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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236 Comments

  1. I have a question in regards to 1 non profit donating to another non profit. My question is more from an accounting perspective, how does the non profit that is donating account for that money? Does it get shown as an “expense” on their books?

    The initial money was given to the non profit from a government agency

    Example:

    Non profit A was granted $100,000 from a government agency and has decided to donate $25,000 of that to non profit B.
    Does Non profit A include the full $100,000 as grant income and also how do they account for the $25,000 they are donating?

    Thank you in advance for the help!

    Reply
    • Tamara,
      Perhaps someone else reading your comment can comment.

      But, I’m just an old non-profit fund-raising practitioner, though as you can see from the comments here, I do often take the plunge (with care) into the accounting unchartered waters.

      However, your question is deeper into the accounting weeds from what I have previously addressed.

      In my opinion, it does require counsel from your finance department, and especially from the outside auditor. I am sure you engage such a firm at the end of each fiscal year.

      Still, do look again at my article and see how your proposed donation fits with the terms I cite which I believe are essential to giving away money to another organization, money which was given by individuals and businesses to yours.

      What strikes me though, is the money in question is government money. How rigid are the terms from that granting agency regarding your accounting for every penny?

      Could there be any understanding by the granting agency that you would not be using all of the funds granted for the purpose the grant was made?

      This is new to me. I have never seen or have been part of a government grant which allowed our organization and others with which I have worked to reallocate money to another non-profit entity.

      So, before you even begin to assign the funds here or there in the books, my question would be, “Is it legal?”

      P. S.
      If it is OK, then in my opinion, sure, the full amount must be entered as grant income, since the payment was made to the organization A.

      How the donation is cited in the books is up to the accountant and auditors—again, that is if it is OK to give money from a government grant, which I expect was strictly and clearly given for an express purpose, as proposed by organization A initially.

      When you report back to the granting agency for progress and final reports, how will justify not spending the full amount the project which attracted the grant in the first place?

      Reply
  2. My husband and I looking into starting a non-profit for persons with Down syndrome with an international focus. Our son has Down syndrome and we were wondering if he is allowed to benefit from the non-profit at all. For instance if the non profit assisted in medical expenses or therapy expenses. Would he be able to receive funds too?

    Reply
    • Louise,
      It is a lengthy, and sometimes costly, process to set up a non-profit organization.

      You must be certain that what you intend to do is not duplicated by another organization.

      Going international as well poses problems regarding the tight rules when money raised in the US is spent abroad.

      Sorry about just a few of the hard facts, but I am being led to believe that along with your obvious strong humanitarian intentions, you need help with your own serious medical expenses.

      There is where I know you will have unintended conflicts.

      To form a non-profit, which according to the IRS, must be a community-owned institution, the required board members you will need to enlist to help lead the organization will have every say when it comes to who is served, how served, and to what expense and duration.

      The IRS is strict in disallowing donated money raised to go to specific, named, individuals as they are identified by the founder-leadership when those recipients are family or friends or otherwise known.

      I think the work to set up the non-profit and the possible unintended conflict-of-interest risk, are far too great for you to chance.

      Better to volunteer with an established organization and seek special help in that way.

      As an aside, following my twenty years as Director of Development for The Cleveland Orchestra, I provided non-profit fund-raising consulting for a number of years. Perhaps the most satisfying experience was to provide counsel for a new Therapeutic Riding Center.

      There, and often, it was like a miracle to see several volunteers lift up a person with Down Syndrome into the saddle of a big, strong, horse—then to see that person come even far more alive with motions and happy expressions we would not think possible. I hope your son has that kind of opportunity.

      Best regards,
      Tony

      Reply
  3. We have a board member who wishes to pay for certain services that benefit our non-profit, specifically he wishes to pay for our organization’s website and email exchange hosting. He also occasionally pays for certain supplies and promotional materials – T-Shirts, business cards, banners, etc. How do we handle this if he would like to consider these activities as donations to the organization? Are these In-Kind donations? Is this even permissible?

    Reply
    • Kristie,
      In answer to the two ending questions in your comment—yes, and yes.

      What that generous individual is doing is certainly in the area of making In-Kind donations.

      And the other question, about how to handle those donations, is readily answered as I suggest that you read my short article on the subject for guidance for you to provide appropriate and certainly well-deserved acknowledgment and appreciation.
      See my sample letter in the 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/

      However, his money can be spent by your benefactor in two ways:

      1. He pays invoices you submit to him and he pays the vendors directly. His tax-deductions would possibly be complicated for this In-Kind donation method.

      2. He gives cash, or checks, or gifts of stock valued in the amount or amounts you need to pay your vendors. Paying the vendors directly by your organization itself, allows him to declare to the IRS for tax purposes what he gave to you directly as cash.

      In other words, if he agrees, as you send a payment to a vendor, you simply ask him to send a donation in a like amount directly payable to your non-profit. (Round off the cents.)

      Perfectly legal.

      Reply
  4. hi

    My question is this: my organization used to be under the umbrella of a foundation. We were not our own 501c3 and any donations made to our arts organization were managed by the foundation. We recently organized as our own corporation and obtained our own 501c3 status. Our funds in the foundation were made originally to our organization even though they were managed and held by the foundation. Now the foundation says they cannot transfer our funds to our 501c3 without notifying the donors and getting their approval to move the funds. I understand why the foundation would wish to be careful, but the funds in question were originally donated for use by our arts organization so how can they claim they need to serve notice before moving them to our 501c3? And though I know we are correct in claiming notice is not necessary, what grounds may I use to argue our position that the funds can ethically and legally be moved without sending out notices? We are in Illinois by the way. Thanks

    Reply
    • Robert,
      By “foundation,” i expect that you have a working agreement with a Fiscal Sponsor. (FS).

      Now, you have your own non-profit, and want the funds collected by the FS, on behalf of your former organization’s Project, transferred to your new 501 c 3.

      Any good FS agreement will have a means to deal with how to terminate the relationship. There are certain legal restrictions on how the Project’s activities and assets are severed from the FS.

      That separation agreement would have a clause addressing the transfer of funds and liabilities from the Project which was funded through the FS to your organization.

      Now, what you want, will depend upon what you have in your written agreement.

      If you have no written agreement, or one not strong enough, it is possible that the FS would itself take over the Project.

      Otherwise, from what I have seen in such contracts in the position you describe, the FS’s restricted funds for the Project, together with any other tangible and intangible assets held, and liabilities incurred by the FS in connection with the Project, shall be transferred to your organization at the end of the notice period, subject to the approval of any third parties that may be required.

