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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120 Comments

  1. My nonprofit has been awarded a grant specifically towards a scholarship fund we raise each year for international students. The grant is coming from a private nonprofit foundation. Some of the terms they have presented to us seem to be clear conflicts – specifically, the contract says that if the funds aren’t used for a specific type of international student within the next year, then the remaining funds must be given to another institution of the donor’s choosing. Our nonprofit regularly raises scholarship funds for students of specific nationalities or fields of study – this is not a problem – but when we cannot find a student that fits the preferred criteria specified by a donor, our policy is to either roll the funds to another year or use it for anyone with the greatest financial need (this policy is in the agreement all scholarship donors sign, and they can specify which option they like best). We’ve never had a donor give us terms saying that we’d have to give the money to another organization of their choosing. This seems to be a clear conflict of nonprofit law, especially since there is no guarantee that the institution of the donor’s choosing would align with our nonprofit’s mission. Can you clarify?

    Reply
    • Cynthia,

      Let me start with the usual caveat: I am not a lawyer and will not give you legal advice. You should contact your organization’s legal counsel for better clarification of your situation.

      That said, my experiences as a fundraiser, nonprofit CEO and board member, and officer of a foundation tell me that a donor can include direction on how a gift is to be used. The organization can then choose to either accept or reject the gift. It is up to the organization to determine whether the restrictions attached to the gift violate its policies or bylaws or if they violate local, state, or federal law. If any of those conditions are true, then the organization should reject the gift, or negotiate with the donor to change the requirements.

      As far as the requirement that your organization give the remaining money to another organization goes, I have never seen that restriction. I would be surprised if the actual wording of the contract says that. It seems more likely that the contract would require your organization to return the money to the donor if the organization violates the contract by not honoring the restrictions placed on the gift.

      However, once again, I am not qualified to comment on the legality of such a situation. You really should discuss this with your organization’s legal counsel.

      Reply
    • Cynthia,
      I am adding my comments to Dave’s good words. He has plenty of experience on the granting side, while all of mine has been on the receiving end. Nonetheless, here is my take on your issue.

      I too must recite the usual caveats—not being an attorney, nor skilled in non-profit law, so my opinion is just that.

      It’s an opinion from an old non-profit fund-raising development director who, for the most part, always takes any money offered and runs with it.

      That is what I would do here. I see no ethical or legal problem. Only that human nature being what it is, it may be natural to resist the idea that you be told where to give your (actually their) money.

      Chances are you will find a way to use all of the funds anyway in keeping with the needs as they develop for you to meet with specific scholarship parameters established, in keeping with your mission, and the conditions of the granting foundation.

      Were you to have unused funds, and be directed to give them elsewhere, I think the scholarship use by itself would keep you well in the margins of your mission.

      Besides, you would not be using your regular donors’ money out of the way they intended, but using those funds from another donor as that grantor specifically directs.

      Reply
    • Cynthia,
      My additional thoughts:

      The granting foundation cares enough about your non-profit to give you money.

      Maybe they know, or have an idea, that at times — with prior agreement with funders — you have some unused funds which may, in effect, go into general operating use.

      This particular funder does not want that to happen with their grant. They want their money to go for certain to your scholarship use, or if need be, to the use of another scholarship-giving non-profit.

      Driving that thought, I believe they want to avoid any chance they would need to develop the considerable paperwork and expense from having funds they grant be returned to them.

      I think those are the reasons why the granting foundation would insist upon selecting the non-profit of their choice for you to give any remaining funds.

      If I am correct, then you need to work even harder to fine-tune your scholarship recipient process to ensure that you in fact use all of their funds. It is clear they do not want to waive the use of unused money in any way within your organization. Thus, they would go outside of it.

      It would not hurt, perhaps, were you to ask for a grant extension period so you could have more time to find appropriate students to receive the scholarships.

      Not only would they not want the money returned, but I would think they would rather not be in the position of selecting the other charity to receive the unused funds.

      That’s even more paperwork and more reporting accountability.

      Why do that? They can give such funds outright and straight away to any non-profit of their choice in the first place.

      Reply
  2. How does the receiving organization record investments received by another organization? Fair value based on a valuation similar to other large donations from individuals or for-profit companies?

    Reply
    • Marie,
      By “investments,” I expect you are referring to your organization receiving gifts of stock.

      If so, you value and acknowledge the worth of that particular stock on the day you received it. That is how it is done when such gifts come from individuals, and it would be the same in any instance. You just check the market status of the stock on that day, or get the number from a stockbroker if such a professional is handling the stock donation.

      Were you to hold onto the stock and sell it at another time, chances are the stock market value would be higher or lower. No matter, what the stock was worth on the day received is what must be observed.

      By the way, with such gifts, when seeking support the next year, we were sure to cite the donation at the value on the day received the year before—not the value, if at the date of the sale, the stock was worth more or worth less.

      Gifts of property would be more complex, what with seeking accurate market values, rates of depreciation or appreciation, etc. Such transactions would need to be worked out with an attorney or accountant—both to be skilled in non-profit law.

      Reply
  3. Hello,

    Thank you for your article! I have a related question: can my nonprofit raise money and make a cash contribution to a for-profit that is operating a program that aligns with our environmental mission? In other words, they are operating a program which would have a beneficial environmental effect while bringing in revenue for themselves. Is this possible? Or would it be possible if we were to contract with them to run a certain program?

    Thank you for your time!

    Reply
    • Jon,
      Right at the top, I think you should not make that donation. (Actually, giving the money to a For-Profit business is not a donation.)

      I’ve been thinking about your Blog, knowing from the time I read it, that the answer must come from your attorney, upon review of your non-profit’s Articles of Incorporation, its Bylaws, and its Mission Statement.

      If what is being contemplated runs counter to the first two, you have your answer regarding the next move, especially if the proposed affiliation with a for-profit business ends up causing a diverging by your non-profit’s Articles of Incorporation from the state in which you operate, and as the IRS rules about a non-profit’s purpose, i.e., its reason for being.

      With those points addressed, as in some other instances, a non-profit can develop such an association with a for-profit, when doing so in no way results in gain or profit for anyone connected with the non-profit charity. And if the money given is for general purposes, then you would need to be concerned that your donors’ money is going to help pay the salaries and general business expense operations of a for-profit company.

      I understand that a great deal of valuable medical research is done by for-profit organizations for non-profits who give money for such service. Again, the key point —- the money you give, as was given to you by your donors, must be given in a manner they (the donors) endorse and understand as they were compelled to give according to your Mission Statement.

      The non-profit in instances such as this is usually set up as a foundation “feeder” of funds to projects, programs, or services. The NP should retain control of the program. The money must not be given to the FP to be used at the FP’s sole discretion.

      But now, I’m getting into what must be precisely set-up with the help of attorneys who know NP laws and IRS regulations.

      As well, I would imagine that the accounting procedures would be demanding and exacting. When dealing out a non-profit’s donated funds to a profit-making organization for worthy and defensible programs, accounting for each penny is not an exaggerated requirement.

      To repeat, from most of such arrangements I have come know, what you are talking about is quite often done by NP research departments in universities who apparently commonly work such agreements with both non-profits and for-profits. You might want to check with a few of your local Academia development departments to learn more and perhaps be able to streamline your process.

      This is out of my fund-raising plans and tools territory, but I wanted to tell you about what I have picked up along the way, plus suggest the application of some practical sense regarding the very careful use of your donors’ money.

      Even traveling to such (for me) undiscovered territory, my instinctive reaction is that you may be getting into trouble to simply give your donated funds to the For Profit business. Perhaps a very exacting and specific project, program or service—working a true and sensible budget accounting of every dollar, will do it.

      Reply
      • Thank you very much for your insight. I really appreciate it!

        Reply
  4. What does “No violation of donor restrictions” mean. Let’s say a retirement fundraising party is being planned and the donations are coming to our 501c3 organization and the plan is to give some of those donated funds to a children’s summer camp. Can that legally be done without specifying that intention to the donors.

    Reply
    • Carol,
      The caveat you cited, regarding the use of donors’ funds being restricted, applies only when a donor expressly directs that the donation be used in a clearly stated way, i.e., for endowment, a capital campaign, a scholarship fund at a college, mission work for a church, medical research at a hospital, etc.

      By your words, “ … retirement fundraising party …,” I interpret that to be a fundraising event to honor a well-known person of some value to your organization, or one recognized for some other prominence in the community — but of a stature big enough to attract enough paying patrons and sponsorship and underwriting funds to made a good net profit and to justify the time, effort, and expense.

      That person, of course, must not be a recipient of any of the donated funds whatsoever. (Were that to be the case, the donations would not be tax-deductible since the IRS forbids charitable funds going to a named individual.)

      That assumption being the case, that the honoree is not a recipient of donated funds, I see no problem with how you use the net proceeds from that fundraiser:

      (1) if the receiving children’s summer camp is in fact a non-profit organization,

      (2) and if it is an organization whose mission is similar to yours.

      Those two points, to my way of thinking, are required by law.

      Read again my article above to have further reinforcement to what I feel are the elements you need to have in place.

