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:
- 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
- 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.
- 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.
- 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!”
If a non-profit is moving or an office is closing but not the organization as a whole, can the furniture be sold or given away? My husbands company is closing an office and as a nonprofit, he’s being told they have to send all the desks and furniture to the dump, including a commercial freezer. Everything is in excellent condition.
We are an environmental focused 501c3 group. We are interested in supporting a few other groups in our area with similar goals but they are not incorporated, just hard working environmental activists in near by local community groups. Can we donate to them?
Can a 501(c)3 org make donations to a 501(c)7 org?
I am a director of a 501(C) 3 and dealing exactly with this issue. My personally opinion is that
IRS will look at this as laundering money through a Tax deducible organization c3 to a c7 which is a non tax deducible entity . A social club is not a charity. Just my thoughts
Can my organization raise money for another charity, and take out 10% for overhead before donating the funds?
MH, have you found out an answer to this question yet? Please let me know, as I am wondering the same thing! My organization would like to give grants to another charity, but we need to take 10-20% to cover our own operating costs.
I would think that this would need to be stated in the fund easing so that you aren’t ‘misusing’ the finds. You see the phase ‘100% of profits’ bc they are donating the after cost profits. So look for the proper verbiage to inform donors where the money is going.
Can a 501 c3 org based in california give funds to an organization in Outside of California and or outside The USA
Yes of course you can. You can also have contract with another organization to get monthly donations. Called recurring donation.
Can a 501c3 exist solely to raise money to donate to various more established charities
Is there any issue with a fraternal benefit society 501c8 donating to a 501c3?
This is a question best answered by an attorney and in the light of the FBS bylaws.
Can a 501c3 exist solely to raise money to donate to more well established non profits with the same mission?
There are all sorts of specifics that would need to be explored to give a detailed and accurate answer to this question. You should consult an attorney specializing in nonprofit law to be sure and safe.
If a person win a lottery money and donate some of the money to another person who pay the tax and delivery for the money
My US based non-profit wants to send computers to a orphanage in India. Can we do it with out customs duties and other issues in shipping?
These are questions that need to be addressed to the proper authorities or an attorney.
Can a 501c3 give money to a mission project that does not have a 501c3?
I am not an attorney and cannot give legal advice. That said, my understanding is that a nonprofit can make grants that are in accordance with its bylaws and federal statues to organizations and individuals. There is always the question of responsibility to donors. Donations accepted for specific purposes should not be used for other than those purposes.
We just had a donor donate his home to our nonprofit but he stipulated that 2 other nonprofits will share in the proceeds. How should the house donation be posted in accounting since our organization was deeded the house? Do we book a non-cash real estate donation under donor’s name then reduce our donations when we send the other nonprofits their share of the proceeds? If we book the full appraised value at time of the Quit Claim Deed, are we not overstating our assets for the year since we will send proceeds to other nonprofits by expensing this pass-thru donation?
From the info you give a number of questions come to mind, and they are both legal and accounting. I suggest that you start by contacting the organization’s CPA. First and foremost is how the transfer of title or the value of the asset is to take place. The executor of the deceased’s estate should be able to help also. If your organization will incur expense in execution of the stipulation then that needs to be considered. Of course the who deal needs to be considered in legal terms. Encumbrances on the title etc. I’d want to talk with the executor of the estate and my own CPA and attorney.
can a christian non profit legally give money to a church for the intended purposes to pay a consultant for advising church growth and future development and to have it to be a tax right off for them.
please i need to know if a non- profit charity can give the grants which the apply to employ staffs to give to another non-profit charity
I am not an attorney and will not attempt to give you any legal advice. To begin with I think the question that first needs to be answered is whether the nonprofit is making a grant to the church or asking the church to administer funds and/or a consulting contract for the nonprofit. Then there is the question of what the nonprofit’s bylaws specify about distribution of funds. All in all, this could turn out to be a complex issue that should be discussed with an attorney proficient in nonprofit law.
Can a president of a 501c3 give a donation to a high school athletic team for uniforms for the sole purpose of his son making the team?
This sounds like an issue you should take up with an attorney.
NO! that would be unethical as well as illegals. It is a tit-for-tat situation where as the only reason the donation exists is for the benefit of another IE: the president benefits in the transaction. If the president of the non-profit even remotely considers a scenario such as this , that president needs to resign or voted out immediately.
Is it necessary to include tax language on the donation acknowledgment when one nonprofit is gifting to another?
We are a community foundation and hold funds for over 300 nonprofits in the community and their is some discussion about whether nonprofits need that language on the acknowledgment or if we look ignorant and incompetent when we include it.
Glad of any insight you could offer.
In California it is common that a government sounding non profit obtain a grant under the guise of helping a Special district with a project. The project is one that the benefits the non profit as they have folks who do the work, do not bid and the money comes directly to the non profit. They do not pay any tax on the income, even though there are private firms who do the work of grant writing and project management. The non profit also does not put the work out to bid, even though they are millions of dollars. All I can find is that a non profit must not compete unfairly with private enterprise and that income that is also done by private enterprise is taxable. Is there a special law that allows a non profit to obtain a contract, manage the money directly and allow them to hand select the work and not follow bidding rules.
You need to consult with an attorney familiar with California and US law governing nonprofit organizations to get an answer to your question.
If one non-profit organization offers to construct a building for another non-profit with the caveat that the president and the vice president of the board must step down and the first organization remain anonymous? It might also be noted that there is a member of both boards orchestrating this activity.
If a non profit sells a building that it owned, can the proceeds from the sale be divided between the members of the non profit.
Some friends of mine are board members of a 501 c 3. They have been wanting to dissolve it but they hold a piece of property as one of the remaining assets.
To sell it, does it HAVE to be sold at fair market value, or can an offer be made?
There are multiple questions here. First, who holds title to the building? If it is the organization that holds title then its bylaws should contain instructions on liquidation of assets. If a board member(s) holds the title, there is a question about the legal relationship with the nonprofit as a renter and its rights. You really need to address this with an attorney, and bring all the organizat3ion’s relevant legal documents.
This can be the answer we have been looking for to raise funds in order to keep our Air Clean and Good Oxygen Supply for All Humans and Animals to be able to keep on Breathing
I work with a Non-profit organization. We funded a scholarship with a Foundation. We have not been happy with the service and performance of the funds in the scholarship. They are also taking 10% off the top of any donation for admin fees. We are wanting to start our own 501c3, but we are not sure if we can move the scholarship funds away from the current Foundation or not? We have had trouble getting a clear answer on this. Thanks ahead of time for any help!