      “Third parties,” in most cases are the donors. If that is what is cited in the agreement you signed, then the FS is so obligated. If not, such a practice may indeed be required anyway, or at least be the policy of the FS.

      Your status regarding the points I made above will either require legal counsel, or if needed, strong persuasion on your part.

      But, from what you were told, either it’s the law for the donors to be apprised of the desired transfer of funds to you, or it could be an entrenched policy of the FS.

      Reply
  5. If a group of individuals wish to purchase and distribute air conditioners to needy families do they require a tax exempt status? …There is absolutely no profit or business relationship created by the action…The sole purpose is to assist the needy at no charge…each individual in the group purchases an AC from a dealer and someone in the group installs them…if you issue a challenge to your friends on Facebook would that constitue soliciting? We are just a group of people trying to help needy people by giving them air conditioners…we do not wish to be viewed as anything but charitable citizens…no foundation or organizational attachment…just generous neighbors..

    Reply
    • Bruce,
      Great idea, and a good and thoughtful thing to do—with a number of caveats.

      Suggestions:
      (1) If the needy families are not now specifically identified, and your gesture is meant to benefit families later identified, you would be better off to find an existing non-profit willing and able to distribute and install the air conditioners.

      You would donate the cost of the ACs with your cash to the non-profit, and the non-profit would buy the air conditioners. That way, you get a tax-deduction for your donation to the non-profit.

      However, you could not order the non-profit to donate the air conditioners to needy people whom you know and identify. That is the up to the non-profit. Can this be done through a church?

      (2) However, I guess that you already know, and would want to know, the needy families yourselves so you can have that personal attachment—especially to able to install the air conditioners.

      Starting a non-profit for such an activity is a lengthy and costly process. As well, I doubt that the focus being so limited regarding air conditioners, would not result in the IRS granting non-profit status. As needing to be comfortable as some families might be, the cause, though noble, does not have a core value in sync with what non-profits generally do to better the lives of individuals. You can understand how cooling people can be a subjective and non-measurable endeavor. (And it would make their electric bill go higher.)

      You would simply be making outright gifts to those whom you identify as needy. There is no tax-deduction allowed of any kind.

      I expect that your group would try as hard as possible to get air conditioners donated by the dealer, or get a good discount. While such price breaks on the part of the dealer are not In-Kind charitable donations, the dealer still may declare some value to the IRS as “business expense.” (That is strictly up to the dealer.)

      I do not know if there are any rules on Facebook for the asking of money. As well, many states have regulations regarding such solicitations. You may want to explore such avenues as “Go Fund Me,” and other such programs.

      But, such public and open ways to get money are subject to all sorts of problems relative to accountability and responsibility. Again, there cannot be any tax-deduction allowed for such gifts.

      Best of all good luck.

      Reply
  6. Hi Tony,
    This article is great! I do have one question about conflicts of interests and donations to non-legal entities that hopefully you can help me with. The 501c3 I am on the board of was originally a part of a University student organization. We decided that as a school club we could not have the impact that we wanted and decided to form our nonprofit. We however still want to be able to send money to the University in order to fund all of the club’s expenses that fulfill our mission. However, all of the board members on our 501c3 are the same people as the leaders of the club. I have it understood that if a 501c3 donates money to another 501c3 with the same board of directors, that would be a clear conflict of interest and loyalty. My question is, would it be a conflict of interest if we decided to donate money to the student group that we are all leaders of even though the student group is not a legal entity?

    Thank you so much!

    Reply
    • Michael,
      Thank you.

      Your question is only concerned with a possible conflict of interest/loyalty as you described, but reading your comments has me wanting to first make a few of my own observations in another direction.

      We start with the mission of your student 501 c 3 as you applied to the IRS, and what your reason for being is, as you filed that declaration in your Articles of Incorporation to the state in which you operation. Are you sticking to that declared Mission in every way?

      It appears you have a student organization/club still operating, but you wanted to form a 501 c 3, the latter being the entity to which I referred in my first paragraph.

      It may be OK, but to form a charitable organization, whether solely or partially, to pay for all of the club’s expenses, is questionable to me.

      Expenses can take many forms, frivolous and meaningful, and can be in significant dollars.

      Is what you are paying to the club relevant to the mission served by your charitable organization, compared to what the club does?

      In any event, I agree that from what you describe, it is not at all a good thing for the same individuals to be leading both entities.

      It makes for an almost sure thing that, at the least, there would be a conflict of loyalty.

      Even that rather minimum prohibition, as subjective as may seem, could result in management decisions not serving the best interests of one group or the other.

      If there is a valid and legal connection between your funding of the club, those respective leaders should not be making policy and moving donors’ money around if they are the same people.

      What does the attorney for the University say?

      Reply
  7. Hello,

    Would a church (501c3) be able to donate to a ministry that is not a 501 C? What are the implications of doing so?

    Reply
  8. My question is can any one individual benefit from donations with a church who has a 5013C? Because at the church I attend the pastor is benefiting from the donations for security service.

    Reply
    • Jacqulyn,
      No named individual can directly benefit from donations made to a non-profit organization.

      In this case though, if the Pastor is living in a Manse–a church owned and funded home, then yes, if the Pastor needs a home security system, that should be part of the expense budget.

      However, if the Pastor is living in his or her own home, not at all subsidized by the Church, then no, such an expense is not warranted and would violate the rules and regulations of the IRS.

      But, here too, if the home’s expenses, by contract agreement, are paid for the church, i.e., utilities,etc., then the home security system needed should be paid for by the church.

      Reply
    • Nataly,
      No problem.

      Most churches, by their very nature, have ministries they support.

      Just so the endeavor is truly justified in all ways–the integrity of the recipient entity, knowledge and approval of the donation by the donor-Church’s leadership and congregation.

      And by observing the other points I make in my article.

      Reply
  9. I am the founder of a 501(c)3 and also on the board of another 501(c)3. Both provide services to the same cause. My 501(c)3 is very small and generates only around $8,000-$10,000 per year. The other is new, but working to operate on a much larger scale. Am I able to donate some of the money we have raised to the other nonprofit to help them get things going? It would be serving the same cause, and it would be less than $2,000…but I want to make sure that is OK to do.

    Reply
    • Chris,
      To my way of thinking, being so intimately connected to two so like organizations, sets you up for possible conflict of loyalty. The perception alone could be obvious and damaging.

      Unless you are talking about differing service areas of operation, I see no good reason why two organizations are providing the same services.

