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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  1. As a 501(c)(3), we will use a golf related website as a fundraising tool for some outstanding childhood cancer fighting organizations. We will maintain our distinction but would like to formalize our commitment that after expenses, the three organizations which we will support will each receive equal shares of funds raised. While the golf related website will be our long term fundraiser, the website is not yet operational. What is the best way to formalize our commitment? Letter of agreement which codifies our percentages beyond expenses which will transfer to each organization? We want nothing formal in return but feel that our effectiveness can be increased if the receiving organizations know that our commitment is binding. We have no problem having everything notarized and made legally binding to eliminate any blurred lines. Thank you.

    • Herb,
      As a 501 c 3 organization, what is your direct and incorporated mission?

      As I understand how IRS classifications work, one such as yours should not mostly or primarily be raising money for other non-profits. I am unclear regarding what it means that your organization “will maintain our distinction.”

      Even with that declaration, will the focus on the golf-related website to fund-raise with an event, or otherwise, for three other organizations, outweigh your attention to your own organization’s original and prime reason for being?

      I would like to know how the golf-related website, as a fund-raising tool for the benefit of other organizations, fits within, and with, your charter mission.

      Then, I will be in better position to advise regarding your way or ways to formalize the agreement with the receiving charities. In advance however, I think that all you need is to post on your website your intention to divide among the three organizations the net proceeds of your fund-raising efforts. To my way of thinking, nothing more is required. You make a promise on your website for all to see, and you hold true to the promise.

      • Thanks Tony. That’s the way I am proceeding and if the organizations want to assist us along the way, all the better. I have re-written our Mission Statement to clarify that funds raised will be split equally among the 3 organizations.

      • We are a local Alumni Chapter of a national Fraternity (501c7).

        We have various community care initiatives where we raise specific funds which are in turn divided and donated to different area non-profits (501c3’s).

        Question: Can individuals that contribute to our (501c7) philanthropic fund raising efforts count their contributions as tax deductible if we provide them a letter indicating our (501c7) donation on their behalf made to “ABC-501c3”? What is the best way to publicize and market the intent and effort?

        • Ramon,
          No such letter will be acceptable.

          Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor’s federal income tax return.

          Thus, no donation made to your organization, which is not tax-deductible, can be assigned to a 501 c 3 for any such tax break.

          You can be a fund-raising “clearinghouse” of sorts to stimulate giving through your promotion and marketing–but you must stress that checks must be made payable directly to the respective 501 c 3.

    • Can I get help from you? To pay my debts. I have debts for about USD100,000.00.

  2. Hello,
    How long does a 501c3 entity have to wait to sell a donated item if the entity has no need or use for the item?

    • Roland,
      As I understand it, there is no such time limit. (Unless, for some reason, the donor gave the item with conditions.)

      Once the item is yours, and you acknowledged the In-Kind donation appropriately, it is yours to do with as you wish and for as long as it takes.

      Example: An organization receives items to sell in its gift shop. They could very well sell some of them the same day the items were received. Some of the items may take much longer to sell, or they may never sell.

      By the way, regarding how to handle In-kind donations, I suggest you read my article:

      __ In-Kind Gifts: How to Acknowledge and Recognize Them

  3. Hi there!

    Question? Can the mission of a NON-profit organization for educational purposes be to specifically raise support and funds for student scholarships that attend a for-profit school?

    • David,
      While your seeking of advice from an attorney skilled in non-profit law, or from the IRS, is essential here, nonetheless, I will dip into those sometimes muddy waters with comments from my own experience and judgment.

      To me, the choice of the for-profit recipient institution sends up a red flag. Being a commercial business, the giving of charitable/donated funds directly to the school would not fit with the mission of a non-profit, whose charge from the IRS is to fill a void where doing public good is a requirement. Such action may be illegal.

      Being for-profit, it is up to the school to operate as a business does—to generate earned income and make money.

      The choice of a for-profit school can also raise a question regarding any possible conflict of interest for personal or business gain for any official from either entity.

      As well, according to the IRS, the non-profit cannot give its donated funds to a named individual for his or her scholarship costs in the first place. And, the donating non-profit, on the other hand, cannot direct any school to give the scholarships to named individuals. OK for classes of individuals or students taking certain courses.