You need to seek advice from an attorney to get an answer to your questions. Raise-Funds.com cannot offer legal advice.
I need suggestion. Can nonprofit organization can donate a artist about 6000 usd in India . Do 5013c org need receipt or invoice from artist.
I serve on the board of a 501(c)(6) tech council and we subsequently set up a related 501(c)(3), although they each abide by their respective restrictions. Can the 501(c)(3) donate money to the 501(c)(6)?
Is it ok for our 501c3 to make a donation to another 501c3 in exchange for their group to bring volunteers to our event? The other non-profit that we would donate to for volunteers is a group that we would normally donate to since they align with our mission. We’re in California.
Has anyone answered this question? I have the same one. We are a 501c3 for drowning prevention and the local high school crew team has volunteered and since their safety habits align with our goals we wanted to donate to them for assisting with a fundraising event this year. We are in Virginia
I’m afraid this question isn’t clearly enough stated for me to venture a possible answer. In general it is okay for one 501c3 to make a donation to another, but check with your bylaws.
Same question but donations by a 501(c)(3) public charity to a 501(c)(10) national undergraduate honor society (not a Greek-letter fraternity) with local units (i.e., “lodges”) at US colleges and universities. Neither the national parent nor any of the campus-based units receive government funds and most do not receive university funds. Purposes and vision of the 501(c)(10) and 501(c)(3) are similar.
Kevin, this is a legal question and should be taken to an attorney.
OUR NON PROFIT 501C-3 WANTS TO GIVE MONEY RAISED TO ANOTHER NON PROFIT ORGANIZATION … QUESTION – IS IT OK TO DO SO – WHEN A ACTIVE BOARD MEMBER FROM THE 501C-3 IS EMPLOYED BY THE NON PROFIT ORGANIZATION WE PLANNING TO DONATE MONEY TO .
I am on the board of the Baraga County Chamber of Commerce (501(c)6). We want to encourage a “young generations” group to assist us in a fundraising event and we propose to share the net revenue 50/50. I am concerned since this young group is not an approved exempt organization. Is this an issue?
An Organisation (society) has invested money in a foundation. The interest from this fund has to be given to an organisation with a charitable tax number. How can that organization that invested in the foundation receive that money back from the society with the tax number.
I’m not sure I understand the nature of your question. It sounds like the donating nonprofit wants to rescind a grant made to another. Check the grant award documents for language dealing with this specific question. I would also advise consulting an attorney.
I understand that a C3 can donate to another C3 with no problems. My questions is, “Can a C4 non-profit that disolves, contribute its cash and equipment to a C3 organization with no problems?”
Usually there is something in the bylaws of a nonprofit that covers what happens to assets upon dissolution. I suggest you check with an attorney.
Our community children are collaborating with our Govt. officials to raise funds to build community park for special need children along with the existing park. Since our town is not a non-profit organization, we are looking for another organization who can collect all the funds we raise and donate it to Town Govt. to build the playground. Do you any organization who can support us without charging administration fee?
Everything would depend on what country you are in. If you are in US, I suggest contacting your local community foundation for assistance.
I’m on the board of a 501c3 and my brother is in prostaff. His daughters baseball team asked if we would like to sponsor the team by spending 250 and in return get our name on a banner with our logo. Is this against the law. I was informed by one of the president of the organization that was totally against it that it was. Can anyone help me with this
What does, “…in prostaff.” mean? Also, I find the phrase, “…by one of the president of the organization…” confusing. Does the organization have multiple presidents? If you are seeking legal advice you should consult an attorney.
As far as I know that would go under advertisment. Wich is an expence. And no taxes on such expence.
Can a 501(3) donate to a 501(c)7 using money that was given to the (c)3 by individuals strictly for this use?
Your question would need a good deal of clarification. The IRS rules about income sources for a 501c7 are complex. If a 501c7 gets too much of its income from a source other than members dues it can place its tax status in jeopardy. A 501c7 can have a separate 501c3 for support purposes, but it must be independent–separate boards, etc. You really need to raise this question with a CPA and/or lawyer with knowledge of the IRS rules.
Our 501 c (3) operates an affordable housing complex. Another nonprofit in town is trying to raise funds for their activities. They offered to volunteer their time to do some needed painting and yard work around the complex in return for a donation. We’d love to help them out, while also getting some work done around the property. Can we donate in return for their volunteering?
I don’t know what you mean by “Can we donate in return for their volunteering?” If you are asking whether your organization can make a grant to the organization donating the painting to your organization, the answer would depend on your bylaws and the conditions under which you solicited the funds you would be using to make that grant. An alternative would be to just pay the organization for services rendered.
I am looking to form a Nonprofit whose sole purpose relates to an Entity that is owned and operated by a significantly large Church. The Entity is registered as a Historic Place and has a Conservation Easement that restricts the use and development of its land forever. Part of the activities of the Nonprofit would be for the preservation of the Entity. The exempt purpose of the Church is, of course, religious, not preservation, with the Entity being unrelated business.
I’m looking for a way in which the Nonprofit can solicit funds/services/goods for the preservation of the Entity, either directly or on behalf of the Church, while ensuring that the solicited is applied to that preservation and hopefully provides the least amount of work by the Church in terms of recordkeeping, management, etc.
I’ve been going round and round in circles with topics such as Fiscal Agents and Fiscal Sponsors and the if’s, and’s, but’s and whatnot’s of “exempt purpose” and when and how the solicited can or cannot be restricted for this preservation.
Can you offer any advice on how this can be accomplished?
Unfortunately Tony passed away last year. I will try to give you somewhat of an answer, however I am not an attorney. I suggest you consult one with expertise in the law and formation of nonprofits. The easiest way to accomplish what you wish might be to set up a nonprofit foundation for the soul purpose of supporting the project you outline. Such an entity is called a supporting organization.
In my article Supporting Organizations May Be the Answer If and Only If… There is a section about the 509(a)3 rule of the tax code that explains the purpose and setup of a supporting organization.
Similar question: Can a 501 (c) (3) “loan” money to another 501 (c) (3)?
If a non profit sells a building that it owned, can the proceeds from the sale be divided between the members of the non profit.