      Perhaps you should consider a merger.

      Why give money given to your organization to help another grow and expand? Do you not owe such vision to your own constituents?

      In my opinion, it is not a good idea for you to have your joint involvement—especially when it come to the possible transfer from one organization to another of donated funds.

      No matter how honorable. I think it is wrong.

      Reply
      • Thanks! I get what you are saying. The one I founded focuses on therapy for children with disabilities and the other focuses on job training for young adults with disabilities. My foundation is run almost solely by myself and the intent is to stay small and help the families we are sponsoring and slowly filter in more. The other has a much larger vision and will support young adults on a larger scale. But, as you said, being involved with both is tricky. I will donate to the new one on a personal level and ensure funds raised by nonprofit stays within my nonprofit. Thank you for the advice!

  10. My kids are in youth football. Our team has 501c3 status and so does the league that we play in but they are separate. Can the league legally issue fines to our organization for infractions and then kick us out for not paying them? Also are there any requirements for such things? The scenario is this… There was a mandatory coaches meeting for all league coaches (about 200+ volunteers) many people had to leave early, probably about 30 people, maybe more left early. But someone took video of one coach from one team and they are using that as proof to issue a fine to just our team because they didnt record or attempt to record anyone else leaving… Are there are legal issues with us giving them league money as part of a fine?

    Reply
    • Darren,
      If your team was entered into the league with rules and regulations, then that is the first place to look for any mention of penalties for infractions.

      If there was nothing written to which you agreed, then the fines seem to me to be arbitrarily levied, thus they should have no standing.

      Its what you agreed to, if anything, written and signed, to which you must comply or take the consequences as stated. If none stated, then none can be binding.
      As I see it from here.

      Reply
  11. I have a question regarding in-kind gifts and what can be done with them if they are not something the clients which our organization serves can use. We have a volunteer who is wanting to take some of our donations to sell in his thrift stores, and then return a portion of the proceeds back to our organization as a donation. I am just wondering as to the ethical and legality of this sort of transaction? It seems as though we would be funneling charitable donations into a for-profit organization as well as possibly providing double tax documents (if we are providing the original donor a receipt for their in-kind donation, and then again to the volunteer for his donation). I am new-ish to development and just want to make sure that we as an organization do not do anything that would put us in a grey area either legally or ethically.

    Reply
    • Kellie,
      Whether some Gifts In Kind (GIK) you receive are of use to your clients or not, chances are they have some real Fair Market Value (FMV). And that seems to be what your volunteer has determined as salable for his thrift store.

      GIK donated to you which are of use to those whom you serve, should be used in that way according to the wishes and understanding of the donors.

      Those GIK which are not useful to your clients can be disposed of in several ways, but it is always best if you can politely say “thanks, but no thanks” to them so you are not obliged to give even the most basic receipt and be stuck with items you cannot use. It also helps of discourage other GIK of no use to you. (Still, there were times some GIK donated to my organization went into trash.)

      I suggest that you encourage the volunteer to buy the unusable GIK at a price attractive to him, considering how little they are worth to you. He can then sell the items at whatever price he wishes to set.

      That way, all things are clear to both parties, unlike how anyone can accurately monitor and account for what items of yours were actually sold, and just how much is, in fact, a “portion of the proceeds” which would come back to your organization.

      If he does not see it that way, then I believe you can go ahead and work to his procedure, recognizing that you may have no other way to get any value from those useless GIK.

      I see no problem with tax-deductions if taken by the original GIK donors when some of them gave things you honestly could not apply to the needs of your clients — GIK which were disposed of in the most practical way.

      Reply
  12. Our organization’s mission is to hold events generating sponsorship funds and contributions and then donating the funds to established 501c3. Our 501c3 application is pending but we have a planned event and want to begin soliciting donations. We want the donors and sponsors donations to be tax deductible.

    We would like to utilize our website and Paypal if possible because the flyers, website and posters have already been printed up. Can we collect the funds using our PayPal and the write one big check to the 501c3 the event is benefiting and provide the 501c3 with a list of the donors for their 990 purposes? Do we have any other options?

    Reply
    • Matt,
      Donations made to your events, as it now stands, are not tax-deductible.

      You are obligated to let prospects know that.

      The situation worsens should the receiving organization itself declare your money transfers as tax-deductible.

      You can solicit and accept pledges, payments to be made when you are “official,” but any money given in the pending period and received, has the very real risk of not being eligible for tax-deductions.

      Reply
  13. I work for a large non-profit who runs a fundraising gala every year. There is a benefit and fair market value attached to the tickets of this gala.

    We frequently get individuals who want to “purchase” a table at the gala and pay for it through their family foundation.

    Does this entire scenario violate the rule about individuals not directly benefiting from a foundation’s donation to an organization? Or are they ok if we make sure the letter acknowledges the fair market value of the benefits received? Or is there some other way of looking at it?

    Thanks for your help!

    Reply
    • Hillary,
      First off, just take the money and run with it.

      All you do is exactly what you have been doing: making it clear in the acknowledgment the FMV of the goods and services received, and the true charitable tax-deductible amount. Nothing more.

      The donation and the patron purchase reporting will be something the foundation will handle internally with its own accounting to reconcile with the IRS.

      Reply
  14. Hello I have a similar question. I am the founder and president of a 501c3 that I formed to save a vintage steamship, and while that effort ultimately failed, and the non profit is overall dormant at the moment, one of the other groups that I am involved in the US Naval Sea Cadet Corps, while on a national level is a non profit entity, individual units need to get that status on their own, so the unit that I am an officer in currently does not have non profit status. My question is as such, the unit is currently in the middle of an effort to acquire, preserve and return to service a WWII, US Naval vessel for use as its cadet training ship, and in the efforts to raise money has set up a holding corporation for the money raised and to own the vessel once it has been transferred, however we have found that without a 501c3 many organizations dont donate to the efforts or support it financially without it, and since the unit does not individually hold the status, and we cannot receive grants without a 501c3, can I contract with the unit using the non profit status of the steamship society to gain more support grants and other donations for the project as it does fall within the societies bylaws for educational purposes in the furtherance of maritime historic preservation in the Great Lakes Region? Would it be frowned upon to raise money for this group and effort to save this historic WWII Navy ship, and transfer it to the LLC holding corporation that does not currently hold a non profit status? It is an area I am not familiar with so cannot answer. Any advice or experience would be a great help. Thank you. -Steve

    Reply
    • Steve,
      Your 501 c 3 was formed for a specific purpose.