      In any event, all schools, more or less, would have their own scholarship fund programs internally managed for the seeking of contributions and for them to make the ultimate distribution choices.

      In my opinion, any money you raise should be donated to an education non-profit for them to manage and present scholarships.

  4. Thanks for putting this information out there. It’s very interesting. But in reality its going to come down to partnerships and collaborative efforts to survive. If there is an event that will support my nonprofit and I’m asked to participate financially knowing that I will receive 100 times my investment…why wouldn’t I do this? Is it a good use of the nonprofits money to spend thousands of dollars to create their own event (with no guarantee the proceeds will exceed expenses) when a small investment in another event generates thousands of dollars? Quite honestly if a funder doesn’t understand the business sense in that type of partnership…it’s time to find funders who do.

    • Terri,
      Yes, some non-profits can cooperate, partner and collaborate in certain reasonably non-competitive ventures to broaden their respective markets and increase their contributed and earned revenues. For example, the local orchestra can partner with the local ballet company to present a joint performance of music and dance. We did that with the Cleveland Ballet when I was with The Cleveland Orchestra.

      However, such relationships may not work well, or at all, for a host of reasons. (From experience, they are not always made in Heaven.)

      I am not certain from your posting whether you are referring to another non-profit, or a for-profit event presenter, when you gave your example of your organization’s investment, thus I will try to cover both. First, working with another non-profit or non-profits.

      — assessment of the other non-profit’s name and reputation as one to which yours would be associated.

      — if for example, there is a collaborative effort to produce a special fund-raising event, there is almost always an imbalance from the one organization to the other regarding selling tickets, helping with promotion, obtaining underwriting money, getting in-kind donations, setting up the facility, closing down afterwards, etc.

      — enthusiastic and supportive attendance (paid) at the event of the other non-profit’s leadership, staff, and others close to them, and the attempts they made to do more than be passive observers.

      — the final decision regarding which organization receives how much money, is another stubborn issue to settle. (How come they get so much for the little work they did?“)

      Be ready, though for a problem, no matter the amount you decide. To some it will be too much, and to others, it will be too little.

      Thus, in my opinion, it is not going to come down to having those relationships for non-profits in general to survive. If missions are strong, management is good, and the volunteer board fulfills its promised responsibility, most any non-profit must stand on its own feet.

      To my way of thinking, such partnering efforts should only be conducted when the results measurably enhance the good things the organization is doing. If the non-profit is seeking to be involved in that way for the sake of survival, then I suggest that the non-profit probably should not exist in the first place.

      I am guessing that your citing of an investment of your non-profit’s money generating a 100 times return, is a hypothetical example. I cannot see how such a return on investment is possible in collaboration with another (or other) non-profit.

      Perhaps the non-profit’s donated money is being invested in a speculative for-profit business activity. If so, that would be a gross misuse of the money given to the charity. That’s mainly because if the presenter is a for-profit business, then others are going to personally and directly benefit from the money given by charitable donors.

      It’s one thing to engage a professional event planner and to pay that person a fair and reasonable fee, but quite another to use donated funds to give financial backing to a business venture.

      Funders do not see what they give to your organization as a business deal for them. They do want you to operate your organization in a business-like manner, to be sure, but they are giving to have you fulfill your mission, not to make a good business deal for the presenter of the event–no matter how much you get out of it.

  5. Any there any similar restrictions or other considerations when a 501c6 wants to make a contribution to a 501c3? These would be employee donations collected by the organization and then contributed on their behalf to a charity selected by those employees.
    Thanks for any insights.

    • Ann,
      To my way of thinking, there should be no restrictions when the employees themselves choose where their fees/dues could be given to benefit a 501 c 3 charity.

      In the main, however, be sure to stick close to your mission, regarding what the organizations does for the member employees in the first place.

      And there is much to learn from numerous webpages devoted to the operation of a 501 c 6. Just enter into a search engine and get what else you may need.

  6. Any insight on restrictions to a 501c3 for making a contribution to a 501c6?

    • Sarrah,
      I do know that donations to 501 c 6 organizations are not tax deductible. Thus, money going from a 501 c 3 to such an organization is not a contribution.