Basically no. But see an attorney. I am not a lawyer. Also you will need to be clearer about what members are–board or general membership.
Hello – Two students were killed coming home from the Senior prom last year and local parents want to make it a safe event going forward. They are starting a non profit to fund an all night Senior Prom party and have asked other local established non profits to help the worthy cause financially. I am the treasurer of the Music Booster club where over 25% of the high school kids participate in the performing arts and benefit from our organization. I have 2 questions: 1) if our purpose of being a non profit is to improve the performing arts department in the town,can we donate to a charity that is protecting 25% of the kids who benefit from our charity? 2) if we decide to help out and fund raise for that charity, and clearly state that we intend to donate to that charity during the fund raiser, is that a legit way of helping them out?
Thanks for the help – it’s appreciated.
I think the answer in general about whether one organization can donate funds to another is clearly stated in the first paragraph of this article. For me the larger question would be about what your donors expect you to do with the funds they give to your organization. Also there is the question about what is in your bylaws. I am assuming the the Music Booster club is a 501c3 nonprofit.
Finally I would have a concern about how enlarging your fundraising mission to include grants to the new nonprofit would be received by your current supporters and donors. It’s not that you absolutely shouldn’t do so, but you have a relationship with the community you serve that should be honored. Nor do you want to do anything that endangers your ability to fundraise in the future.
Since this “party” organization is or will be new, it has no track record. How will you determine its ability to carryout its mission and manage funds in a fiscally responsible way? What will happen to unspent funds? What will be its successor organization if it goes belly up? What actual or perceived liability will be attached to your organization have if there are problems? The concerns I raise are more about functionality of your organization rather than legality of what you want to do. I would consult an attorney with experience dealing with nonprofit organizations to get a sound legal opinion.
One last question I would want answered: Is a new organization necessary or could this mission be carried out better by some existing nonprofit. A new organization will add a layer of expense?
Dave – thanks for the response. I read your article to the group and we (the music boosters) came to the same conclusion you did with regard to the current donors possibly having an issue with us donating to another group. After much discussion we ended up giving the new group a fundraiser we were to host, rather than giving them money directly. This way we helped them out without having any impact on our nonprofit (except missing out on a fundraiser). I’m also on the board of another nonprofit (both are 501c3’s) that was approached and will read them your article as well. My guess is they’ll come to the same conclusion but great to have your input.
Great points on the future of the other group and I will also bring that up. One of the board members on our group is also helping form the new group, and I can talk to her honestly about this. Thanks again for the help, it’s appreciated!
OUR NON PROFIT 501C-3 WANTS TO GIVE MONEY RAISED TO ANOTHER NON PROFIT ORGANIZATION … QUESTION – IS IT OK TO DO SO – WHEN A ACTIVE BOARD MEMBER FROM THE 501C-3 IS EMPLOYED BY THE NON PROFIT ORGANIZATION WE PLANNING TO DONATE MONEY T
Please look into the After-Prom organization which was formed as an answer to safeguarding kids “after” the prom. It is an all-night affair/lock-in that gives the kids something else to do when they are just not ready to go home. I was a part of the After Prom committee for approximately 7 years, overlapping children as they went through High School. Our school gave away a car (generously donated by a former student who owned a dealership) at the end of the evening to a Senior as a way to keep them there. It was a used car but in amazing shape. We also gave away a large gift or cash prize to a Junior at the end of the evening. Games, food, music, prizes all night long until 5:00am the next morning. Some schools rent facilities, we used the school decorating it from top to bottom. Look into it – I don’t think you will be disappointed.
If a nonprofit that “raises” $780,000 in a year, and their IRS 990 shows they spent $23,000 on Conventions, meetings, etc., and the purpose of the nonprofit is an annual, one time, four-day bicycle ride, is this $23,000 expenditure a little suspicious? I’ve read so many instances of trustees taking their families to Disney for 8 days/7 nights, they have two meetings with minutes while in Disney, they file these minutes with NYS DOS, and they do this quarterly. I have a feeling this is what’s going on. How can I look into it? The 990 reflects only aggregate amounts.
I want to start a non-profit/foundation. I want the whole purpose to be that i would collect donations from the public and then donate that money to multiple organizations internationally that relate to each other. Would i be able to do that? Would it be considered a non-profit or a foundation?
From your questions it’s clear that you need help with legal issues. I urge you to consult with an attorney. Foundations are generally nonprofits themselves. However how you raise money and under what pretext are important legal questions.
We have a 501(c)3 organization and many supporters has helped us build a medical facility in Haiti. The balance is approx. $26,000.00 left after the build donated from many donors. The main donor has partnered with a 501(c)3 foundation that he wants now to manage the funds. He has asked that we transfer the balance of funds to the foundation. My question is if we transfer the funds (with board approval) who produces the contribution statements as this seems to be a pass through contribution?
I am not an attorney and not qualified to advise on this issue. However, it seems to me that there are greater legal issues than the contribution statement. I strongly suggest that you seek legal counsel.
I don’t know what Country this, but in Canada a Charity cannot help out financially or in any other way a nonprofit organization and/or vice-versa.
Charities are allowed to help one another.
Hello, There is a private school who wrote a letter on intent asking for donations for the school who are 501(3)(c) exempt. The donations were written on a letter head asking for donations to send teachers to Dyslexia training for children with disabilities. The cost is 1300.00 per teacher and the money was raised by local donors, the principal of the school bought a video camera instead with the donated money. The ethics alone by not sending the teachers for the training was natrocious but the teachers never got the training they needed. What can be done to the private school for misappropriating funds when solicitation was asked for a specific donation, then not done?
You are asking a legal question, and I do not have the qualifications to answer it. If I had questions about such an issue I would go to the CEO of the nonprofit organization/school and ask for clarification. If at that point, I felt I had not received a satisfactory answer, I would take the matter to the nonprofit’s board of directors.
I am hoping we don’t have a mess. My parents started fundraising for a youth recreational center over 20 years ago just after losing my younger sister. Over the years a small amount has been amassed. About 10 years ago they formed a nonprofit and decided to include their children as members as board members. Now, they do not see the rec center materializing and want to support other non-profits that are doing recreational activities with youth. As they prepare to give. Do you have some dos and don’ts for us?