      That purpose was not met.

      Sadly, you could not carry out your mission.

      If you cannot raise money for the purpose to which you incorporated, then you cannot raise money for another entity—most especially one not having the tax-deduction benefits related to a 501 c 3 organization.

      I think it a great risk for all, and illegal, for you to use your tax-exempt status to funnel money to the holding company for use to support an organization where gifts made are not tax-deductible.

      As I see it, you can raise all of the money you can, but it must be made clear upfront that those giving money cannot declare tax-deductions.

      The holding company, to me, is but an escrow device, and a good thing—but the money going in should be simply straight-out gifts, not donations as treated by state and Federal contributions laws.

      Your intent is honest and inspired, but to the jaundiced eye of the IRS, the proposed idea, to my way of seeing it, is clearly illegal.

      Reply
  15. Can a 501c3 make a donation to another non profit which is recognized non profit on state level, but not recognized federally as a 501c3?

    Reply
    • Mandy,
      From what I know, and from would seem to be factual, is that there cannot be a 501 c 3 official designation without it coming directly from the IRS.

      To conduct charitable solicitation in states requires that an organization have proof of such accreditation.

      A state cannot solely and independently provide tax-exempt status. As we know, all claims for charitable tax-deductions must go through the federal IRS.

      I simply cannot see how it could be otherwise.

      Reply
  16. Can a school board authorize a donation of school funds to support a local charitable event in town?

    Reply
    • Karen,
      It can, with the points cited above met. Especially to be child education-related.

      And if the event is such in the usual sense, the funds must not be lost in undue expenses to produce the event, which in turn should be a fund-raiser for a non-profit.

      Reply
  17. Hello! Our public school PTA (501c3) wants to become PTO (will apply for 501c3 very soon) and wondering if PTA can give whatever is left in the bank to the PTO once it becomes 501c3? Our goal is to approach and raise money as one organization but be able to write a huge check once a year to the school foundation for hiring more staff.

    Reply
    • Rosa,
      It appears to me that you cannot simply “become” a PTO from a PTA. As it stands now, the PTA is no doubt a member of the state and national association, and if you are planning to dissolve the PTA, I expect you must certainly adhere to the policies and regulations to which the PTA originally agreed.

      The Association, and perhaps your state’s Attorney General, will have something to say about where, when and how you give away any of your local PTA’s assets.

      I am not an expert on such matters, but common sense points me to suggest that, since you routinely give your money to the school, you may be OK to do so now with the balance of your funds now held in the bank. Then, you may take the steps to dissolve the local PTA and move on to establish a PTO. Doing the latter with the IRS will take time and money, so you will need to know how you will provide parent-related services in the meantime.

      Your school or the district may have an attorney whom you could contact for help, but be sure that your PTA takes all of the required steps necessary regarding state and national restrictions, policies and agreements which were originally installed.

      Reply
  18. Can a 501c donate to another 501c if any of the directors and on the board of both organizations?

    Reply
    • Yvette,
      Yes, as I understand it–though with care and caveats.

      Being absolutely sure of no conflict of interest.

      A Director of the giving organization being a Director of the receiving organization, if the latter organization is paying for certain services or products the director provides. Just one such conflict.

      Far more hard to define, but equally important, is the dual-membership director’s possible conflict of loyalty. That is, if the money is given to the organization he favors far more and the intent is obvious.

      Tough to separate and identify conflicts, so the easiest way is to have those dual-serving trustees absent from the vote by the board to donate money to the other organization.

      Reply
  19. Hi,

    Thanks for the helpful advice you’ve offered here. One thing I’m trying to figure out is whether it is necessary, or otherwise should matter, to a nonprofit making a donation to another organization whether that donation is tax-deductible or not. In this case, I’m working with a small community organization in California that doesn’t have 501c3 status, but we have a fiscal sponsor who enables tax-deductible donations to us. The fiscal sponsor is often slow to process donations, and the money we need gets delayed, putting us in a tough spot sometimes.

    We hold an annual event where we raise money from other organizations that contribute to us as “sponsors”. Most of the sponsors that donate to us each year are other nonprofit organizations, some are incorporated as 501c3, others are not. We are thinking of having those orgs donate directly to us, bypassing the fiscal sponsor and their processing delay (as well as the admin fee), but want to be clear about whether this would run afoul of any regulations for us or them, or would otherwise be fiscally detrimental to the donating organizations.

    Any light you can shed on this would be very much appreciated. Please and thanks!

    Reply
    • Jade,
      You run the real risk of losing your Fiscal Sponsor with any form of bypassing that organization to secure funds. Read over again the contract you have with your FS and I expect there will be legal language there anyway which would prohibit your seeking of funds without them as the conduit.

      Without the FS as your authorized fund-raising source, no money otherwise given to you is tax-deductible.

      Any non-profit doing so can run the risk as well of feeling the heavy and disapproving hand of the IRS.

      Reply
      • Thanks, Tony. I have read the FS agreement, and it doesn’t say anything about this. I have scheduled a meeting a couple weeks from now with several staff from our FS to talk about this and many other questions I have for them. However, in the meantime, I’d still like to find out whether there are any regulations that would prohibit a transaction of this sort between a 501c3 org and one that is not.

    • Jade,
      Since yours is not an accredited 501 c 3 organization, thus doing your good work with funds raised by a Fiscal Sponsor, it is clear that “donations” made to your organization otherwise than from the FS, would not be tax-deductible.

      Other 501 c 3 organizations may give money, but only to other c 3 organizations. Since private donations to your organization are not tax-deductible, then another charity giving you funds would be in violation of the tax-exempt status under which such organizations must work.

      Why have a Fiscal Sponsor or work to obtain a 501 c 3 rating in the first place?

      A registered non-profit must not give away its donated funds to another which does not have that distinction. In your case, any such donation must go to and through your Fiscal Sponsor.

      Reply
      • Thanks again, Tony. This is helpful and makes sense to me. There are other issues at play in this situation related to how quickly our FS processes donations and transfers money to us, and the misaligned timeline our org has set for soliciting sponsor contributions (which make up a significant portion of our annual budget). I’m definitely trying to highlight and address the underlying issues and provide suggestions for thoughtful improvements, while dissuading the decision makers in the group from pursuing these types of workarounds rather than fixing the real problems.