      That’s because c 6 organizations include business leagues, chambers of commerce, boards of trade, real estate boards and professional football leagues. A business league is an association of persons with a common business interest. Members can be for-profit businesses.

      Since c 6 organizations are formed to have its members’ professions/businesses interests furthered, as I see it, it makes no sense (indeed, it’s probably illegal) to give a c 3 organization’s charitable contributions to a c 6 member organization. The mission of a c 6 is directly related to its members’ personal gain—for the most part.

      In the first place, from the above observations, it would be highly likely that the mission of a c 3 would not in any way be in sync with what a c 6 does when its goal is to improve the for-profit business interests of its members.

      I see great risk here to the non-profit status of the c 3 should it give its charitable donations to what ends up being a commercial, business and profession-furthering, entity.

      Now, the usual caveats that my comments are only observations, and that if such a plan is in the thinking/making stage, nothing should be done without the advice of the appropriate professionals, be they with the IRS or a lawyer skilled in non-profit law.

      Nonetheless, I have no problem with my assertion that such a contribution could easily cause the “contributing” 501 c 3 to lose its IRS classification, and worse, there could be some legal penalties in the making as well.

  7. Hi,
    Thanks for all of the great information. I’m forming a new non-profit in CA which will raise money in the US to be used on clean water projects in other countries. I have read a couple of things about money given to organizations outside of the US not being tax deductible. I wanted to see if you knew anything about this.
    Thank you.

    • Hello Brian,
      Please click onto the following link to an article on the Raise-Funds website:

      — Greetings from America:
      How U. S.-Style Fund-Raising Can Work In Your Country

      While that short essay deals with how money can be raised in other countries, do be sure to scroll down the Addendum for information directly related to what you stated in your Blog.

      The instructions there are from the IRS as I know them.

      In essence, you must develop a US-based “Friends” entity which then must be in total control of the charity for which the funds are intended.

  8. Wow! Sounds like you may be the to go person here. I have a Question. I am forming an LLC manufacture wholesaler that will sell my products to a retail buyer. The buyer/retailer allows me to sale my products at their locations. ON my products are labels that state we donate 10% of sales to the XXX program. The product sold will tell of the XXX program of which I formed and information on how the consumer of my product can donate to the cause of the XXX program. The XXX program is under a fiscal sponsorship 501(3)c entity. There will be no donations benefiting in any way my private LLC. PLEASE HELP OR AM I OFF MY ROCKING CHAIR,PLEASE FEEL FREE TO EMAIL ME. THANK YOU

    • I can only, in an unofficial capacity, give you my comments based on experience and some common sense.

      My observations may help as you must press on to discuss this rather complex situation with those more appropriate:
      — Accountant, Attorney, and the Fiscal Sponsor (FS).

      I am sure that you must first work with the Fiscal Sponsor of your XXX non-profit program to get its OK in the first place.

      From what I understand, all donations must first go through the FS. The FS has the 401 c 3 classification, which the XXX organization does not.

      Then, whatever percentage of those donated funds, agreed upon in the contract, would go the the programs of the XXX organization.

      Thus, not all of the 10% proceeds from sales would in fact go to XXX as advertised.

      That the sale of your products would have the revenues from customers finally go to your XXX organization, makes urgent that no one connected to XXX derives any benefit whatever. That includes you if you have a paid staff position, or any of your family. I think this point is the one most sticky, and one which you must examine with great care.

      Will your business claim a tax-deduction for the 10% donations going to the FS with which your XXX organization is affiliated? Maybe that is OK, but here is yet another example regarding why you must consult with the true experts to ensure you do not violate any laws.

      Another point to address is for you to be ready with precise sales and financial reports to exactly prove and account for the true 10% donation claimed while selling the products.

      No reflection on you, of course, but when such general statements are made, and funds are raised in that way, it is necessary to prove what is claimed.

      And, is the 10% figure related to manufacturing costs, wholesale costs, or exactly from retail sales?

      Just some initial thoughts to get the ball rolling. We would be interested in your comments regarding the points raised.