There may be legal issues for which you should seek advice from an attorney. However my experience tells me that what you can do with funds you raise depends on the charter and bylaws of your nonprofit. If you raised money for a specific purpose and then didn’t use the money for that purpose there may be ethical issues having to deal with your donors. From your comment it sounds like you have let the money raised accumulate rather than disbursing it for your stated purpose. If so, you should definitely seek legal advice.
I have what I think is an easy question, but I cannot seem to locate the answer online.
If you have a donation site that facilitates donations for other charities (like Charity Navigator), then do BOTH charities recognize the donation in their yearly “revenue” for taxes purposes?
Assume $100 is donated to Charity 1 who facilitates donations so would take an assume fee of $5 (5%) and then donate the remainder to the selected charity of the original donor and the receiving 2nd charity (Charity 2) would recognize $95 in donations for their yearly tax info.
Do both Charity 1 and Charity 2 recognize the same $20 in their numbers in this situation? (1 gets $20 and 2nd get same $20 minus any fees associated with Charity 1 processing (fees donors know about of course).
Thanks for any insight/links!
This is a question that an accountant or attorney should answer.
the 501 c-3 non profit I am a director of has been asked to be the fiscal partner of a project initiated by one of our members that is consistent with the mission of our organization. Partnership would be limited to receiving donations that come from a variety of sources – crowdfunding, direct donations through a button on various affiliated web sites to “donate now”, solicited donations etc. Funds would flow into our organization into a dedicated bank account and be redirected to the project leaders. Regular follow ups from the project would be required to confirm how the money was used. The project originators are willing to have this be a project of our organization if that is necessary (legally). I don’t believe it is necessary but would like your opinion.
I believe this is legal but would like your opinion.
You describe what, in my opinion, is somewhat like your parent organization being a Fiscal Sponsor—and, to me, the mechanics you intend to employ are not necessary. The project, after all, is within the confines of the organization the same aa any other project.
The only thing which gives me pause, however, are the references to just one of your board members advocating the project. Just be sure there there is no conflict of interest or personal gain of any kind.
I guess I am simply wary of “project originators willing” to have the project be part of your organization. From what you wrote, the project is such already. But, if there is any undue outside influence, you should re-evaluate whether the arrangement is the right one.
With Fiscal Sponsors, which you seem to be close to in name only at this time, the parent organization has total control over what the other organization does and how the money is spent.
if not bordering on such a deal, I see no reason whatsoever for the project to be seemingly taking on a life of its own, and not be absolutely integral to the overall operation of the organization. I am worried about who will, in fact, be in charge and accountable for what are the duties of the board.
Thank you. Your response has helped refine my questions.
The project is already underway and funded by sales of a product (a shopping bag with “I Love You” written in Arabic as well as other contributions.
The name of the project is, The Baheback Project” (https://majnunhabibi.com/pages/the-bahebak-project)
The creators of this project have been asked if Donors can get a tax write off for their donation. Project creators have asked if the non profit I am associated with can be a Fiscal Partner to receive earmarked donations and re-direct them to the project. We, the directors of the non profit, believe the project is within the scope of our Articles of Incorporation and also, the organization’s Mission Statement.
No director of our non profit will receive funds in any way from the activities of this project.
Reading what I have written, do you believe that our non profit will be in “right relationship” with the IRS if it receives earmarked donations? Does the project NEED to be a project of our non-profit?
The project, being within the scope of your Articles of Incorporation, and that it fits with your Mission, still appears to me to be outside the scope of your own Vision Statement, direct project development for the good of your own organization, and more important, apparently the project is not subject, asit must be, to oversight by your board.
No slight intended, but it looks to me as if the outside project directors, and the one board member of your own, are using your organization as a funding pass-through of sorts.
On the up and up, no doubt, but still using your organization in ways I think the IRS would question.
And do take care that the sales venture takes over too much fiscal space relative to what you must raise from direct contributions.
Better they set themselves up as your organization being a Fiscal Sponsor, but you are already into this project to a good degree.
Artistic designers and producers of the shopping bag can only possibly declare expenses of material for their work—no such tax-deduction for artistic and creative design and other professional services would be allowed by the IRS.
Because the bag in unique, the Fair Market Value (FMV), would appear to me to be same as the $20 donation required to get the bag. Thus, one cannot declare a tax-deduction on that basis. Naturally, if someone gave, say, $100 for one bag, that donor can declare $80 as a tax break.
The organization hasn’t agreed to anything yet and hasn’t received any funds pending a review such as you’ve been a part of.
We appreciate your comments and advice. Seeking legal counsel now because we want to stay within the bounds of our agreement with the IRS especially.
We have a donor organization (international non profit) who donates to our 501c3 organization as a sponsor. They have asked us to purchase a couple of equipment supplies for the running of their operation and then paying back our organization through a larger donation to us. Is this ok?
Our 501c3 is thinking about raising money for the ACLU and then matching up to $5000 of what’s raised. This does not fit the definition of a matching donation, because all of the funds are originating with us. My question is whether our organization raising money for another (we are not an entity that typically raises money for another) is problematic. We don’t operate with restricted or donor-directed funds per se, but would we somehow (and how, if so) need to notify donors and record this revenue in some specific way? Is there a reason not to raise funds in this way?
Your situation sounds a bit complex. If it were I, I would seek legal advice. To some extent your charter and bylaws may cover this.
We had a poorly written MOU agreement with our fiscal sponsor for the purposes of making tax deductible donations , and as a result of a recent IRS audit of the fiscal sponsor, it was discovered they really weren’t performing the required due diligence and oversight of our project that the IRS requires a fiscal sponsor to do when they take on a project. As a result, their board decided to terminate our agreement and would like to return all funds to donors.
There is a stipulation in the agreement that in the event of termination, all funds would be transferred to “XYZ” (our project name) which is represented by “my name”, an individual (as stated on the contract). In theory it could be argued that they are still responsible for transferring those funds to XYZ, regardless if they were to return the donated funds to donors or not (essentially they would pay the donors back, and pay XYZ the same amount). However, litigation is not the route we want to take, given we’re talking small potatoes, around 12k of funds they have in possession.
Returning the funds would be a mess. Funds were raised through 2 entities:
(1) crowdfunding platform which was linked to the bank account of our fiscal sponsor. We do have all of the names and emails of individuals who donated on the crowdfunding platform, so they can be contacted – and if they choose to receive a return, they would have to provide bank details to where to send the funds. The crowdfunding platform itself cannot take in the return and be responsible for returning the funds to donors.
