thing, individual donors have none of the reporting requirements with respect to their donor-advised funds with the IRS and state attorney general that charitable foundations have. There’s also no requirement to pay out 5 percent of total assets every year, as foundations are required to do, and donations may be made anonymously, Wand said.

And of course, banks also like to give back in the form of volunteerism, can drives and clothing drives. Every bank in this story mentioned employee volunteerism as a way that they like to give back.
“We think about full stewardship,” Dufficy said. “It’s not just writing a check.”