      Reply
  5. Hello Tony, my question really isn’t about in-kind gifts. I hope that is okay. The Non-Profit I work for has been fortunate in that groups and businesses will hold fundraisers and in turn write us a check for the funds they raised. On several occasions we are asked to provide a receipt to either sponsors or individuals who participated in the fundraiser. This happens mostly with golf or fishing tournaments. I always say we cannot do that because we are not receiving the donation or payment to play from the individual or corporation directly. My boss however, is feeling pressured to give receipts to individuals who played in a recent tournament. I understand the Quid Pro Quo contribution, but in these cases we are not hosting the event and do not pay any of the costs or collect the payments made by those participating.

    Is it okay to send a receipt to those asking with the amount they paid the other organization on it? Or should I include in the letter the name of the organization that held the event? Technically they did not receive anything from us for their payment to play in the tournament.

    I’ve read through tons of IRS publications and I cannot find an answer directed toward this issue.

    Reply
    • Though not an attorney, nor skilled in non-profit law, the answer—to me anyway—is a simple one.

      The groups (if non-profits) and businesses, are the ones, and the only ones, who can or should provide some sort of receipt; be it for a legal deduction, where applicable after the value of goods and services are deducted from cash, or the businesses to possibly declare their “contributions” as business expenses.

      In-kind donations should be handled in the ways I suggest in my article:
      — In-Kind Gifts: How to Acknowledge and Recognize Them
      http://www.raise-funds.com/2008/in-kind-gifts-how-to-acknowledge-and-recognize-them/

      The best, and only, thing you can do (only with the OK of the groups and business) if you choose, is to send notes of appreciation to those patrons of the golf and fishing events (and other such), simply thanking them for participating in ______________’s _________ event, which in turn, had your organization as beneficiary from the net proceeds.

      No mention whatever should be made of what the attendee or patron spent or contributed.

      What you received are checks after the fact, and those entities sending you the checks should be thanked by your organization, but only to acknowledge the amount you received—with no hint of anything they can do legally for tax breaks, and certainly not what the groups or businesses can provide to their supporters of the events for tax-deductions.

      Example:
      A Music and Drama presenting non-profit organization here in Cleveland raised money from their members and friends from producing and hosting a special program.

      From the net proceeds, the M & D organizations sent a check to the Cleveland Orchestra for its support.

      I could in no way send any tax-deductible-related statement to the M & D donors which would have any meaning or value. Their payments went first and foremost to the M & D organization.

      Their patronage and contributions directly supported M & D and we were simply the recipients in general and in total.

      For good PR, and to possibly cultivate new donors—and with the agreement of the M & D organization—I did send notes of appreciation to several selected major donors/patrons to the event, but I only thanked them for making the M & D event a success, which resulted—thanks to them—in my Orchestra benefiting. Any tax-deduction citing had to come straight from the M & D organization—such as I see in your situation.

      Reply
      • Thank you Tony

        Reply
    • What does “No violation of donor restrictions” mean. Let’s say a retirement fundraising party is being planned and the donations are coming to our 501c3 organization and the plan is to give some of those donated funds to a children’s summer camp. Can that legally be done without specifying those intentions to the donors.

      Reply
  6. Hello, a group of us recently started a 501c3 fund to raise money for the family of my brother who recently passed away. We will be having golf tournaments, softball tournaments, etc to raise money through sponsors and donations. All sponsors ad people who donate are aware the money is to go to the family.

    Is it ok to gift money from the fund to my sister in law and her children? The money will be for medical bills, mortgage payments, college funds, etc.

    I have heard conflicting answers to this question. The mission of the 501c3 is exactly for this purpose.

    Thanks

    Reply
    • Brian,
      Sorry to say–as I know it to be–that you cannot designate tax-deductible funds to a named individual or to named individuals.

      The IRS is quite clear on this.

      I cannot see how you could have developed a 501 c 3 in that specific way.

      Maybe your mission statement was prepared to provide such support in general, to meet a stated need in the community. If so, you then cannot direct contributions to specific individuals, no matter how needy.

      See IRS Publication 526 and note the section titled, “Contributions You Cannot Deduct.”
      http://www.irs.gov/pub/irs-pdf/p526.pdf

      The prohibition is quite clear, so there should be no conflicting statements which are credible from unofficial sources.

      You can, however, raise non-deductible funds in the manner that they be outright gifts. But, you must upfront let any prospective donors know that their contributions are not tax-deductible

      My regrets, to be sure, considering the hardships and closeness involved here.

      But, on another practical matter, I urge that you revisit your Mission Statement to be sure you are not in violation of IRS regulations. The Mission cannot be, as noble as is the cause, to better the lives of named, specific, individuals.

      Reply
  7. I work for a city government and it has been defined to us by city council that we will only set up and take down for CITY sponsored events, which do not collect any donations or sell anything during those activities. Our Fire Department is volunteer and has annual sales all year long which we, city workers, set up and take down about 90% of everything. It takes about two weeks to set up and take down their events so THEY can raise funds. Question is, can this be a misappropriation of city funds? Eight city employee pay checks, plus fuel for two weeks?

    Reply
    • 1. If the City Charter is explicit, and so orders that you can only set up and take down facilities for City-sponsored events, then the question, as I see it is, Who then, gives the orders for the same procedure to be expended for the volunteer Fire Department’s events? To my way of thinking, the answer to your questions starts there.

      2. Perhaps of significant impact to the issue you cited, is the fact that the Fire Department is volunteer, thus the work of that crew is inestimable. Any refusal to help them with arranging the facilities they need for fund-raising, could be a serious and damaging service and volunteer-relations situation.

      3. Though the work is done for volunteers (on behalf of what they do for free for the City), the City workers doing the setting up and taking down, should be paid. I would think they must be paid.

      4. As well, the volunteer Fire Department leaders should have a clear and fair look to what they expect from the City regarding how much time and effort is to be expended for their fund-raising events. Depending upon how successful each event is, considering the cost to produce them, and their net profit, it could be that a given event is not worth the expense in total, including the cost to the City with their workers doing the set ups and take downs.

      I do not see so much as a misappropriation of funds, as I see the City perhaps bending over backwards to provide what the volunteer Fire Fighters want, considering their irreplaceable value to the City—its property and citizens.

      Maybe the City Charter should be amended.

      Perhaps the Fire Department could be more selective with their choice of events they want to produce; how many of them, and when they want them.

      A review of the points I cited above could hopefully help to clear the air.

      Reply
      • Maybe I should have been further detailing, yes the “volunteer” dept is irreplaceable and we are appreciative of them. BUT the city already pays for their fuel, their maintenance, their trucks, their facilities and they have one PAID full time firefighter and a paid chief paid by the city. It’s the volunteer association we are setting up for, they’re a 501-3c.

        Their are also other non city sponsored events that the city manager is not disclosing to the citizens that the city is actually using funds for as well, but we do as we’re instructed.

        If you’d really like to get technical their is a maintenance fee here as well, that fee goes on top of taxes citizens pay and not ALL citizens are required to pay it. Pretty sure it’s more of a donation situation since it can’t be enforced and not everyone has to pay it, am I wrong? But as you guessed it doesn’t go towards maintenance of the city either, it goes into their general fund.

        Something is definetly fishy here, just wondering what to do or who to contact. I’m sure the employees here would like to know if they’re following through on any sort of illegal activity as well.

        Reply
        • The additional details do help considerably. I’ll just go down your latest Blog and make my off-the-cuff comments:

          (1) The City should pay for the volunteer fire fighters’ vehicles’ fuel, maintenance, and any other related expenses.

          Though there are two paid positions, you still have a volunteer fire-fighting force. There would no doubt be serious trouble without them.

          You are appreciative for what they do, but with the listing of what the City properly pays for, it seemed to me that the appreciation had a touch of resentment in general for the volunteer association’s requests/demands for the setting up and taking down of facilities for their fund-raising events.

          (2) With the City Manager spending funds for non-city-sponsored events, I would think you have a serious misappropriation of funds going on there. How such financial dealings could get past the City Finance Director, be missed in an outside audit – be it by an accounting firm, or the State Attorney General – seems to me to be a critically important question to ask.

          Imagine what that could do for the City’s image should the media get a grip on the situation. Even if things could be explained in a rational manner, there is major possible mis-perception problem—it appears to me.

          That issue would be one far more serious than the setting up and taking down of facilities for the volunteer fire fighters.

          (3) The so-called non-mandatory maintenance fee, could in fact be an illegal slush fund—to have those in power and in control of the funds use them as they wish when absorbed into a general fund. If the collection of those funds are for a specific reason, then there is nothing “general” about that money.

          That practice could be the biggest scandal of all.

          You know the lay of the land there well enough to have some idea of the scope and depth of the situation to warrant a whistle-blowing, be it via a person in the local government, state government, or the media.

          Reply
  8. I am the scoutmaster of a boy scout troop. I would like to give 10% of the money we raise through selling donuts, Pancake Breakfast and Spaghetti Dinner to local charities.

    Examples of the places we want to give to are the county orphanage, soup kitchens and places that help feed the homeless.