(2) through a 3rd party non-profit payment processor which partners with companies to allow their employees to make donations to 501c3 organisations and in turn the employer makes a match contribution. The donors made the donation to the 501c3 entity for the benefit of XYZ (our project). We also have most of the donor names and emails and can do the same notification, however some donations were made anonymously (however, potentially the processor can provide the name/emails of them). I don’t believe the processor would be in a position to have the funds returned to donors and companies making the match, however, I am looking into it.
The alternative and most favourable option, if possible, is to have the fiscal sponsor transfer the held funds to a new fiscal sponsor 501c3 (which we are currently searching for). If this is possible and we move forward with it, would it be required to notify the existing donors of the change in fiscal sponsor or would we need to notify and give them the option of accepting a return?
Any high level advice is much appreciated. Thanks very much. And I do understand I would need to contact an attorney however I’d greatly appreciate your opinions.
All the best, Tom.
You should consult an attorney regarding this matter.
I have an agreement with a charity in US to be collecting funds on behalf of my organisation in kenya with tax exemption;our initial agreement was for the organisation to be transferring the funds to my Kenya Charity organisation after 14 days due to its different use in different specific projects and the organisation has been hold funds even up to 3 months without my consent despite reminding them they need to transfer the funds due to the time-frame of some of our community projects, what would be your advise on how to deal with this kind of organisation? thank you, Irene
First I would read the contract with the organization collecting the funds. Next I would initiate a conversation with my contact within the organization. If the collecting organization is not in violation of the contract, yet I would still like cut the time it holds the funds, I would try to negotiate with it. If it is in violation of the contract and no improvement is forthcoming, I would seek legal advice. If the collecting organization is a legal nonprofit organization within the US you should, depending on the contract, be able to abrogate the agreement.
We have supported a local historical cemetery in the past with direct contributions which is organized as a 501(c)(13) for the sole purpose of maintaining the cemetery. My donor advised fund will not give directly to a 501 (c)(13). Is this an IRS rule of just my donor advised fund. I am contemplating setting up a 501(c)(3) for the support of Cemeteries listed as Texas Historic Cemeteries in Collin county Texas and want to make sure this organization would be able to donate to cemetery maintenance groups 501 (c)(13) for the purpose of upkeep of the historic cemeteries. Would donations be possible or would it violate IRS rules for 501(c)(3) ?
I am unfamiliar with the IRS rulings governing 501(c)(13) cemetery organizations, and I am not a lawyer. I have however been a senior staff member of a foundation that manages donor advised funds. That is where I would start in seeking an answer to your question. Ask your contact at the foundation why they will not give to the cemetery. If you do not get an answer that satisfies you, go to the CEO of the foundation with your question. No reputable foundation will fail to answer such a question. I have bound that it is always best to resolve confusion or the potential for conflict to go directly to the source and seek clarification.
We want to create a nonprofit organization, but someone had informed us that we would not be able to because we use the land of another nonprofit organization. The thing is that we do not associate at all with them other organization. Would we still be allowed to create a nonprofit organization?
You should seek the advice of an attorney. No nonprofit should attempt to be created without legal advice. I would start by trying to get an attorney to serve as a founding board member of the nonprofit and asking him/her to donate his/her services to the startup. An attorney on the board is always a good idea.
A 501c4 organization I serve in has the practice of giving small memorial gifts in honor of members that passed away to the charity of the deceases choice. Per your article, I think there may be some people who will say, “Not with my money” if they understood this was happening. On the flipside, we have had very appreciative family members who have ended up making generous donations because of this thoughtfulness. I am curious to know what you think of our policy.
As a former CEO of a nonprofit, I would not allow this practice. As a human being I understand the desire to make these gifts. However, the nonprofit runs the risk of making a gift to an organization that some of your donors would not support under any circumstances. The nonprofit’s responsibility is to do what it says it will do with the donations it receives. You could of course include this practice in your description of your mission, but to me that seems counterproductive and to be placing too much emphasis on something that is hardly even the tail of the dog. I would stop the practice.
I am on the board of a local non profit youth baseball league. one of our players, 9 yrs old, was diagnosed with leukemia. Is ethical for our board of directors to donate funds from our league to the child’s family for travel/medical expenses? possibly $100 or $250?
So sorry to report that the IRS expressly forbids donations to be given to named individuals.
You and your caring members can pool their own non-tax-deductible) gifts, And you can solicit money in the same way with very careful accounting-all to accomplish the same noble goal as otherwise, less the tax-deduction.
Hi, we are dissolving our nonprofit. Can we donate the money we raised to a similar nonprofit out of state?
You need to consult a lawyer that deals with non profits and ending them according to the IRS.
We used Jeff Moss
San Rafael. Ca. I am giving u his name as we searched a ling time to find simeone that could help us. JeffMoss.com
We are a not profit 501c3 organization. We are a very new religious/church and educational organization. One of the members of the church went to a local non-profit and requested for grants to teach music and dance classes to small children. The non-profit send a check to our organization. Now the non- profit and the person who want to teach want us to write a check to the dance teacher through our organization. Can you please help me with this? We are a new non-profit and do not have much idea about this. Thanks. Bob
It sounds like the nonprofit is making its grant to your organization and expects you to administer the grant. This sounds to me like a situation that needs clarification between your organization and the granting nonprofit. You probably need a legal opinion about your responsibilities and your board would need to at the least be informed of the situation, especially since yours is a new organization.
Hi Tony, We are a non-profit Buddhist Monastery organization in Michigan and our main Monastery is located at Taiwan. Due to the main Monastery has been under new construction for several years and is now in the internal decoration phase that requires supports from everywhere its disciples reside. Our local board would like to donate $30,000 to support the construction. Since this donation will involve two nations, even though they’re all non-profit organization in their own country, could you let us know if this donation is legal from the U.S. non-profit organization point of view? Any suggestions will be appreciated.
I’m a little unclear about the relationships and countries from your comment. I think the best thing to do would be to seek advice to an attorney.
Hi Tony, Is there a secific time frame or time limit as to when money raised by one Non-Profit for another 501c3 should be dispursed.
Sorry for the delay with my response.
From what I have observed, when one non-profit gives to another, there are no time limits.
However,if your organization raised money for a specific non-profit, and the money raised was understood to be going their way, then those funds should be given as promptly as possible–as advertised.