  9. Hi! This is a lot of good and useful information, thank you! I have a question you may be able to help with, and I hope I am not too far behind this conversation to ask.

    My organization coordinates a bunch of separate NPOs—all social or educational in nature, geared toward recreation & sport. Once a year, we do a donation drive for our local food banks among all the NPOs. That’s not part of our mission, although all our groups are asked to be good citizens of their communities and we’ve often done volunteerism over the years. The funds we get during this drive are kept separate from our regular funds, the destination of the donations is made clear, nobody is paid from these funds, the destination is a registered charity, there’s nobody in our group on the boards of these charities—every dollar is passed through to the food banks.

    A few members have asked questions about whether this arrangement is illegal or fraudulent. It looks okay to me (except for possibly the mission part, but we’ve been doing volunteerism for decades), but I thought I’d ask someone with more experience. Thank you for your thoughts.

    • Ben,
      The way in which you described the raising and the use of the funds, to my way of thinking, certainly rules out any hint of fraud, and of it being illegal.

      The mission departure, however, is another thing. But such concerns are almost always due to an overall drifting of sorts away from the original core principles upon which a given non-profit was established. Your annual, one-time event, seem OK to me, though I am not an expert regarding the boundaries of the various IRS 501 classifications.

      That brings my thought to the fact that yours may be a member-type organization of sorts, thus perhaps the member organizations pay dues. And those organizations, being of the sport and recreation type, suggests that the IRS classifications are not those of what I know best as being 501 (c) (3) charitable organizations.

      If that is so, then it would seem that the only caveat/concern about raising money for the food banks, would be the status of the tax-deduction for donors giving to support the drive for the food banks.

      These points are best discussed with your attorney, CPA, the state’s Attorney General, or the IRS, though from what we have been hearing, the latter does not reply to phone calls.

      In summary, as long as you can account for every penny raised, and that absolutely the only beneficiaries are the food banks, without anyone enriching themselves, then it seems OK from where I sit. The mission departure, being one-time annually, could very well pass muster with most any critic.

      • Detailed, informative, appropriately caveated. Thank you.

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

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

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

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

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

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

      • Upon further research it appears this donation was not voted by the college board of trustees, according to the 990 it was simply “approved by the president and confirmed by the executive vice president.” Further we discovered that the college made another $2 million donation to this same nonprofit foundation 3 years earlier. Interestingly this earlier donation was disclosed on the recipient foundation’s 990, but NOT on the college’s 990. So it seems likely the college board of trustees didn’t know about that one either. At the time of the previous donation, the college president was an (unpaid) board member of the recipient foundation, since then he has left the board but his daughter has joined. Also this college is very heavily leveraged, more than $160 million in debt, mostly taken on during the last 7-8 years. Taken all together it seems very dubious.

        • Ariane,
          “Dubious” is far removed from an outright scandal.

          It looks like a disaster about ready to happen, with the institution seeming to be about as close as it can be to bankruptcy — maybe even losing its non-profit status.

          It is not for me to say, or even to imply, that there could be possible criminal overtones with the transfer of funds, but there certainly is a serious abrogation of responsibility on the part of the Board of Trustees.

          Surely, they must know that such actions taken, even if independent of their knowledge, nonetheless, in the eyes of the IRS and the state’s Attorney General, makes them liable.

          They, after all, are signed on to be the stewards of the college’s donated funds. They are doing nothing to safeguard the college’s financial integrity.

          Someone had better get some of those key board members up to speed regarding the outrageous actions on the part of just two officials.

          What would any of the major funders think? How about involving a key alum or two who are the biggest boosters of the college?

          A “whistle-blower” is needed there, and fast.

          • Tony, thank you for this response which confirms our fears. It’s a delicate situation because the person who brought this to my attention is employed by the college, and might get fired if we spoke about it publicly. We did anonymously send messages to a few trustees pointing out the issue, so perhaps that will get some action. It’s a very large board, more than 40 members, and our impression is they rarely raise questions about what the president is doing. I don’t think there’s any harm in telling you, the college is High Point University in High Point NC, in case any readers might know a trustee or prominent alumni.

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


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