    Someone mentioned it was against the law to give money we raise in our fundraisers to other organizations.

    How or where can I confirm this statement?

    Sincerely,

    Julian Adkins

    Reply
    • Julian,
      Yes you can.

      Read again my above article for the caveats to such transfer of funds to see how you meet those points. If all is OK, then you can go ahead and do your good deeds.

      Reply
      • Thank you!!

        Reply
  9. Can funds raised while we were a local little league be used to rent ballfields for Cal Ripken baseball – which is also non-profit. We just want to change names so all kids can play rather than be restricted by small boundaries.

    Anyone know this?

    Jim

    Reply
    • Jim,
      You may need advice from the IRS or from an attorney.

      But, your note reads to me as if yours “was” a non-profit, saying … “while we “were” a local little league …”

      If you filed for dissolution, then the articles of such an action would guide you to properly donate any unused funds, once creditors have been paid, etc.

      If you simply changed your non-profit’s name, then it seems to me to be OK for you to follow through with your plan.

      Again, I am not an attorney, especially one skilled in non-profit law.

      Still, if your organization is currently operating as a 501 c 3, then what I write in my article above could be used to see how your plan fits with the caveats I have listed.

      Reply
  10. I am currently working with a 501(c)(4) who does a major fundraiser and donates to 501(c)(3) charities who help those who offer free assistance to those in our community (Medical Free Clinic, Hearing Free Clinic, our local Habitat for Humanity Chapter etc.) We are currently in the process of applying for a 501(c)(3) status and making sure we satisfy the concerns of the IRS.

    My question is 1. Do you have any tips on how to define the purpose to satisfy the IRS and

    2. Do you have any tips on what they are looking for.

    We have already submitted our application and now are responding to questions such as how have we significantly changed and changed our Bylaws to reflect the IRS recommendations.

    Thank you for your help.

    Reply
    • Debbie,
      Perhaps I am missing something, but from a reading of your Blog post, I get the impression that the organization’s (main) reason for being is to raise money to give to other humanitarian-oriented charities.

      Right or wrong, your organization’s exercise of a Mission Statement development would definitely pin-point your Mission in terms of what services you directly provide to better the lives of people — or animals, or help the environment.

      I suggest that you and your leaders review my short article regarding Mission Statements and see where and how you fit, especially to comply with the IRS’s dictate that you “do something for the public good.”

      Just how much good you do indirectly, with funds provided to other charities from your fund-raising endeavors, to my way of thinking, impacts greatly upon whether or not yours is true public-service organization in the truest sense.

      What you do must make a direct and positive difference directly to a cause or constituency, and not mainly as a provider of money to other service organizations.

      No matter what, please work the Mission Development exercise and see where you stand.

      That is how you will possibly in time define the purpose of your organization to the IRS, to your own volunteers and donors, and to the general public.

      — Don’t Make Your Organization’s Statement Of Purpose A “Mission Impossible”
      http://www.raise-funds.com/2001/dont-make-your-organizations-statement-of-purpose-amission-impossible/

      What they (the IRS) are looking for is what I cited above: that you provide something good, and which is needed, to an identified constituency which will positively impact on their lives.

      Reply
    • Hi
      I have a question on “Nepal Earth Quake Fundraisers” going around now. Can one charitable organization (indended for religious work) collecting donation for Nepal Fund and offers to give to another charitable organization who really do relief work. I am wondering whether the donations receipts provided by the first organization is really valid? Is this type of activities is legal?

      Asokan

      Reply
  11. I know of a small for-profit organization that claims to be a “project” of a larger non-profit(501c3). Donations to the non-profit are tax-deductible even though the donations pass through to the for-profit.

    On its website the for-profit never claims to be a 501c3 but it does state that it is a project of a 501c3. Links to the 501c3 are provided.

    Is something fishy here?

    Reply
    • Bobby,
      I would need to see the respective websites.

      But, though not an IRS rules expert, my initial reaction is that any money given in the way you describe cannot be tax-deductible.

      And, the 501 c 3 charity involved here had better let the public know that.

      What kind of “project,” and how such a pass-through passes muster with the IRS and the true donors to the charity, are all questions which must be answered.

      But, I am sure that donations which pass-through the for-profit are not eligible for a tax break. If any break is apparent here, it may be a breaking of the law.

      Reply
    • The first organization can collect tax-deductible donations, letting the donors know that their contributed funds will be given to an accredited international organization for its work in Nepal.

      That would be something akin to a church doing the same for its mission work in another country.

      Reply
  12. David,

    I am the controller for a university development foundation that has a mission as you might expect – to support the university and its students. We recently received a large donation from longtime donors to support the construction of a sports complex on campus. We received the money and were preparing to cut a check to campus when campus notified us that the check need to come from another of the supporting foundations. The requirement comes from how building project for public universities work in our state – the state needs to approve the funding avenues before construction can start, so if you say you are receiving funds from NFP A, you cannot substitute them with funds from NFP B.

    Are we allowed to transfer the funds to this organization? The other organization is indeed a 501c3. Its mission is also to support the university (with a narrower mission of supporting athletics). The concern is two fold – are we supporting the university, or are we supporting the other 501c3? One would be a violation of our tax exempt purpose, in my opinion. Secondly, if the transfer is legal, is this a donor advised fund situation? That is not an avenue that our organization currently wants to go down.

    Thank you for any insight that you could provide on this topic! Wonderful article, by the way.

    Reply
    • I meant Tony! Sorry – not sure where David came from!!

      Reply
      • Josh,
        It’s OK, I know from where David came.

        We have been good friends, colleagues and partners for nearly twenty years.

        He now owns the Raise-Funds site.

        There is no exchange of money whatsoever, just to have me transfer the domain to Dave for his complete control to carry out what we two have been doing all along to volunteer our knowledge and experience of fund-raising for any and all in the non-profit world.

        I have retired from being more active on the site, and know it is the best time for me to put it in the best hands.

        Dave redesigned the site in 2011, refreshing it greatly from what I had at the beginning in 1997.

        You can note that Dave has a number of articles posted. He was my astute editor of most of my articles and was instrumental in the writing of my book.

        Dave is the ultimate in believing in the volunteer support of the non-profit community, and you can see from his bio that extensive and successful experience is his to offer you and his other visitors to Raise-Funds.

        Note my reply to your original Blog above.

        Reply
      • Josh,
        Maybe the other material I provided as the go-between you and a major university top pro, was enough. However, my friend sent the following to me just minutes ago. I would think that by this reading you would believe to be on safe ground with the transfer of the funds as you described.
        (Begin)
        Hi Tony-
        Quick response on the pass-thru question. Unless there are any state rules that prohibit such a transaction, I see no legal issues and to do so is still within the mission and spirit of his foundation.

        Here is a very common example from Florida public universities. Funds are given to BFU (Big Football University) Foundation for a scholarly project such as research or new curriculum development.

        Some of the funds are for faculty salary and a grad student. We would transfer those funds from the BFU Foundation, to the BFU Research Foundation (a 501c3 which handled non-governmental grants and licensing) which then went to BFU to get the salary funds into the payroll stream.

        As you know, a 501c3 can transfer funds or Gifts In Kind to another 501c3 100% legally. In his (and the aforementioned cases) since the funds are supporting the institution that the donor wanted to support, I see no ethical problems as all is in keeping with the spirit and letter of the donor’s intent.

        I was asking the other questions as there are some limits on a private foundation making a grant to certain 509a Type III supporting organizations, which might have a donor making it to the regular foundation if the athletic foundation is that Type of Type III org in order to qualify under IRS standard.

        I think your fellow asking the question is fine. Please pass along that “wisdom”.
        (End)

        And, I have don so, Josh.
        Best wishes,
        Tony

        Reply
    • Josh,
      One of the real blessings of being in the non-profit fund-raising profession for so long is that I have come to know so many capable and generous professionals, all willing to help a colleague in need.

      Such is the case here with your good question which is out of my usual fund-raising knowledge range.

      Perhaps there is more needed to fill in any remaining blanks, but after I passed on your Blog to a good friend, who is the Director of Foundation Relations for a major university, here is what he came up with:

      “… My initial reaction is that it’s fine,  but want to give it more thought. 

      Could you at least tell me the state in which the university is located?  That will allow me to check the state statutes to see if there are any restrictions.
      Two more details I need to know:

      • Is the check from the donors coming as a personal check or from a family/private foundation or a DAF?

      • Second, is the athletics foundation a Type III non-functionally integrated support organization?

      How the athletics org is structured under IRS Section 509 (a) and how the gift is made can limit the path the gift takes. 

      Either way, to answer his last question, it would not make his foundation a DAF. 

      It’s just a “pass-thru”.  Our university as a 501 c 3 has a couple of foundation grants that support program that result in regranting the funds to local area nonprofits.  No big deal.”

      So, Josh, if what my friend provided does it for you or not, let me know.

      But, I did have a sense as well as he that capital funding laws for a state institution can vary from state to state.

      That should be something you can determine from your state’s Attorney General, or some other office.

