Can One Non-Profit Donate Money To Another?

I was asked if one 501(c)(3) non-profit can give money to another 501(c)(3) charity. With the usual, and necessary, caveat of, “I am not attorney, nor am I giving legal advice,” I responded that, Yes, when the transaction advances the donor non-profit’s charitable mission, a non-profit can donate money (and other resources) to another non-profit.

In some instances doing so is an essential part of a non-profit carrying out its mission. Example: An orchestra could donate funds to an organization which seeks to develop overall marketing and PR education and outreach to that city’s arts and culture population.

Along with that necessary start to the process, the donor non-profit needs to make absolutely certain that there is:

  1. No conflict of interest. Any person or persons responsible for the transfer of the donated funds must not personally (their families, friends, associates, etc.) benefit in any way. Example: The donated funds are used to purchase equipment in some way connected to business interests of a Board member of the donor non-profit
  2. No violation of donor restrictions. While exacting restrictions are not generally connected to most donations, nevertheless, the risk is that some donors would not approve of their money, in principle, going to another charity they did not choose, no matter how it fits or how worthy.
  3. No misuse of the donated charitable resources by the receiving non-profit. Should the receiving non-profit subsequently have publicized financial problems, even though the donated funds were not in fact misused, the overall perception of the receiving organization trumps the reality. Perception is everything. There could be serious trouble for the donor non-profit requiring it to justify its support of the ailing organization.
  4. No question that donating funds in any way will imperil the donor non-profit’s own financial health. In other words, that the donation was not over the top, excessive, or out of the realm of good judgment.

Of course, there are always exceptions, and at times such arrangements can be mutual beneficial. But, from what I have mostly come to know, the donation-to-another-charity question is most often asked by people who hope the answer is “No” because they are unhappy about, or uncomfortable with, a proposed action of this type. I know I would be as director of development, especially when challenges are possible by my donors asking that I explain the above point 2. I would not want to risk hearing, “Not with my money, you won’t!”

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125 Comments

  1. Ariane,
    The donation information was seen on an IRS form 990, well after the fact.

    Other than those top officials being in the know, was the entire board aware of such a large donation being given to another organization?

    There should be concern regarding the recipient non-profit foundation’s use of the funds to organizations which may have widely different missions.

    If there was no financial gain by any official of the receiving organization, then I would think the worst conflict of interest may a conflict of loyalty. That would be hard to prove and even harder to rule against. Maybe not unethical, but certainly bad decision making, bordering on the money being given by a select individual according to his own preference–influenced by another family member.

    It appears to me as more a matter of poor judgment, but far more serious if the board was not aware, and if donors to the college would be upset if they knew.

    Reply
    • Thanks, Tony. I don’t know if the college’s board approved this donation..one would hope they did!.. and am not aware of any personal financial gain. However there was definitely no communication by the college to its donors.

      Reply
  2. A smallish private college (about 4,000 students, annual budget around $100 million, very small endowment, i.e. most revenue comes from tuition/room & board) gave $2 million to a nonprofit foundation last year, according to the college’s IRS 990. The recipient foundation is based in the same city as the college. It supports a number of charitable activities, isn’t focused particularly on education. The college president’s daughter is on the foundation’s board; the college president himself has served on the foundation’s board, including chairmanship, within the past few years. Does that sound kosher?

    Reply

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