  20. Two of my coworkers serve on a school foundation board and the school superintendent is pushing them to approve serving as a passthrough entity to enable local parents to make a tax deductible donation to the foundation, then have the foundation give that money to the school to pay for their kids’ summer camp. Sounds like tax evasion to me. Do you have anything I can give them to show the board as proof that this is not a legitimate method of handling summer camp tuition? Thanks!

    Reply
    • Kyle,
      Such a practice is absolutely illegal.

      See the IRS page from the following link:

      https://www.irs.gov/publications/p526/ar02.html#en_US_2015_publink1000229694

      There you will readily find the following very specific rule:

      “You can’t deduct contributions to specific individuals, including the following.”

      “… You can’t deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you don’t indicate that your contribution is for a specific person.”

      Reply
  21. We are a non-profit that began in 2014. We obtained non-profit status under the Road Runners Club of America and are required to have at least one race event a year to keep our non-profit status. We plan to dissolve this non-profit in 2016. The funds raised are for children that lost a parent and has been collected for medical and college expenses once the children are grown. Is it possible once we dissolve that we can transfer the funds to a college savings plan without tax consequences?

    Reply
    • Marcia,
      First, and for certain, you must check in with your state’s Attorney General’s office.

      I know that a number of states require that they give permission in advance of a dissolving non-profit disposing of any funds.

      The intent to transfer your donated funds to a college savings plan appears to be an idea which would attract close attention from the AG’s office and the IRS, considering how and if giving away those funds in that way comes close to your organization’s mission.

      Following is a good resource, with others you can find readily available with a search.

      — LegalZoom
      Steps for Dissolving a Nonprofit
      http://info.legalzoom.com/steps-dissolving-nonprofit-21064.html

      Reply
      • Thank you!

  22. Can a 501c3 use funds to go on a field trip? We are a garden club and we would be going to a garden.
    Thanks,

    Reply
    • Terry,
      Always, when I see or hear the word “Club,” as it relates to a 501 c IRS classification, I am led to think that perhaps, if truly a club with participating members, the classification should be something other than a c 3.

      A 501 c 3, as you know, is meant “for the public good,” as the IRS asserts. How the public is positioned and receives benefit relative to what may be a closed membership club of your type, is something I am just bringing up for clarification due to your brief note.

      You must answer your own question by asking if the field trip fits with your organization’s mission.

      If so, you then evaluate the field trip’s value to the participants, and if the cost is within reason. How the field trip will make a positive difference in the lives of the visitors to the garden, relative to your organization’s reason for being, is something only you can answer.

      Because you are asking here if such a field trip is OK, it may be safe to assume that the idea is new, thus itself making the event questionable if not in keeping with what you have been doing. (How many additional trips could come up? Are donated funds used to pay the transportation costs? Would those funds be used to pay additional expenses related to the trip?)

      The organization must not be organized or operated for the benefit of private interests, that is, if visiting a garden in this way does not meet with your organization’s established core values.

      If those going on the trip each paid (not a contribution) their share of the total expenses, then the idea may be OK as is.

      Reply
  23. We are set up as a 501C3 organization. We work very closely with a 501C4 that holds an annual fundraising event that benefits us (the 501C3). People can donate used furniture, clothing, appliances, etc. to the 501C4 and then the proceeds from those things being sold at an annual sale are then deposited into the 501C4 bank account and one big check is cut(after expenses are paid) and given to the 501C3. Can the individual that is donating a piece of furniture/clothing/jewelry etc. deduct their donation even though they are giving it to a 501C4 since the proceeds from the sale of their item is eventually benefitting a 501C3?

    Reply
    • Ashley,
      Contributions, cash or GIK, made to the 501 c 4 organization are not tax-deductible.

      No donations given to that organization can be claimed for tax-deduction when those funds/values are in turn given to your 501 c 4. The c 4 was the receiver of record.

      Reply
  24. Hi there! I am in charge of a joint fundraiser this year between a 501(c) 3 and and 501(c)6. All the money raised and donated is deposited into the checking account of the 501(c)3 and at the end of the event once expenses have been paid, the money raised is split down the middle and the 501(c)3 writes the 501(c)6 a check. I am wondering if this is common place and ok to do? I know that 501(c)6’s donations are not considered tax deductible, but I know the money that is being paid to the 501(c)3 is being deducted by businesses who attend the fundraiser. I just want to make sure we are keeping the integrity of the 501(c)3. Your thoughts?

    Reply
    • Hi Michelle,
      I will not bother with the usual caveats regarding IRS regulations relating to my role here as just an old non-profit fund-raising professional giving fund-raising advice. But, it seems to me that the planned transaction you describe could very well damage your own organization’s status as a non-profit charitable organization. You could even possibly lose your IRS classification.

      From the conditions I propose in my article, which must be in effect when one non-profit is donating to another, it is obvious that the two missions are far apart.

      Your 501 c 3 has a mission to do something for the public good. There is no personal gain for the “doers.”

      A 501 c 6 serves its members in a way that either promotes personal individual businesses/interests, or does so for the community of such activities—or both. There is a definite positive and personal gain here for the c 6, which is why contributions made directly to a 501 c 6 are not tax-deductible.

      So, why would a c 3 then “donate” to a c 6? The former becomes nothing more than a pass-through of donated money to the latter. And, that sounds very bad to me—even illegal. There are far too many things wrong with such a deal–in my opinion.

      Reply
      • The 501(c)6 uses the money from this fundraiser to provide grants to local schools’ culinary arts program and to give out scholarships to some youth entering the field of culinary arts, which is the realm of the organization. The 501(c)3 is not part of the culinary arts, but does many different things in the community. In your opinion, would it be better for the 501(c)3 to pay the grants to the schools and scholarships to the children the 501(c)6 would benefit, instead of writing a check to the 501(c)6 directly?

    • Michelle,
      It is tough for me to see all of the aspects of the deal from this literal and figurative distance.

      But, as I learn much more from your latest post, I would wonder why the c 6 is not a c 3.

      That would be if the grants and scholarships were free and clear from any return commitment to individual members of the c 6. If simply, and only, for the good of the schools and students, how are the members of the c 6 directly to benefit?

      If they provide their support for the good of the industry without any personal or business gain, that makes me think even more that the organization would be a c 3, thus allowing tax-deductions for contributions.

      With another observation, I wonder if the mission of the c 3 is being made less focused, as you say the organization “does many different things.” How this stacks up with the original mission statement and the articles of incorporation, perhaps is something worth looking into. There may be real and serious mission drift here.

      From your last question, to my way of reading it, take care that the c 3 is not altering or muddying its mission to suit or accommodate an initiative of the c 6. Especially, if culinary arts are far removed from the reason in the first place that the c 3 was incorporated.