      Again, let me know how what my friend said means to your understanding and resolution.

      Reply
  13. Tony,

    I have an interesting question and have hit several road blocks in trying to find any help/answers from the IRS directly. I am the treasurer for a 501c3 charity. A group would like to make a donation to our cause, with the caveat that we split the donation 50/50 with another charity who has a similar mission. The catch is that the other charity is NOT a 501c3. The donors want to write the check in the full amount to our charity, and then have us write a check for half the amount to the other group.

    I have no misgivings that the other group is a legitimate organization and will use the money appropriately. But, I am concerned whether or not this is even something that can be done without any tax implications for my charity (or risk our 501c3 status) in the process.

    What are your thoughts?

    Reply
    • Shannon,
      My first, admittedly knee-jerk, reaction, is that the group seeking tax-credit, where there is none to support a favored charity, is using yours as a pass-through.

      That does not sound good to me in the first place, even though the other charity has a mission similar to yours.

      I may be a purist, but being used in that way, would make me wary.

      I would wonder why their drive to support the other organization, probably a (c) (4) organization, has them looking to yours as a platform to do so.

      I know it may be tough to give up a donation, but the IRS, even not seeing the pass-through, could possibly find fault with your donation to a what is other than a 501 (c) (3) organization.

      If that charity is not eligible to offer tax-deductions to its donors, then how can your “donation” be received? What credit or break do you get? Or are you then just making an outright gift?

      This question must be discussed with either the IRS or an attorney skilled in non-profit law.

      Simply put, you need to know the ramifications between your organization giving a donation to a (c) (3) regarding how it is handled on your books and with the IRS, and what happens when that donation goes to an organization with a different classification which cannot offer tax credit.

      Reply
      • Thank’s Tony! All of the concerns you’ve raised were my questions and concerns as well. The link you provided did offer some insight to this situation. To me, the offer did not really seem practical for my organization. Yes, we’d love the money, but I’m not really willing to even remotely call our 501(c)3 status in to question. I do really appreciate your insight to know that my “gut” was right to question this particular offer.

        Reply
  14. I am a director of a non-profit whose articles state that the purpose of the organization is to promote education and health to the public through yoga. The organization has informal ties to Nepal and a particular school there. WE have visited very recently and see the work they do for single mothers and children. Following the earthquake, we want to raise money via tax deductible donations and send it to the school. Likely we wouldn’t raise over $5000.
    Can we do so? Can we provide letters to donors allowing them to deduct the donations?

    Reply
    • Be careful about the stretch (no pun intended) from yoga education to the “informal” ties to a school in Nepal.

      Mission drift, indeed a radical departure, could be of concern.

      You should read the Addendum to my article:

      Greetings from America:
      How U. S.-Style Fund-Raising Can Work In Your Country
      http://www.raise-funds.com/2007/greetings-from-america-how-u-s-style-fund-raising-can-work-in-your-country/

      I expect that those tight rules still apply–that the only way you can send money, tax-deductible or not–to the school in Nepal is for your parent organization to be in control of the school.

      Having informal ties, to my way of thinking, will not do it.

      The reasons are stated clearly in that piece which I gleaned from the IRS rules.

      Better to raise money, if you will, to give to an authorized non-profit already doing humanitarian work in Nepal: The Red Cross, Doctors Without Borders, other international humanitarian and religious organizations.

      From my non-lawyer point-of-view, you cannot raise funds here to give to the school in Nepal, unless you have total control of the school’s operation, just as the USA-based Friends groups I describe in the article.

      Reply
  15. please advise. I am planning to open a nonprofit . The purpose of that nonprofit will be to collect donations in USA and help small struggling nonprofit organizations in different countries like Haiti, Mexico, China, India .
    I’m not clear as to which laws would apply to this nonprofit
    and whom should I contact for the paperwork

    Reply
    • Anshul,
      Good humanitarian intent, but there are indeed strict laws regarding the raising of charitable funds in the USA and having those funds spent abroad to support charities.

      Do take a reading of my article:
      Greetings from America:
      How U. S.-Style Fund-Raising Can Work In Your Country
      http://www.raise-funds.com/2007/greetings-from-america-how-u-s-style-fund-raising-can-work-in-your-country/

      Read especially the Addendum section, “Raising Money In The United States To Support Charities In Other Countries.”

      While generally, IRS rules are ever-changing, I rather doubt if that is the case here. You should check though, with the IRS or an attorney skilled in non-profit law.

      Still, I am rather confident that the rule continues to be firmly in place that the non-profit entity in the US collecting charitable donations as “friends,” must be the “parent” body governing any charity out side of the USA for which the charitable funds are given.

      If that law is now binding, it would be a sure thing that you cannot arbitrarily dispense funds to various foreign charities–or even one, without that USA Friends “ownership.”

      Reply
      • what about being a Type 2 Supporting Organization 509a?

        “Subject to certain requirements, a Type I or II supporting organization may support an organization not organized in the United States. A Type III supporting organization may not.” (From: http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Supporting-Organizations-Requirements-and-Types)

        AND this
        http://www.irs.gov/Charities-&-Non-Profits/Section-509%28a%29%283%29-Supporting-Organizations

        I believe this status is granted when applying for 501 c3…also is there way to contact you by email?

        Reply
        • You appear to have tapped into the appropriate IRS regulations.

          Your good study of those rules should point you in the right direction.

          Note that in just about all of my replies regarding such issues that I walk a line too close to appearing to be an expert in what are complicated and ever-changing regulations.

          I am just an old non-profit fund-raising practitioner, and as such, must excuse myself from getting too deep into what are very deep IRS waters.

          There is a real risk that I could inadvertently mislead.

          You should contact an attorney who is skilled in non-profit law.

          Reply
  16. You must be a generous man with your time to answer all these various questions – and with wisdom. I hope you get rewarded for your energy given.

    Our company is not yet a recognized NPO – but are pursing the process. But let’s say we become a NPO shortly. Can we donate to cover a high school student’s tuition in exchange for him volunteering some hours at our thrift shop? We’d like to call it a work-scholarship program. A private school in the area loves the idea. We sure could use the helping hands – and it seems likely the government would look favorably on our NPO helping with tuition. This would not be considered wages, as our NPO is giving directly to the school specifically for tuition. Do you see any issues with this arrangement?

    While I have the conversation open, we also have a second pool of volunteers that we want to compensate indirectly. These are men in a residential addiction recovery home program. We’d like to have them work with our thrift store. In exchange for their voluntary hours, we’d like to contribute directly to their most pressing needs, which is usually one or more of three categories: 1) court costs / fines, 2) child support, and/or 3) continuing their education on the college level. Would the IRS look at our direct contribution to these categories as wages for these volunteers?

    Then we have a third pool of volunteers to draw from – and this scenario seems plenty safe. These are elderly folks who would like to come in a couple hours here and there to help clean and such. Their reward for volunteering is our NPO contributes a donation to a local missions board. These workers just want to support missions work, and do so by volunteering their time. Does all this seem doable?

    Thanks much for your mental energy to think things through and reply.

    Reply
    • Justin,
      Thank you for your welcome and appreciated words of support for what we love to do here on Raise-Funds. It’s reward enough to Dave, Joyce and me to know we do some good.

      You can see from many of my replies that I reveal some unease when it comes to my opinions and guidance regarding explicit IRS and state rules and regulations the governance of non-profits.

      I must always cite the caveat that I am not an attorney, nor an expert in that field, but I do have some experience.

      As you are contacting the preferred professionals to ensure verifiable answers, I will give you my opinions, for what they are worth.

      Scenario No. 1
      IRS Publication 526 does, with exactness, forbid charitable donations to favor a named/given individual. So, the school must independently choose the student.

      Passing that test, I doubt it would pass further muster to oblige that student to work for the donating charity as a requirement for tuition paid. Even with legal issues aside, there should be no strings to your presentation of the scholarship.

      The only way around this, maybe, is if the school itself has a policy of tuition-granted to donated time and effort in support of a community non-profit.

      But, even at that, you cannot escape the direct tie-in to the granting of the scholarship to being obliged to volunteer at your specific charity. The scholarship recipient must be only given the opportunity to choose to work in your gift shop.

      In summary, I do not see how this can work within the IRS rules, or even in just the stand-alone partnership you have with the school.

      What do you do if that student does not like volunteering at your non-profit, or that you find that he or she is not a good fit, unreliable, or that the student is even undesirable?

      Scenario No. 2
      Simply put, and sort of a tie-in with No. 1, I am uneasy with the idea that you would provide your humanitarian support to your clients in exchange for volunteering.

      You can make the volunteer work needs be known, but the choice to work or to not work, to my way of thinking, must be up to the beneficiaries of your good work alone to decide.

      Your intentions are noble, but you risk the wrath of the IRS, and public and client perception, that to be served, you must work. Not so, but that is how it will be perceived.

      Scenario No. 3.
      Maybe. Just how much work done, by how many volunteers, leads to the issue of determining the amount you will donate to the local missions board.

      Too little, perhaps, no matter the amount, as thought by the volunteers putting in their time—or even as thought by the receiving charity.