If a nonprofit receives funds from another nonprofit, do they send the donating nonprofit the tax-deductible letter they would send a private donor? Thanks
I don’t have the answer to that, but it can’t hurt to do so.
Our 501(c)7 housing co-op loans money to other housing co-ops as part of our mission. We earn interest on that money. I believe that the interest should be exempt as it is part of our programs. Do I still need to fill out the 990-T, which deals with “unrelated income?”
Our non-profit 501c3 was asked to donate 10K to another non-profit, a 501c4 which is a trade organization for dealers involved in indigenous art. They want to hire a lobbyist to deal with two pieces of legislation in Congress they deem harmful to the trade. Can we as a 501c3 give to a 501c4 vested in lobbying for specific legislation without jeopradising our tax status?
To my way of thinking, there is a far too direct connection between what your c3 cannot do, and what the c4 can do, in using your donations as a pass-through. While certainly no criminal in intent, nonetheless, I cannot help but think the proposed transactions as a “money-laundering” scheme.
The way I see it is that the risk is too great when it comes to donating your hard-earned funds to a lobbying practice not at all in keeping with your mission and the rules of the IRS.
A church has a tenant agreement with their church school (K-12 education) (both nonprofits). The agreement allows the school to use a portion of the church property to “house” the school rent free. The school is out growing the current space and would like to raise $1M+ to build a new school building. The school then wants to donate the building to the church and continue with the same agreement of using the space rent free. What are your thoughts?
At first look, it seems to me that a good deal of discussion should be made between church and school leadership, with counsel from an attorney—especially.
If the church is the parent organization, to my way of thinking, the church should take the lead in any fund-raising for what a satellite operation. Best bet is to have co-ownership of the capital campaign with leaders from both entities running the campaign.
As well, a good deal of work must be done in the first place to determine any capability to raise the money needed to build, furnish and operate.
Even before that, all must agree on the project in all phases and forms, from architecture to function and the resultant budget.
You will find a good deal of such pre-campaign information free on this website.
—- Campaign Feasibility Studies: Taking The Time To Find Out Whether The Time Is Right
— Capital Campaigns: Building For Now
I do not see the school as taking the lead — solely or mainly — to raise the money needed, to see that the school is constructed, then to donate the building to the church, with the latter having responsibility for future maintenance and repairs.
And, who is to know now for far in the distance, if by then the school will operate “rent free?” Big investment of time, effort and money for something as uncertain and changeable.
(apologies, I accidentally posted this earlier as a reply to an un-related thread)
Tony, I work for a private college which is 501c(3). I contacted you previously about some questionable activities by the administration. Now there is something new, involving a 501c(4) that the college recently set up. (None of this was announced publicly, we learned about it from a colleague.) So far as we can tell, here is what happened: Immediately after setting up the 501c(4) the college loaned it a significant sum (about $8 million). The 501c(4) turned this money over to a private investment fund which then solicited investors, promising they could receive something called a “New Market Tax Credit” which is intended for investment in low-income communities. The fund collected $2.7 million in outside investment. This money, along with the $8 million, was then loaned back to the college … the 501c(3), that is. The private investment fund retained a fee of about $500,000. Is it proper for a 501c(3) to set up a 501c(4) for this kind of transaction? And is there any legitimate reason you can think of, for a 501c(3) college even to engage in something like this?
From what we have discussed in the past, regarding the machinations of the private college’s leadership, and now, this latest scenario—it seems to me that it is possible that laws are broken in this latter instance.
I am not an attorney, nor skilled in non-profit law. Those are the officials whose counsel is needed.
I can only simply summarize how the situation you described looks to me
1. 501 c 4 organizations mostly, if not totally, are established to incentive community development and local economic growth—being able, unlike the c 3, lobby on behalf of the cause.
Thus, the private college would need to have a mission akin to the goals, and I simply cannot see how that could be the case.
2. People are making money on this deal, so personal gain of anyone involved must be scrutinized to the smallest degree.
I simply cannot see how the mission of the private college would fit in any way to to the goals and operations of the c 4. That question, first and foremost, should be asked immediately.
As well, I think it absolutely necessary to know the investors–anyone profiting from the operation, to see question the legality in the first place, and to know if those individuals have any association with anyone in power at the private college.
Thank you Tony, I do think we may be at the point where we need legal advice or perhaps get the news media involved. We did complain earlier to the IRS but nothing happened as far as we know. We were able to find the incorporation papers for the 501c(4) which say it is to “support various endeavors of the University…and to promote health and wellness in the region through programs sponsored by or affiliated with the University.” Reading between the lines, we think this refers to a pharmacy school that the college is building. It appears they may be running short of money to finish it.
We are a 501(c)3 that benefits our local school (we are not a PTA). The students are raising money for a science camp. It is quite expensive and the funds are pooled to pay for the costs. The 501(c)3’s mission is to help the school and its students. Is there any problem with collecting the money and then writing a check to pay the costs? Thanks.
Your PTO is meant to do meaningful things for the students, whether you are directly affiliated with the school, or set up as an independent organization.
You can certainly assist in the funding efforts for the science camp.
The only caution would be to keep a keen eye on what the camp’s organizers have determined as expenses.
Be sure to justify the use of the money you raise and give to what you termed the camp’s costs to be as “quite expensive.”
While you might not be able to control or influence what should be a defensible expense budget, you certainly can choose to donate your raised funds or not, being aware of how the money, in fact, will be used.
I have been in the process of creating a charitable nonprofit organization in my community. Currently those involved in the founding process, who will serve as directors, decided to nominate me in becoming executive director and not serving on the board, because of my experience with the Chamber of Commerce and public relations. Once it comes back that the organization is incorporated, I will volunteer as the ED until we have obtained 501(c)(3) status and can afford to pay a salary.
My main concern with the organization is funding(which I know is the main concern of most nonprofits, but I’m getting to another point). I currently have a list of individual and corporate donors who have committed to a recurring monthly donation, once we are incorporated. I want to do so much more in the community, but funding from donations alone will prevent this. By the time I use money to carry out starting programs, pay utilities and insurances, etc… there will be no room for expansion. I have been working like crazy as sort of a volunteer ED right now, to promote the mission of the organization while it is in the making, and to maximize potential donors and volunteers. What I’m getting to is I would like to be able to provide a service to the community that the organization can charge for, to provide additional funding. I would eventually like to work with the Chamber of Commerce and set up a split office building, since both organizations promote an enhanced quality of life and revitalization, but from different standpoints. The chamber from an economic approach, and my organization from a grassroots approach. I feel that it would be a good mix for maximum impact in the community to collaborate our services.