      I am sorry Michelle, but this situation needs more than what this humble old fund-raising professional can provide.

      Reply
      • Tony – Thank you so much for all your help. I do see I’ve misspoken and this is actually our first year as a 501(c)3, out status was recently changed, so before this year’s event, I will make certain that we are doing everything the correct way and ensuring the integrity our our status. You have opened up discussion in our group and have allowed us to fully understand what rules we must now deal with since our status has changed. I appreciate your time and help.

    • Michelle,
      I only wish I could be in the same meeting room for those discussions. It would settle the many nuances of such transactions as you describe.

      I am pleased, though, that our coarse tuning has led to better refinement to your goal of sharper focus for your own organization’s mission, and for its reaching out to another non-profit.

      To help in that endeavor, please consider using my Mission Statement guide article.

      — 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/

      Reply
  25. We are a Garden Club with a 501c3 status. Two questions…. We have plants sales, raffles, Ways and Means table. What are the rules in the state of CA on raffles and question number two……may we use funds we have for a field trip to a garden with our members. We want to hire a bus. Thanks

    Reply
    • Terry,
      Laws regarding raffles do differ from state to state. You should contact the office of the Attorney General of California.

      It almost sounds as if your organization is, or should be, a 501 c 4 member organization.

      The c 3 classification is given by the IRS when something is done for a given community/constituency, as they say it, “for the public good.” Providing a bus ride for members does not sound right to me.

      Thus, to my way of non-IRS-expert thinking, using donated funds to pay for a bus to transport members may be counter to the regulations.

      Better, in my estimation, to have the members who are taking the bus ride, chip in their share and pay for the bus expense in that way.

      As I see it, and I may be wrong, the members should not benefit in that way, which is a way apparently not directly related to the mission. They are benefiting personally, and any such personal gain should be avoided.

      Reply
  26. We would like to start a non-profit, specifically for the purpose of supplying rural, poorly funded public schools in our state with sensory and therapeutic toys/supplies for special needs children to use while at school. And maybe also have a therapy toy lending library for parents to access through the school. Can a non-profits sole purpose be to donate to another non-profit? And if not, could we start a non-profit therapeutic toy lending program for the community as the sole purpose, but then donate to the schools as well?

    Reply
    • Jennifer,
      Founders such as you, having vision and dedication, most often bring new and important services to their communities. Your entrepreneurial spirit is to be commended, but starting a non-profit is time consuming and it can be expensive. Therefore, there are key elements in such organization which must be addressed early on.

      Prior to the start-up of any non-profit organization, the reason for its being must be clear and defensible. What you propose to do must have a positive outcome in terms of making a real and positive difference in lives. It’s not nearly enough to simply state the action to be taken. It’s not the means, but the ends, that counts. Adapt from my article:

      — 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/

      There must be a stated need to be filled. And there must be boundaries. What constitutes “rural,” and where is the boundary between schools “poorly funded,” and those better funded? How many schools then, would be included in your program?

      In your situation especially, it would all start with what the public school administrators think of the idea, be they the state Superintendent and the local officials.

      You must determine if there are similar programs in place. Or, if already established educational non-profits could institute the program you are looking to install.

      Making the appropriate contacts to decision-makers, selling them on the idea, getting their full support, and developing an operational plan, are the steps I believe you will agree are essential before you begin any official IRS organizational activity.

      Reply
  27. Hi Tony,

    My nonprofit organization has been approached by a private donor who has asked us to pass through funds that he wants to donate to one of our partner public schools. I’ve been told that he wants to use the nonprofit because he wants the tax deduction. Won’t he get that from donating to a school? Is it legal for us to serve in this role, and by accepting the responsibility of passing through these funds, would we be officially serving as a “fiscal sponsor?” Thank you!

    Reply
    • Nichole,
      If the school chosen by the donor has its own 501 c 3 certification, then you are correct that he should make his donation directly there.

      If that school does not have such an IRS certification, then any funding passing through your organization cannot be allowed as a “donation.”

      What special interest does the gentleman have with the school of his choice? Is there any direct benefit to him, or to family or friends, when such money would go to the school? Would he be calling the shots on the application of the funds?

      You should not accept money which you are obliged to give it away according to the dictates of the donor.

      I think that your organization, as an accredited non-profit, is not in the same position as you would be as a Fiscal Sponsor raising money for a cause which does not have tax-deduction privileges. It would be a real stretch to have the donor be the latter, and you the FS, with his money.

      Legal or illegal, to me is rather fuzzy here, but I do go back to what would be my prohibition—that I could not accept a donation to give a tax-deduction for someone directing the money to go a lesser classified organization—even if that entity was a partner to my organization.

      Reply
  28. An historic mill recently burned down and the owner is asking for help in rebuilding. Even if our nonprofit’s mission is related to the mill’s operation and success (keeping a water right active), we cannot give a monetary contribution to the mill’s owner to help with rebuilding, correct? (The mill is a commercial venture.)

    Reply
    • Donna,
      It’s possible.
      But, you definitely need the counsel of an attorney skilled in non-profit law, knowing the regulations as such from the IRS and your state’s Attorney General.

      From what I have come to know, a non-profit charitable organization can contract with a for-profit when doing so fits the non-profit’s mission and the selection of the for-profit being given the money can in no way result in gain or profit for anyone connected with the non-profit charity.

      If the water right active issue is the core value of your organization—its mission—then, it would appear that without the mill, you would not be able to conduct your business. In the eyes of the law, this could allow you give money for the rebuilding.

      Such arrangements are common enough when valuable medical research is done by for-profit organizations for non-profits. Again, the key point —- the money given to the for-profit, as given to the non-profit foundation by its own donors, must be given in a manner they endorse and understand as they were compelled to give according to the non-profit’s Mission Statement.

      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, strict and precise accounting for each penny is not an exaggerated requirement.

      Reply
  29. A teacher friend and I worked together doing nine years of fundraising for two separate students organizations both 501c’s. One for miscellaneous field trips and educational supplies, the other for a specific history trip. One account has $10000 & the other $6000. The school board, principal, and superintendent now are planning to use both accounts for whatever they deem “student necessary” and “principals fund”. They have told my teacher friend if she wants to continue field trips, she will have to fund raise for them. We both have approached the board & explained we’ve been fundraising for nine years! Is this legal?

    Reply
    • Debby,
      It appears to me that you are being confronted by a crass and unappreciative bunch of school administrators. But, there could be far more serious issues at work here.