      Justin,
      Through all three scenarios, I see the honest intent, good thinking, and dedicated folks all wanting to do good things for others.

      But, I see too much of those good works being contingent on adhering to self-developed rules and guidelines—all of which are not too imposing on the surface, but in time, I believe they will wear thin and cause problems from the IRS, your state, and especially from the volunteers and recipients themselves.

      No donation on your part should be contingent on the receivers/donees needing to do something on your organization’s behalf.

      Reply
  17. There is a NPO 501c3 that I give money to monthly. This organization helps less fortunate people worldwide. They do several Mission Trips a year and take teams of volunteers (who pay their way) on these trips to serve the target groups. When the volunteers raise funds, money is given to the organization by friends and family members donating to an individual and the donations are ear marked for a particular volunteer. Are these gifts tax-deductible gifts because they are written to the NPO but ear marked for use by an individual? This NPO is not a church but my experience with churches, is churches can NOT consider donations made to the church, but ear marked for an individual, a tax-deductible contribution, is this correct? The church basically just becomes a funnel of money from one person to another. However, if the donation is made to the church and it is put in the “general fund” and distributed per its budget per se then that is a tax-deductible gift. Do the same rules apply to 501c3 NPOs? Thank you for your insight.

    Reply
    • Jonathan,
      What I read between the lines as perhaps your misgivings, is correct–no matter it be a humanitarian NPO or church.

      There is no tax-deduction allowed for money given to any type of NPO when those funds are earmarked for a specific individual. (Even a needy and worthy beneficiary of the NPO.)

      — IRS Publication 526 makes that clear.
      http://www.irs.gov/publications/p526/ar02.html#en_US_2014_publink1000229694
      — See “Contributions to Individuals”

      The trips can be paid for by friends, families and others to specific individuals, but those funds would be outright gifts, and should be directly used to pay expenses.

      There could be an overall travel fund set up by the NPO, inviting any and all donations (which would be tax-deductible), but then the NPO does its own, independent and appropriate distribution for travel.

      Such personalize “donations” as you described cannot/should not pass through the NPO to be given to pre-identified volunteers and used to pay their trip expenses.

      Such a practice clearly violates the IRS regulations.

      Reply
  18. Hi Tony. I run a 501(c)(3) sports-based charity whose mission is to provide education and recreational opportunities to children in highly impoverished areas. A private sports club (not a non-profit) has proposed the following fundraising idea to us: their players raise money to benefit our programs and in return our charity would give approximately 75% of the funds raised back to the club to purchase equipment for each player. Do you see any problems with this idea? Thoughts?

    Reply
    • KW,
      From my non-attorney, and not being an IRS expert, position, I see a major problem; possibly to have your status as a non-profit put into serious jeopardy.

      You would be allowing the sports club to solicit charitable funds in the name of your charity — then to have that sports club in effect, “keep” 75% of what was raised.

      Worse, your charitable donations mostly help to subsidize the club’s expenses and gives direct and personal benefit to its players.

      To me, that’s almost criminal on their part. It could very well be, according to the non-profit laws of your state’s Attorney General.

      The club is, in effect, nothing more than a paid solicitor, keeping an outrageously high amount of what they might raise.

      If, and I say again, if —- you enter into such an agreement, there would be the need for exacting control of the solicitation process in terms of how the money is raised, from whom, and for you to beware of problems when cash exchanges hands.

      As much as possible, donations must be made in the form of checks, payable to your charity—absolutely not to the club.

      Donors can claim tax-deductions only when their donations are directly traced to your non-profit by cash receipts and by checks.

      There are no industry standards when it comes to outsiders raising donations for non-profits regarding the percentage they keep of the funds they might raise.

      But, were I to be in your position, the first thing I would be sure of absolutely, is that the fund-raising process is totally known to me, and that all possible precautions are taken when it comes to the handling of cash.

      No money at all should pass through the books of the sports club.

      Then, I would let them do it, and in turn,I would give back about 30% of what was raised.

      Reply
  19. We have a 501c3 that we belong to as a member group. They say that they claim $40,000 a year of in-kind donations to each of their member groups to the IRS and each of their grants they apply for. I don’t see where they come up with that figure. They are not open telling me either. I was wondering what law I could use to make them share the detailed information on how they itemized out that amount of money per group or at least for my group? I don’t want to have to claim $40,000 in-kind donation to IRS when we aren’t actually getting it.

    Reply
    • Gen,
      The IRS does indeed require non-profits to report annual In-Kind donations of property—not services—on Form 990.

      Non-cash (In-Kind) donations are accounted for with their description, Fair Market Value (FMV), and date received.

      It is hard to understand how the parent organization justifies to its own finance department what are apparently made-up numbers, and dates received of the In-Kind donations.

      Even more surprising, is how the annual audit allows this procedure.

      What would the organization do should it be asked for names of those In-Kind donors from what looks like contrived and unsubstantiated data?

      Why the IRS has not yet flagged what would look like an obvious fixing of numbers—-to have the same In-Kind declaration cited for each member–is mystifying as well.

      You member groups have every right to see the books of the parent organization representing your interests.

      You have every reason to be concerned, since the parent organization may be risking its own status as a non-profit, thus possibly bring you and the other members down with them.

      They are promoting and providing financial data in your name, but which data is something you did not provide, and worse, which is erroneous.

      You should relate these facts to the leaders of the organization, especially the board member responsible for finance and accounting.

      In what I see from your note, there is a fraudulent practice going on unchecked, that is, until someone, or the IRS gets wind of it.

      Reply
  20. I understand that a 501(c)(3) organization (Org 1) “give” funds to another 501(c)(3) organization (Org 2) for an Org 2 event if it aligns with their purpose. My question is can Org 1 be publicly listed as a sponsor of Org 2’s event?

    Reply
    • Andrea,
      To my way of thinking — Yes.

      Just be sure that this deal is OK with the leadership and the donors of (Org.1).

      Though the Missions are in line, there should be no surprises regarding this specific use of funds given donors to (Org.1).

      Reply
  21. Quick question I hope someone is still looking at these. I work for a non-profit (501)C3 and they are purchasing new computers. Can they gift their wiped clean computers to their employees or do they have to sell them?

    Warmly
    Michelle

    Reply
    • Michelle,
      I would certainly think there is an IRS rule prohibiting such gifting, but even if not, perception suffers when such property accrues to the benefit of non-profit staff or volunteers.

      As you know, all assets of a non-profit belong to the community, so to speak.

      They were made possible by donations. As such, should there be market value, I would think the articles must be purchased at that amount.

      In my opinion, you cannot/should not, give away items of value, especially to employees.

      Reply
  22. Hi,
    We have an LLC where we currently put together celebrity fundraisers for local and national children focused charities. We want to change to a nonprofit so that our sponsors can write off their donations. I saw a previous post from 2013 about someone looking to do the same thing and you didn’t feel it would be approved by the IRS. Is your position still the same? We get approached by nonprofit organizations wanting our help and services.

    Reply
    • Gina,
      This is from my non-attorney point of view, and personal judgment, to how the IRS might see the change you are thinking about regarding your commercial business:

      Changing to a non-profit, mainly to allow sponsors to write off their donations, is not a mission in the recognized sense, according the IRS, to do something for the public good and which is necessary to make a positive difference in the lives of those served.

      In the instance you cited, the move seeks only to benefit the bottom line of the sponsors.

      Yours is a commercial event planning and production company. To attempt to go non-profit, it seems to me, would be impossible given that your good work is just that:work to enable non-profits to produce special events.

      It is action culminating in non-profits being able to earn income from proceeds of those special events, the proceeds which would directly benefit those served by those organizations. You simply help make it possible from your professional services.

      Your good services are not the direct “ends” to making the positive difference to an identified constituency—as each of those non-profits have their own clients.

      On an even more sober note, remember that, even if your LLC did end up as a non-profit organization, you would no longer own it.

      Once you go charitable, the organization belongs to the community.

      You would be required to recruit volunteer board members—board members who make policy and hire and fire staff.

      The ownership, policy-making, management and doing business, would then be in the hands of others.

      Reply
  23. Our non profit 501 c 3 (lets call it organization “A”)ran a fund raiser for another non profit (organization “B”). Individuals at the event wrote checks out to “A” – in turn when organization “A” tallied the total donations Organization A wrote a check for that exact total to organization B.
    How do I phrase the donation receipt letter for tax purposes?
    Do i mention Organization B at all or say something along the lines of thank you for your donation to A on the behalf of B??
    just want it clear where their donation went.

    Reply
    • Deb,
      I expect that donors to your event knew clearly–without a doubt–that their contributions were to ultimately benefit Organization “B.” (If not, then you could have a problem when you do need to make clear where their donations went.)

      Since your Organization “A” was the first recipient, acknowledgments and other such communication should come from your organization to the donors.

      You cite in your communications that, thanks to their generosity, the good work of Organization “B” will continue and be made better to those whom they serve. You thank them as well for supporting your Organization “A” in such a way as to allow Organization “B” become the beneficiary.