Many community leaders like this plan, along with the Chamber ED, but you would think that within this development process and networking, I would be able to figure out a service to charge for. I’m only 21, so there are a number of people who brush me off when I bring the subject up, (good old boy mindset residents) but, it’s only making me want to succeed more. I feel that being able to bring revenue in from a service will be a key sustainable aspect.
Would you happen to have any ideas on services or things other charitable nonprofits charge for?
Sorry for the long comment. Just wanted to provide a detailed explanation of where the organization is at and what I am trying to do.
As a former executive director and development director, I find a number of issues that need to be addressed in your situation. By the way I have also been CEO of for-profit organizations and been involved in a number of startup companies.
To begin with, and I don’t mean to sound petty, you say that your main concern and the main concern of most nonprofits is funding. That should not be true.
A nonprofit’s main concern should be carrying out its mission. This is an important mindset issue, and yes I realize that without adequate funding it is hard to carry out mission. But this statement when coupled with the statement that follows (“I want to do so much more in the community, but funding from donations alone will prevent this. By the time I use money to carry out starting programs, pay utilities and insurances, etc… there will be no room for expansion. “) suggests that you may be trying to run before your crawl or at least walk. It also raises questions about what a nonprofit’s relationship to its community should be.
Expansion should not be a major concern of a new nonprofit. Mission and stability are the primary concerns of a fledgling organization. An organization needs to show that it can deliver its mission and on the promises it makes to donors before it tries to take major growth steps. An organization needs to prove itself by working within the scale of its founding. The commitment you have from your individual and corporate donors is a major part of that founding.
As far as charging for your services goes, I see no problem if those services are mission related. If on the other hand you are talking about setting up a “business” that is not directly germane to the delivery of mission-critical services, then you are stepping onto some unstable ground. First, such a business is likely to be a drain on the resources—human and financial—of the organization at a time when the organization is vulnerable. Nonprofit organizations, like humans, are extremely vulnerable and most in need of support and protection in their infancy.
Secondly, the IRS may consider such a business endeavor as profit making, and therefore require that it be set up as a profit making arm of a nonprofit organization. The organization would be liable for taxes on the activities of the business. Google “profit making arm of a nonprofit organization” to learn more.
Finally there is the issue of why nonprofit organizations exist. They exist to be in service to community. To paraphrase a famous Lincoln quotation: Nonprofits are of the people, by the people, and for the people. For me the need to raise money from the constituency you serve is an important positive for a nonprofit.
It is hard for an organization to lose its way when it must constantly ask the community for funding. The organization that you are helping create is not your organization or even your board’s organization. It is the community’s organization. Your nonprofit charter comes from that government Lincoln described as of, by, and for the people.
Nonprofits survive and grow because the community supports them. When the community fails to support them they fail. Fundraising is an important responsibility of the management and volunteer leadership of a nonprofit. I believe that is where your energy, enthusiasm, hard work, and creativity should be applied rather than to trying to turn a profit that can be used to support your nonprofit. Let others in the community make profits. Then convince them to share those profits with the community through donations to your organization because of its value to the community.
You were kind enough to point out your youth. I was 21 once too, and boy was I impatient to accomplish things. I too thought those old people that I now have become one of stood in my way and that they didn’t get it. To some extent that was true, but it was just as true that I didn’t get the value of systems I did not understand. Understanding the why, how, and value of slow and steady does not come easy. In large part, nonprofits work because systemically they are built on the wisdom, support, and ongoing evaluation of the community they serve.
Take your story to your community. Share it. Let the community tell you what they think. Listen, and then adapt to what the community shows you its needs and values to be. If you do that, you can create a vision that resonates with your community. That resonance will be measured by the response you get when you ask for the funds to support your mission.
I am involved in a 501(c)(3) . The current un-paid director will be leaving the area and strongly feels that the organization cannot move forward without him. Others including myself do not agree. He is attempting to disburse the current funds in the organization to 3 other charities, 2 churches and a 502(c)(3) and disband the charity. The current secretary and treasurer support this plan. What laws, if any would or could be broken if he goes forward with this plan? I will be honest, I want as much information as possible to attempt to prevent this from happening. Thanks for your advice.
Such a move for dissolution must first be something of consensus agreement of the board of directors. Not the Director alone, especially if he is (unpaid or not) serving at the pleasure of the Board of Trustees. Those volunteers alone are entrusted with the future of the organization in such matters as dissolution.
The secretary and treasurer, if board members, can vote. Otherwise, they cannot participate in the voting process.
There are a number of key steps to take before the assets are given away, chief among them is to apprise the IRS and the State Attorney General.
You can readily find the rules and processes with a Google or Bing search, asking for “Dissolving a Non-Profit.”
Can a 501(c)(3) public charity make a donation to a 501(c)(3) private foundation? While the answer seems to be “yes”, I am not sure which portion of the Internal Revenue Code permits it. Assuming the donation to the 501(c)(3) private foundation is permissible, does the public charity need to exercise expenditure responsibility?
This is a matter for you to discuss with the IRS and an attorney skilled in non-profit law.
But, as I see it, a public charity cannot/should not donate money to a private (family) foundation.
A public charity by law is “owned” by the community. It has a volunteer board of trustees from the community.
A private, granting, (family) foundation has its own selected trustees whose focus on making grants to public charities is influenced by family legacy, explicit control, family involvement in all decision making, and spending what is deemed as administrative expenses—all out of the influence and oversight of a public charity making a donation (if it could.)
The tight control of private foundations, where the assets are created by the family or family business, seems to me to be no place for money donated by a public charity in the first place, where the money was given to carry out its own mission.
Private family foundations are, in effect, family trusts—even a planned giving vehicle. I see no part to be played in such an entity by a public charity.
That is only my opinion. Does it make sense to you?
I just heard from a friend and colleague who is a former IRS agent specializing in non-profit law, who has been consulting in the same way for years.
Though I do not know if the ruling is on the IRS site, my friend said that there is no regulation preventing a public charity giving money to a private foundation. She said it does not happen often.
Still, my concerns voiced earlier may be of some use.
