These foundations spend money on their own programs rather than use their income to give grants. Operating foundations confer a greater tax deductibility of gifts to the foundation (30% in a single year v. 20% for private non-operating foundations). Rather than give grants, many operating foundations issue "contracts." In general they follow the same rules that private non-operating foundations do, in addition to some other specific rules.
Also called private operating foundations, these entities are classified as private foundations, but are treated like public charities for purposes of the limitations on charitable contribution deductions and some of the private foundation excise tax rules. Rather than functioning solely as grantmaking organizations, operating foundations use the bulk of their income to provide direct charitable services or to run charitable programs of their own. To qualify as an operating foundation, specific rules, in addition to the many of the applicable rules for private foundations, must be followed.