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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22 responses to “Can One Non-Profit Donate Money To Another?”

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  1. David says:

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

    • David Patterson says:

      David,

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

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

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

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

  2. Hector Brual says:

    a few quesitons–

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

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

    Thanks

    • Tony Poderis says:

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

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

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

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

  3. McKenzy says:

    Hi Tony,

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

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

    • Tony Poderis says:

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

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

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

  4. Michael says:

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

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

    • Tony Poderis says:

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

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

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

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

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

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

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

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

  5. Hector Brual says:

    Hi

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

    Quick question–

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

    Hector

    • Tony Poderis says:

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

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

  6. Anita says:

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

    • Tony Poderis says:

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

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

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

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

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

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

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

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

      • Anita says:

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

    • Tony Poderis says:

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

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

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

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

      Best of all good luck.

  7. Ryan says:

    Tony,

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

    • Tony Poderis says:

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

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

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

  8. Jesse says:

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

    • Tony Poderis says:

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

       

       

  9. David says:

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

    • Tony Poderis says:

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

  10. Tony Poderis says:

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

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

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

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

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

  11. David says:

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