      It could thought by some that Organization “B” should as well perhaps themselves thank key donors, but I do not think that to be a good idea—should it come up. The donors are yours, regardless of the stated purpose of their donation. Best to keep it that way should the issue arise.

      Reply
      • thank you so much! This just the right language. I appreciate it. Now to get those letters printed, and off in the mail!
        many thanks
        Deb

        Reply
  24. I ask 20 groups to raise a certain amount of money for a non-profit (the groups can raise it anyway they want). Each group will have a different goal to meet. If the groups are able to raise the amount, the prize will be their group gets an opportunity to win a prize. The members of the group can enter their names to win a prize. Does this process count as a raffle (which I know has strict guide lines)?

    Thanks.

    Reply
    • Mike,
      To my non-attorney way of thinking, since you are not selling tickets in the usual raffle setting, I see nothing risky with your plan.

      The prize-winning opportunity seems to me to be but an outcropping anyway of the main thrust to raise money for a charity. I see it more as an incentive to the groups/solicitors.

      However, from this literal and figurative distance, not knowing the details of the fund-raising campaign, I nevertheless offer a few comments which may or may not apply.

      — Be certain that the named charity has full knowledge of the plan, and that the charity is in total agreement with the operation.

      The charity must agree to aiding the groups in every way possible, especially when it is appropriate to send official thanks and other acknowledgements to donors.

      The charity should provide all needed promotion, publicity and solicitation materials.

      — Trust is major issue when handling donated funds. With 20 groups going forth to ask for money, it is safe to expect that many donations will be made in cash, and personally handled by many people. Try as best you can to have all donations made by checks made payable to the charity, otherwise, there is a good chance of unwanted, and perhaps, accusatory, requests for strict accounting.

      Supplying receipt books to each solicitor may be a good idea.

      Honesty is not in question here, but a concern for damaging perception when donations of cash flow around and along loosely.

      — Be absolutely sure that no money collected as donations will be used by any individual or by a group to pay for expenses connected to the fund-raising. Any such expenses should be donated.

      I’m talking about gas for auto travel, fund-raising materials, etc.

      You cannot allow anyone to withhold donated money for what they claim as expenses connected to their volunteer fund-raising effort.

      Reply
  25. Hello Tony,

    I appreciate all the information you share. Here is my question. I have a friend who runs a non-profit organization (501c3) and is looking at “spinning off” a large fundraising event that has gotten rather large into another separate (501c3). The donations (ie: restricted cash, and a physical asset (vehicle) are to be “donated” to the new entity once approved by the IRS. I believe the missions are in line with each other, seeing how the donor was actually performing this task and is now separating it to the new entity. Do you see any red flags, etc.?

    Reply
    • D.T.
      It’s the “spinning off” action which bothers me. The work, time and expense given to make the event so successful, should not have those who made it work see their resources disposed in that way.

      It could be that the very reason for the event is falsely advertised when the profits are given to another NP.

      And I would look very carefully to make sure that this proposed spinning off to a yet-to-be-established non-profit has any links to relationships which could bring such asset assignments into question.

      Practically speaking too, such a major disposal of resources and assets to an organization not yet operating, is risky, in my opinion, when one does not know if the new NP could be up and running securely on its own.

      Reply
  26. I have a 501(c)(7) non profit and would like to apply for a 501(c)(3) organization that has a similar mission as our current non profit. Should I apply for it separately or operate under the umbrella of our first non profit? Also can the 501(c)(3) contribute a donation to the 501(c)(7) without it being a conflict of interest?

    Reply
    • Raquel,
      This is surely something you must research with your state’s Attorney General, the IRS or a lawyer skilled in non-profit law.

      From my non-lawyer view, to one of your points, operating one NP version to the terms of another NP classification, may bring you nothing but trouble.

      Before you go through the time, effort and expense to develop another non-profit, since its proposed mission is similar to the one you are now operating, you should ask yourself what would be the benefit to having what may be redundant or even conflicting dual organizations.

      Conflicts of interest are issues usually easy to determine when individuals personally benefiting directly from the donations of others, or when otherwise use the resources of a non-profit for personal gain.

      Reply
      • Hi Tony and thank you for your prompt reply. By similar mission I meant to say the inspiration is the same but this would be for more charitable efforts with communities locally.

        Reply
        • Raquel,
          Inspiration, alone or mostly, will not do it with your state or the IRS.

          What counts is that you must fill a definite, non-served, need and the mission must address the ends, not the means of the NP’s activity.

          Serving diverse groups may take your Mission a distance from its own core values.

          Hard from here to know exactly the situation there, but this is my best try.

          Work with accredited officials so you do not risk problems later.

          Reply
  27. I work for a non-profit that recently received a donation of used coats. Our clients used some of the coats, however a portion of the donated coats were not used. Can we legally donate those coats to another non-profit?

    Reply
    • Cassie,
      With the usual caveat that I am not an attorney, nonetheless, my opinion is that you can go ahead with your plan to donate the coats to another non-profit.

      However, I would expect the other non-profit to have a Mission similar to yours, and that the used coats go to those in need.

      Should the other non-profit not fit those criteria, and the non-profit simply sells the coats, then I think you could have a problem.

      Reply
  28. My high school mountain biking club is a non-profit. We want to donate $ to another non-profit organization that is doing a fundraiser to repair the dirt trails we ride our bicycles on. The fundraiser also has a “raffle” component to it (one donor will “win” a nice cruiser bicycle). Do you see any red flags?
    Thanks.

    Reply
    • JB,
      First, some states prohibit raffles. A check with your state’s Attorney General’s office via phone or information on that department’s website may give the guidance you need. If raffles are not allowed, you take a chance when you present one anyway, even as harmless and in such an obscure setting.

      Next, just about all of my experience regarding fund-raising has been with 501 c 3 organizations. Yours is a non-profit, but perhaps it may be classified as a 501 (c) (7), or such, as yours is club.

      Such groups mainly exist from dues of members. Even so, how and if you donate your funds should be according the criteria I present in my article above.

      Factors such as the other non-profit’s status in the eyes of the IRS, and that they are presenting a fund-raiser for your organization’s benefit, must be explored in the same fashion. That is, does aiding your group fit with the other non-profit’s Mission, and you should assess how my other four criteria fit.

      Just make sure you take no risks with the raffle and ensure that donors/members would approve of giving each organization’s assets to another, while having the respective organizations staying is sync with their Missions and Articles of Incorporation.

      Reply
  29. Hello,

    The nonprofit I am inquiring about is a children’s home (call it A). One of the house parents has their own nonprofit (call it B). B wants to resell the non-cash donations that A receives, and give the money back to A (after paying rent and themselves).

    Is this a conflict of interest since B is on the payroll of A, and will be benefiting by receiving a paycheck from B? This could also be deemed a violation of donor restriction since 100% of the proceeds are not going back to A. I am looking for substantial clarification before this situation moves forward (ex. IRS code).

    If this situation is allowed, how would this be tracked on the 990? I have searched IRS and cannot find any guidance for a nonprofit making a donation to another nonprofit.

    Thank you for your help.

    Reply
    • Amanda,
      To my non-attorney mind, the situation you described is absolutely a conflict-of-interest, as (B) is gaining personally.

      Doing as (B) suggests, could surely jeopardize the non-profit status of (A) and be illegal in the extreme.

      See the IRS Form 1023: Purpose of Conflict of Interest Policy
      http://www.irs.gov/Charities-&-Non-Profits/Form-1023:-Purpose-of-Conflict-of-Interest-Policy

      There is plenty of applicable language in that Policy Statement which can be applied to the situation as suggested by (B) to have both parties see that the scheme is fraught with danger.

      Reply
  30. We are a very small non-profit organization that relies on public donations (as “members”) and foundation grants for our funds. One higher level member category of giving is “Friends” of the organization. Our board would like to donate to a charity in memory of a family member of one of our founding “Friends”, who recently passed away. The charity has nothing to do with the mission of our organization. If this donation an issue?

    Reply
    • Amelia,
      Since the potential donation does not advance the mission of your non-profit, you could run the risk of coming to terms with the IRS and with your regular donors/members.

      Though the gift is meant in the best of ways, it would also seem to be a stretch when the one remembered is a family member of one of your non-profit’s founders.

      There is no practical basis for such a contribution. It’s driven by emotion. On its own terms, such a gesture could start a troublesome precedent.

      The board members themselves should personally make the donation, and not at all use the funds of your non-profit in that way.

      Reply
  31. Hi,

    I work for a non-profit that holds an event (lets call it a run) that allows individuals to raise money for the non profit of their choice, or the non profit I work for (by default).

    Is there a legal problem here? A question came up that we would be responsible for how the money was used at these other non profits. Or, that if someone misused the money raised for another non profit we would be liable.

    Reply
    • Brian,

      It seems like a nice community-care gesture on the part of your non-profit, but why operate an event, spending money, time and effort, to have participants donate to charities they choose?

      That your organization would benefit by “default” seems rather unfair to those working on your behalf. What’s in it for your organization, and for those whom you serve?