      1. it is possible they could be jeopardizing the non-profit status of the organizations, depending on the original bylaws and Articles of Incorporation.

      If the missions were clearly stated and registered with the IRS and your state’s Attorney General for the purposes you stated, then taking those raised funds and using them in other, dramatically different ways, (“student necessary,” and “principal’s fund”), could be illegal.

      2. There could be a real problem too with the original donors who would expect their donations to be used in the manner and for the purposes they were solicited in the first place. There may be some very prominent parents who donated to the programs they expect will be produced. They should know from you about what is happening, in that there is going to be an apparent misuse of the money they gave.

      3. Though you stated that you and a teacher friend were the fund-raisers, it depends upon whom you relied upon as the board members required in the formation of any non-profit. If they are the board, principal and superintendent, then they must be reminded that they cannot legally use the donated funds in any manner other than what is dictated by the original mission.

      4. The school system’s attorney should be in on this, and important that he or she be well versed in non-profit law.

      After all you have done for the schools over nine years, how those folks can then expect you to forego the money you raised for those specific purposes, and use the funds in other ways, then to expect you to still go to the community for separate field trip money, is all well beyond any common sense and sense of what just and right.

      Reply
    • Tony I saw Franks question and I have a question along the same line. I belong to 501c4 and we also have a 501c3 which was created so we could accept donations and the person donating could take a tax deduction. We have a repair/restoration project that is going to run around 50,000.00. Can the 501c3 accept donations and them make payments towards the restoration project? Thanks, Jeff Smith

      Reply
      • Jeff,
        Applying what I suggested to Frank—as prompted by the IRS website’s declarations—I cannot see how a 501 c 3 could be created as what is essentially a pass-through entity, having its donors claim tax-deductions, then to have those funds go to a 504 c 4, where its direct donors cannot make such claims for tax relief. The latter entity was created that way for a good reason.

        From what I read, 501 c 4 organizations are comprised of members who collectively seek benefits which accrue to themselves, thus being a one-eighty from 501 c 3 organizations which are for the “public good,” as the IRS dictates.

        To my non-expert way of seeing this issue, a 501 c 3 cannot have a meaningful “mission” which only or mainly raises tax-deductible money as a conduit for the benefit of another classification of non-profit which does not enjoy that distinction.

        This is certainly a case for a lawyer skilled in non-profit law.

        I expect all motives are good, but the arrangement seems to me to be illegal, or quite close to being so.

      • Tony thanks for the comments. It seems like this a gray area. Our group is an Antique Tractor & Engine Club, we have been around since 1979. Some years ago we created the c3 because we were told it would be difficult and expensive to change the existing c4 to a c3. We wanted to be able to accept donations that would be tax deductable for the donor. The c3 has one member, the c4 membership.Doesn’t seem pratical to me to have both and pay expenses for both. Is there a good reason to have both? Should be be thinking about consolidating both into the c3?It looks like this going to be difficult for us to raise money for the Boiler on our 1915 65HP Case Steam Traction Engine if the persons donating larger sums of money can’t take a tax deduction. Thanks for the help.

      • Jeff,
        It all depends upon the statement of purpose for setting up the 501 c 3 in the first place. It’s core values. It’s reason for being.

        According to the IRS such tax-exempt organizations must provide a needed and wanted service in the community served.It must make a positive difference in lives, for animals, or the environment.

        While the refurbishment of the engine is exemplary, it seems to me that it does not fulfill a demonstrated need to serve identified constituents.

        Thus, the mission of the original 501 c 3 may be at great odds to that of the 501 c 4, hence it seems to me no way for shifting donations from the former to the latter to have donors receive tax-deductions.

        Here are some very worthy resources, beginning with the first listed.

        — Can a 501 c 3 donate to a 501 c 4?
        http://info.legalzoom.com/can-501c3-donate-501c4-22494.html

        — Differences between 501 c 3 and 501 c 4 organizations
        http://www.nj.com/helpinghands/nonprofitknowhow/index.ssf/2008/07/the_difference_between_501c3_a.html

        — IRS Life Cycle of non-profits

        — And what I think is a good primer on what a true mission statement is for a 501 c 3

        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/

      • Tony, once again, thank you for the info. I will see if I can read and understand the written word.
        Our club mission as I recall is Preservation & Education. We put on two shows a year. At the shows we demonstrate The Hit & Miss engines shelling & grinding corn, water pumping. Tractors plowing, disking,planting & Threshing plus other chores that were needed on farms after tractors started replacing horses

      • Tony if you have chance look at our website,www.aedgeta.org

  30. If a ‘program’ under non-profit A were to leave and go to non-profit B (both 501 c 3) can they legally/reasonably ask for the donations that were earmarked for their program be given them?

    Reply
    • JP,
      It seems to me that it would be up to the donors to agree to the transfer of what they gave, if such donations were expressly directed/designated to NP-A’s program.

      Being so “earmarked,” strongly suggests that to do otherwise) giving the funds to NP-B) would not be proper.

      I think that great care and tact are necessary here before the program is handed off to NP-B, so you can properly determine if or how those designated funds can go along with the program as well.

      Should donors to NP-A’s original program not agree to the transfer of their contributions to NP-B, then you may need to return their donations if requested.

      Reply
  31. Does anyone know if one local PTA at a public school can donate to another?

    Reply
    • As long as your PTA meets the criteria as described in the article.

      We would expect that both PTAs would be fairly close in missions.

      But, other of your parents must approve. Maybe this one criterion is even more difficult to meet, due to the unique nature of such an exchange.

      You must make certain that your own parents will not be distressed that the money they give in the first place to benefit their kids, will be given to another PTA to serve others’ kids.

      Reply
  32. Ok, I have a tough question…. how about a 501c3 has part of it’s mission to support the charitable purposes of a 501c4, can a donation to the 501c3 be granted to the 501c4? What if the 501c4 holds a trademark that licenses to the 501c3 to use, can the 501c3 grant funds to the 501c4 to protect it’s licensed trademark?

    Reply
    • Frank,
      See the quote I lifted from the IRS website. There are qualifying words enough such as generally, etc., that would have your question best answered by the IRS of a non-profit-skilled attorney.

      It is interesting to me that your mission included the serving of another non-profit whose contributions received are not tax-deductible.

      Troublesome too, maybe your 501 c 3, a charity “for the public good,” as described by the IRS, is involved in any way with trademarks and licenses

      (Begin)
      Donations to Section 501(c)(4) Organizations

      Contribu­tions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer’s business. How­ever, see Nondeductible Lobbying and Political Expenditures for more information. Also, the organization may be required to disclose that contributions are not deductible when it solicits contributions.