      But, to directly respond to your question, in my non-attorney position, I see nothing legally wrong if the participants make checks payable to the respective non-profits of their choice. No cash deals here, as that sets up all sorts of potential problems.

      If any of the non-profits so named as beneficiaries are accredited non-profits, then you have no liability whatever when participants to your event donate to those charities. You cannot be responsible for how they use donated funds. The oversight and responsibility of their trustees, finance manager, auditor, and the state in which they operate, and the IRS, is where the accountability lies.

      Just make certain that checks are made directly payable to any receiving charity. Absolutely, no cash should be passing from hand to hand.

      Reply
  32. Can a non profit give money to a church to help with a remodeling project. The non profit board members are all members of the church that they are thinking of donating the money for a remodeling project. Are the members of the church benefiting from this>

    Reply
    • Sheri,
      Looks like a conflict (though no doubt well-meaning) of interest to me. Not being an attorney, nor skilled in non-profit law, I’ll take the leap anyway and say that such a contribution may be illegal at worst, and definitely ill-advised at best.

      Anyway, I would guess that the Mission of the non-profit would not be in sync with what we know churches do, especially to serve a limited, congregation, beneficiary group.

      I would further guess that the Mission of the non-profit would not in any way point to its being able to give to a specific religious organization. Such a deal could put at risk its non-profit status and negate its Article of Incorporation with the state in which it operates.

      As well, do review again my article above for the IRS-inspired guidelines to one non-profit giving to another.

      Reply
  33. I run a newly formed small nonprofit organization, I currently tithe to a local church ( x 20 yrs now ) but I would like to donate to the Nonprofit I run to meet some of the clearly stated needs and is there a limited amount of money that I or one of the Board members should or could donate . At this time we are under 50,000.00.
    thanks

    Reply
    • Veronica,
      I have been searching through IRS regulations for something which I recall deals somewhat with what you are asking. No luck so far.

      You should go into the IRS site and look for a regulation which states in percentages a ratio of sorts, intended to make sure the non-profit obtains a good portion of its contributions from others in the community than from just one or a very few donors.

      I think you should look for the ruling to see if it applies, check directly with the IRS, or ask an attorney who is skilled in non-profit law.

      Reply
  34. Our small non-profit is a beneficiary of a fund with a community foundation. Can we donate to this fund this year, recording an expense on our books and later years receive money back recording as income?

    Reply
    • Ann,
      I did reply earlier, but somehow the Blog did not appear.

      My question is why, if you are a recipient of a donation from the fund in the Community Foundation, would you be giving a gift in return?

      The fund is a donating fund, not a charity, so you would not be donating to another non-profit. Donating foundations are set up by law in totally different ways than a 501 (c) (3) charity.

      If I am off the mark, perhaps a reading of my short piece on this topic will help.

      — Can One Non-Profit Donate Money To Another?
      http://www.raise-funds.com/2011/can-one-non-profit-donate-money-to-another/

      Reply
  35. If one 501(c)3 charity was handling fund raising as a favor for another 501(c)3 who had family issues and needed to take a hiatus, both for the same reason, dog breed rescue. Is there any law against them transferring money. The one helping can no longer help and is now transferring whatever balance that has not be used yet to the one who is now up and running again. If funds were designated to help the same breed, would there be a problem between these organizations?

    Reply
    • Kathy,
      This is something for your respective attorneys and CPAs to handle.

      I am concerned about donated money being moved around as a favor, influenced by family issues, and the leadership taking time off from performing what are the core values of the organizations.

      Raising money for, and transferring money, between organizations, does invite some scrutiny. A non-profit cannot arbitrarily manage its donated funds based on the officials taking time off for family, or other personal, issues.

      The charities are public charities, so I urge that as much as possible the respective officials operate them with no direct personal influence.

      Care must as well be taken by the organizations to respect the wishes of their respective donors, some of which, may not be pleased to see they gave to one organization, going to another–no matter if they are similar.

      Your state’s AG and the IRS would want to be sure that neither organization is violating its mission, being more concerned with financial balancing than there would be with a straight-out donation at the end of a fiscal year.

      Reply
  36. Dear Tony,
    Here is my ethical dilemma:
    A cultural non-profit is helping another health and social services non-profit with support and monetary donations (approximated value of $3000) In exchange, the cultural organization wants a donation of 10 tickets ($500 value) to participate in a raise funding GALA for the health and social services organization!

    Is this possible? how could be possible?

    Thanks

    Reply
    • Jean,
      Your offline note to me indicated that your board has resolved the dilemma.

      From what I can glean from your Blog, it seems to me that the demand for those comp tickets is unreasonable.

      It is usual policy and good donor relations to comp such tickets to underwriters and in-kind donors, but necessarily to the degree that such comps are in reasonable number. After all, the event is to make money, and the more you give away, the less net profit you will have.

      It is strictly a judgment call, and if demands are excessive, there needs to be be reasoning if possible. If not, you either swallow the loss, or you might even find that the donation is not worth what you would in turn be giving away. Just do not burn bridges behind you.

      Reply
  37. Can a non profit preschool be run financially by a church, even when it’s a separate business? Are they allowed to control the budget/funds, and is it okay for them to funnel the profits of the school into the church?

    Reply
    • Betty,
      These are questions to be answered by an attorney, one skilled in non-profit law. I am just an old non-profit fund-raising practitioner, and yours is an organizational issue, dealing with IRS and state laws.

      However, from my non-lawyer view, I see where a few questions could be answered.

      — If the preschool is a non-profit, and has its own IRS 501 (c) (3) status, I would question why the preschool would want to be run financially by the church. The preschool could find itself in position to lose donors who would only want to make out their checks to the preschool, not to a church. Companies and granting foundations would most likely have policies in effect which would not allow donations to a religious entity directly.

      — If the preschool is operated as an outreach ministry of the church, then certainly, the church would have a great deal to say about the management of the preschool, including its finances.

      — The mission of the preschool would be quite different from that of the basic mission of a church. Support of the church in that way, by funneling profits to the church, could very well violate the mission of the preschool.

      Again, because I do not know how the preschool is aligned with the church, and if so, in what way, and whether or not the preschool has its own IRS “determination letter” to provide to prospects and donors, it is hard for me to give a clearer picture than what I have provided.

      You should have your questions addressed by an attorney.

      Reply
  38. David
    Can our nonprofit sell inkind donaations as a fundraising activity?

    Reply
    • Jerry,
      Yes, you surely can. It is frequently done by countless non-profits which, for example, accept In-Kind donations and sell them through their gift shops–or through other means.

      Just make sure that you meet IRS requirements which stipulate that you annually secure regular donations in the required ratio to funds you raise selling things.

      Non-profits cannot live alone with income derived mainly or solely from selling items, be they In-Kind or from any other source.

      Reply
  39. David, i started a 501c3 non profit community based organization. I have gotten involved with a company that does matching donations for its employees. I have gotten a couple of employees to donate on our behalf with funds that we basically supply to them to donate in our name. Is there a potential conflict in this or pitfall we should consider?

    Reply
    • David,

      I am not qualified to give legal advice regarding this. However, what you are describing sounds at the very least unethical to me. I have been responsible for aspects of matching gifts programs, and in my past experience your “donors” would be violating the intent and probably the rules of the matching gift program of their employers.

      It seems to me that the employee-donor is risking disciplinary action and that your organization would potentially be liable for legal action on the part of the company for recovery of the funds your organization gained from them.

      I urge you to seek legal advice regarding this practice and to have your “donors” do so also. They may be putting their employment at risk.

      Personally, I would never do what you are suggesting. Companies have matching gift programs to support organizations and causes in which their employees believe strongly enough to reach into their own pockets to support. The practice you describe violates the ethical standards by which I have worked in both the nonprofit and corporate world.

      Reply
      • LoL, no. It’s called money laundering and it is still illegal in this country. You could always buy a car wash..

        Reply
        • J.S.
          Not so harsh. No one is going to post in public any scheme being illegal–knowingly.

          My colleague, Dave, gave another David a good bit of sound advice.

          We often see such things in the non-profit world based mostly on individuals just not knowing what is acceptable with the IRS and state law.

          Opening up dialogue to air out the question is a good thing.

          Reply
  40. a few quesitons–

    One of the AD HOC committee–setting up 501 C3 status, wants to know if it’s possible for 501 c3 to rent a 501c7’s property (part of the building)? and vice versa?

    Also, 501c3 is thinking about buying a property from 501c7– are there any legal issues? tax deductible for 501c7?

    Thanks

    Reply
    • Hector,
      I am just an old non-profit fund-raising practitioner, and while my article above does deal with one non-profit donating to another, the non-attorney suggestions are directly from the IRS.

      Your situation is more involved, that being related to differing IRS classifications and property.

      You must consult your organization’s attorney, accountant, or the independent auditor which handles your year-end financial report.