      Donations to volunteer fire companies are deductible as charitable contributions on the donor’s federal income tax return, but only if made for exclusively public purposes. Similarly, contributions to certain war veterans organizations are deductible. If the contributions are deductible as charitable contributions, substantiation and disclosure requirements may apply.
      (End)

      Reply
  33. We are a chapter of an international non-profit organization (music related) which will soon be dissolved (that is the ‘chapter’ only). Before we turn over the balance of our treasury to the internationl organization can we make a donation to another non-profit origanization (health related) and is there a limit or not? I would appreciate your expert advice. Many thanks

    Reply
    • Phyllis,
      Thanks for “expert” reference, but as you read over the many comments on this topic, Dave and I can only use what we do know, and apply some common sense at times, but all the while being aware that the IRS does have the exacting rulings, and the last words.

      This would be especially true, I am thinking, in what are most often complicated arrangements with national or international “parent” non-profit charitable/NGO organizations and their respective chapters, affiliates or other named branches.

      Whether your chapter is a separate “corporation,” or is under total control of the parent entity, makes the use of your assets determined by the state in which you operate according to its dissolution rules, or if the funds are under the control of the parent.

      It would seem to me that things will be even more complicated regarding the international connection you have in regards to any funds going, if they are, overseas. Such transfers of US funds to foreign destinations are scrutinized very closely by the IRS.

      All questions regarding the disposal of any of your assets, it would seem to me, must be first communicated to the parent entity to be referenced to its Articles of Incorporation and other financial policies.

      Even if you “own” the funds, to my way of thinking, you must be sure to follow the extensive and comprehensive dissolution steps by your chapter to be sure you are in line with the regulations of your state. You may find that one of the steps allowed is the donation of funds to an existing, like, organization—but maybe you best take care to do so according the state’s process and timetable.

      Reply
  34. 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.

    Reply
    • 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.

      Reply
      • 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.

      Reply
  35. 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?

    Reply
    • 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
      http://www.raise-funds.com/2008/in-kind-gifts-how-to-acknowledge-and-recognize-them/

      Reply
  36. 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?

    Reply
    • 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.

      Reply
      • Hi,
        I would like you to expand on this comment a little please. What about an educational 501 (c) 3 non profit that is acting as a fiscal sponsor to raise money for scholarships for a non-profit school that does not have its 501 (c) 3 status yet. They are raising funds for general scholarships so that underserved children can apply and matriculate in the school. They are not assigning funds to any specific individuals, but handing the money over for the school to manage. They want to charge a 7% transaction fee for the money raised. Can you let me know your thought on this?
        Also, the school is currently applying for 501 (c) 3 status. Will that effect their application or is it something they should note in their application (that they received funds in this way).
        The son of the donor organization goes to the school and receives tuition deduction, but not from the donated funds.
        Thanks

      • Ally,
        First, to be sure the partnership between the Fiscal Sponsor (FS) and the school is set according to the IRS guidelines:

        (1) The money must be used for specific projects in conjunction with the fiscal sponsor’s own exempt purposes, i. e., the missions must be the same.
        (That appears to be the case with both the FS and school operating as educational organizations.)

        (2) The fiscal sponsor must retain control and discretion as to the use of the funds provided to the group or organization under the fiscal sponsor’s “umbrella.”
        (That does not appear to be true if the FS is simply “handing over the money” to the receiving organization-school.)

        (3) The fiscal sponsor is obliged, according to law, that the money provided to the sponsored group or organization were, in fact, used for the stated 501(c)(3) purpose.
        (So, just by “handing the money over: to the school, could allow for inadvertent mis-use of the money, or worse, known mis-application of the donated funds.)

        To keep those rules in effect and working, an agreement in writing is necessary to be sure that the expectations and duties of both parties are clearly understood.

        The 7% transaction fee appears to me to be in keeping with such agreements, considering the FS is raising the money and using its non-profit status to process the funds, making reports to the IRS, etc.

        Since the FS is expected to do more than just hand over the money, how that Fiscal Sponsor will expect to influence or to otherwise manage in some way what the school wishes to do, is perhaps the most important condition both parties will address. In other words, is the project the school wishes to operate in the way it wants it to run as equally agreed upon by the FS?

        From what I understand, there are times when sponsored organizations just want their money, and they do not clearly understand that the Fiscal Sponsor must ensure that the money raised for the purpose as stated to donors, is exactly how the money is spent. Sponsored organizations simply do not take the money and run with it. And the IRS looks into these arrangements.

        As well, the school will want to consider early in the arrangement when and if the school might decide to establish its own non-profit status and work accordingly with the FS for such a possible disengagement and transition.

  37. 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.

    Reply
    • 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.

      Reply
  38. 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.

    Reply
    • 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.

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

    Reply
    • 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.

      Reply
  40. 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.

    Reply
    • 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
      http://www.raise-funds.com/2007/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.

      Reply
  41. 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

    Reply
    • 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.

      Reply
  42. 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.

    Reply
    • 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.

      Reply
      • Detailed, informative, appropriately caveated. Thank you.

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

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

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

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

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

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

      Reply
      • 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.

      • Hello, Tony–We have a follow-up question to our earlier conversation. The latest financials show that the college obtained a loan of $900,000 from un-identified individuals during the past fiscal year, at an interest rate of 0.5%. It doesn’t seem the lender would profit from a rate this low, but it still seems questionable as the college already has more than $162 million in longterm debt, and the president has said he and the trustees agreed not to take on any more debt. (We don’t know if the trustees approved this new loan) Are there any rules on 501c(3)s borrowing from individuals? Also if taken alongside the matter we discussed earlier of donations to another 501c(3), do you think this should be reported to the IRS? thank you.

      • Ariane,
        Apparently it is OK for a non-profit to accept a loan from an individual.
        http://www.blueavocado.org/content/loans-nonprofit-board-members

        And that rate of interest looks quite acceptable, to say the least.

        But, the much bigger issue is, from reading the article cited above, is whether the board was in on the transaction all the way.

        If so, then from the financial plight you described, the school’s operation has long crossed the border to gross mismanagement.

        If the board was not in on the deal, they should know they could be liable in the event of default–and they should probably consider dismissing the persons responsible.

        This entire calamity to well out of my are of resolve. Someone of key importance and close to the organization must take the lead and make things right.

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

    Reply

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