      Look over the various IRS publications available online.
      http://www.irs.gov/Charities-&-Non-Profits

      Reply
  41. Hi Tony,

    My non profit has a mission related inventory that currently they are unable to sell. They have about 12,000 cookbooks holding up cash. My question for you is whether or not they would receive any tax benefit from gifting this inventory. I understand that as a 501c(3) they are tax exempt but what I don’t know is whether or not they would be elligible to benefit from their effective tax rate by gifting the inventory. The hope is that by gifting the book (plus any possible tax advantage) they are better off than liquidating at wholesale. Any thoughts would help. Thank you!

    Does a 501c(3) receive tax benefits for gifting away inventory with no real market value?

    Reply
    • Mc,
      Sorry, but I must give you the usual (though necessary) caveat about not being an attorney … etc. Especially in this particular instance. The old reliable IRS Publication 526 would be a good start, but even better would be your accountant and the annual auditing firm you engage at the end of your fiscal year.

      However, at first look, my fairly certain opinion (only an opinion) is that there would be no benefit whatever for you since you pay no tax rate. How your accountant could declare the disposal of the cookbooks as a tangible financial loss, is another matter.

      Again, I regret that this good question is out of my fund-raising-related territory.

      Reply
  42. I would love to form a nonprofit organization (NPO) that provides monetary donations to other nonprofits. In essence raise money and awareness toward a charitable organization my NPO identifies. I envision one or two NPO’s yearly to raise money and awareness for.

    For example, lets say one year the organization choses to raise money and awareness for an organization assisting homeless children, and a group working with children who are victims of sex trafficking. I see raising awareness for both organizations thru fundraisers and events. Any advice would be appreciated.

    Reply
    • Michael,
      Creating a new non-profit organization takes considerable time, effort, and some money. The non-profit must be formed in the first place to meet a well-defined public need, to paraphrase the IRS.

      A non-profit, therefore, must have a clearly stated mission to meet that exacting public need.

      From my non-attorney point-of-view, I suggest you pursue your good intentions by identifying the organizations you want to help, contacting their development leadership, and volunteering to raise money directly for them—with them.

      I doubt you will be able to obtain accreditation to form a non-profit from the sole intention of using the money you raise to donate to other non-profits.

      Additionally, even if such an organization could be formed, I believe you would have a great deal of trouble raising money for such an indistinct purpose.

      Forming a non-profit to do good works in name only as an idealistic objective will not work—in my opinion. And, you would be open to questions regarding why the potentially-receiving organizations are not themselves raising money for their own causes.

      It’s one thing for an organization to be formed which meets its stated mission, say a local music and drama group which presents performances, charges admission, and later donates any net gain for the year to scholarships at a university’s arts & culture department. It’s another thing, and one not well founded, to create a non-profit with the view that such net money gains will be used fo support other random non-profits in ways not at all clear.

      Use your dedication and devotion to do good under the guidance by and affiliation with currently operatiing non-profits which would benefit from your volunteer work.

      Reply
  43. Hi

    Just had a meeting yesterday re: between 501c3 and 501c7

    Quick question–

    Is it ok for 501c3 org to donate any goods or $$ to 501c7 org??

    Hector

    Reply
    • Hector,
      From what I understand about such things is detailed in the above article, and it applies to any 501 organization.

      The similar mission requirement is key. That is for you to determine, along with working to the other points I make in the article.

      Reply
  44. Tony, I want to form a non-profit scholarship pageant that promotes fundraiser. I want to award scholarships to intelligent, gifted and active young women. I want to also encourage them to have their own fundraiser to help raise money to give to certain non-profit. Is that something that I can do without creating issues? Should I contact that nonprofit company prior to forming my pageant?

    Reply
    • Anita,
      If you are planning to raise money in any way to support an existing non-profit organization, then you must first contact the officials there to not only get permission, but to have many other things put in place.

      That would include working directly and closely with the organization, using its non-profit status to accept any donations for the donors to claim tax-deductions.

      Funds given directly to you without being earmarked to the charity would not qualify for tax purposes, and the critically important factors regarding strict accounting, oversight, appropriate use of the money to proven students in need, and banking of donations must be observed.

      You would not be in position to directly award the scholarships. Since you apparently do not operate a non-profit, but are seeking to give money to another non-profit, you are a caring and devoted individual, but one not allowed to raise what would be considered tax-exempt funds, nor to be able to administer that money.

      And, you should not encourage any scholarship recipient to herself or himself raise money on his or her own behalf as they cannot be considered a legal charity.

      They can seek to raise money for themselves, but only as outright gifts with no tax benefits to the donors.

      Even then, collecting donations from other than family and friends of each of the students, can raise all sorts of concerns regarding the actual use of the money.

      These personal and individual “causes” are rife and well known, and no doubt many are honest, but such raising of money for other than an accredited charity can, and does, very often result in many problems—administratively and legally.

      Reply
      • Tony, I plan to start a nonprofit early next year. After I submitted my question, I realized my initial idea would create legal and tax issues. So now my plan is to have contestants volunteer to have a fundraiser which the money raised from the fundraiser will go to another nonprofit. I want to promote the gift of giving back and award the top fundraisers. How does that sound?

        Reply
    • Anita,
      I think it will be hard to organize a non-profit to put on a pageant in the first place, considering that purpose to be a not clearly defined mission. Promoting fund-raisers is not going to be seen by your state and the IRS as something which fills a public need.

      You cannot be alone in the awarding of scholarships. And you will need strong accreditation regarding anyone receiving funds raised to pay for their education. Best to work with an existing organization doing somewhat the same thing.

      And your non-profit cannot/should not (to my way of thinking), encourage any potential recipient to fund-raise. That again is not a viable reason to form a non-profit.

      There are too many issues here which are unclear to me, so I suggest you talk to other organizations in your area which may be in the scholarship granting business to give you guidance.

      Best of all good luck.

      Reply
  45. Tony,

    My non-profit is organizing an instrument drive to benefit one of our programs and six other non-profit music education providers. As organizers, we will need to provide donors with an in-kind donation receipt for their donation, will be working to have the instruments repaired, then will distribute them to our program and others based on established needs. Is there an IRS rule related to if/how a non-profit should account for the transferring of in-kind donations to other 501(c)3 organizations? Thank you for your insight!

    Reply
    • Ryan,
      My sincere apologies. I did not see your post until yesterday, November 12. On August 14 my wife and I moved from our home of 22 years to a new home. It was to be some time before I could get my computer back on line, and in the meantime, I had taken steps to apprise those writing to me of some rather long delay with my responses. Sorry to say that procedure did not work in your case.

      No doubt you have gone on well along with your good project during the elapsed three months.

      From what you must have since determined, and from what I would have then said, the transfer/donation, it seems to me, would be OK since the donated-to-you instruments were given to other charities working to similar, or reasonably similar, missions.

      Reply
  46. Tony, if I form a non-profit to fund the costs of a large fundraising trip around the country, with the intent of donating everything that is given to me (minus costs of food, hotel, etc.) to another non-profit, is that okay?  

    Reply
    • Jesse,
      I must always take care to keep from giving what may be considered legal advice, and such is the case here as I see it from your brief note. Well intentioned, no question, but to my knowledge, you cannot form a non-profit as an individual. Yours must be an organization for the “public good,” in the words of the IRS. And, such non-profits “belong to the community,” so you must have a board of volunteer trustees to work the policy making and governance of the organization. In any event, you would have major problems when working to fund-raise for worthy organizations, when all the while you are spending sums of money for on-going and long-term living expenses—no matter how well you practiced good economy. Back to the main point, however, an individual cannot "be" a non-profit organization.

       

       

      Reply
  47. Thank you for the reply.  Sponsors and donors are made aware of the charity to whom the donations will be given (Keystone Wounded Warriors, Make-A-Wish Foundation, etc).  This should aleviate the like-kind to like-kind point you make. Yes?  No mention of possible taxable amounts.  Thoughts?

    Reply
    • David,
      Still something for you to follow through the IRS, and/or a non-profit-knowledgable attorney. Though it is a good thing that your donors know where their money was given, they are not the ones to make the procedure OK as far as IRS regulations go. The IRS sets up the rules, and you should find out if it is acceptable that you give other people’s money, which donated to your mission, to other organizations having their respective missions not near your organization’s reason for being.

      Reply
  48. David, I cannot provide legal advice in such matters. Even so, there would be other details regarding your situation of which one would need to know in order to advise.

    I do think that from such a city-wide position as you are part of, surely that would be an attorney whom you could consult.

    And, of course, just go into the IRS website and read what is there about the rules and regulations applying to non-profits.

    Still, though from a literal and figuraitve distance, I do feel confident enough to suggest that as your sports organization does donates to another or other non-profit(s), that those receiving non-profits must have a mission close to yours—as I state in my article above.

    For example, your sports-related non-profit should not give its donation to a foodbank, no matter how worthy. Your donation must be given to towards a similar mission. After all, donors to your organization, in the first place, chose a sports-related organization, thus they would expect that any other use of their donations be given in the same manner.

    Reply
  49. We have a non-profit community athletic group that conducts three yearly events.  Proceeds from the events pay for the group's expenses first and the remaining proceeds are donated to anoter non-profit.  The entire community os a non-profit organization so the athltic group falls under its umbrella.  Would the donated funds be taxed?

    Reply

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