But, from a reliable source, It is OK. Sorry though that we cannot pin point the language on the IRS site in the event such is needed.
Since there is no regulation against, I guess it would be unlikely there would be applicable language available that it could be so.
Thank you so much for looking into this for me! Best regards!
I work for a 501(c)3 that has purchased a table at a fundraising event being put on by another 501(c)3. We purchased the table to show support for them, and there is no doubt that doing so can easily be justified as part of our mission. We currently have no legal or other ties to the other entity, although used to be part of that entity. No problems there or any questions on my part with that aspect of the transaction. We are now, in turn, asking our board members and other interested parties to “pay” for a seat or two at this table by giving us the funds to cover our costs to purchase the table. There are ten seats at the table so we are dividing our cost by ten to arrive at the amount we are charging those who we are soliciting. We have the standard acknowledgement letter from the 501(c)3 entity putting on the event that shows our donation and the FMV of what we are receiving as benefit, and the amount we could deduct. Of course we as a 501(c)3 aren’t too concerned with that. Those to whom we are trying to sell those seats to our table, however, are VERY interested in what (if anything) they can claim as a charitable donation.
So, the question: can those who purchase a seat at our table claim the charitable donation amount that was determined by the other entity, even though those funds aren’t going directly from the individual to that entity? My inclination is to say no, but would be very happy to learn that they can claim that deduction.
The tickets are your property now.
“Selling” them directly to your supporters is a possibility, but the Fair Market Value (FMV) aspect of such a transaction would not apply. That benefit was closed when your organization purchased the tickets.
But, there may be another way to consider.
Let’s say you paid $250 for each ticket.
I suggest that you simply ask your prospects to make a tax-deductible contribution to your organization in the amount of $250 (or the full, actual, price you paid per ticket) as a separate donation.
You tell them that, in turn, you will give them a ticket to the event as a token of your appreciation.
Chances are probably high that any of your organization’s purchasers/donors of the tickets you own would not go to the other organization’s event in the first place.
Thus, it would seem, the event would be of no real attraction, making the money given for the tickets, money given mostly, or solely, in your organization’s best interest. They might even give away the tickets. They might not use them at all.
That’s why I think a stand-alone donation and “comp” ticket deal would work.
I see no paper trail hint of any improper doing. Not when the tickets are yours to do with as you please. Sell them at face value with no tax-deduction at all, or go the other way as described above.
Thanks for the prompt response and very helpful answer! This is excellent food for thought and raises a possibility (a good one) that I hadn’t considered.
I must disagree completely with Tony’s response here. Any time something of value (goods/services), is provided to the donor in exchange for their contribution, this is a quid-pro-quo donation. In your example, the “token of appreciation” you are giving the donor in exchange for their $250 “donation” is actually a ticket with a cost of $250. Regardless of the deductibility issues raised by the initial purchase of tickets by your nonprofit, this is precisely the situation in which goods/services are given in an exchange for a contribution. Since it is pretty clear that the FMV of such a ticket would be $250, your “donor” would not be able to claim a tax deduction for this scheme. Situations exactly like this often leave nonprofits in hot water, even if unintentionally. Thanks, and good luck!
The way I see it, the Sober Living House (SLH) project/organization, may be seen as being unduly influenced for creation as a “cash cow” for the Church.
Even if that is not so, the fact that the SLH and the Church’s finances are linked well before the SLH even exists, is not a good thing.
The concept waters down the future Mission of the proposed SLH, and looks elsewhere for the operating funds the Church needs.
The Church should focus on how to maximize offerings from its parishioners, and not look away from where the money must come internally, to a far and distant source not even yet created.
The SLH, in turn, should not be created with the thought mainly, or mostly, that income from its services will support the Church.
As well, the proposed SLH could not be operated by the Church, nor its officials be able to serve on the board of the SLH, due to potential conflict of interest relating to the money donation issue.
The Mission of the Church must be directed to the spiritual well-being of the people it serves—its parishioners, and not have its leadership misdirect their stewardship obligations to the Church by way of the SLH.
Should that SLH non-profit be created, it would belong to the “community” in general, and the Church would have no say in its operation.
Even more realistic, as a separate entity, should the SLH become operational, there is no guarantee that it would have funds to donate practically or legally to another non-profit in the first place, and even if it did, the SLH leadership could very well choose not to give its money to the Church
Tony, I have a similar concern. In our case, the nonprofit is a daycare that may receive government grants and income for childcare services. There is a tremendous need in our community for these services. However, our church is struggling financially and there have been discussions about the possibility of the daycare making charitable contributions to the church in addition to monthly rent payments. The donations from the daycare would be used to cover the pastor’s salary and operational expenses. What concerns me most is the daycare’s board is comprised of the pastor and other church board members. It would be helpful to be able to refer to specific IRS code or keywords so that we can conduct our own research. While it would be wonderful to have the assistance of an attorney, unfortunately, the church is not in a position to retain someone. Any advice you might provide would be extremely helpful.
Tony Poderis passed away a couple of years ago. I was his partner in this website. My recommendation is to seek legal advice from an attorney with knowledge of nonprofit law.
Hello, my church 501(c)(3) church has a continual deficit each month due to staff salaries. We are meeting expenses and payroll by spending down our start-up funds. The idea to open up a Sober Living House is being investigated. The church leaders have presented that the Sober Living House would be is own 501(c)(3) entity and have separate staff. The Sober Living House is projected to generate significant revenue above it’s operating expenses. The church leaders present to us that the excess revenue the Sober Living House can be transferred / donated to the church to make up the church’s shortfall in revenue. Is this true? Can the Sober Living House give money to the church?
I work for a public school district which also has an established 501c3 “education foundation” that operates to raise money on its behalf. The Foundation is in need of administrative support but cannot afford to hire a full-time clerical worker. Can the school commit one of its employees to that purpose or split the costs of a clerks salary with the foundation?
The Foundation serves the school district as a whole.
Such an entity is concerned equally with the needs of all the schools within the district. It should also, to my way of thinking, avoid any direct connection with a given school which may present a conflict-of-interest situation.
This is my instinctive reaction to the idea proposed, and not one based for certain on what the IRS might or might not say. The attorney engaged to serve as counsel for the district should be consulted.
I just think that an employee of a given school should not be serving in the administration business and workings of a foundation which serves the entire district.
We are a 501c(3) organization dedicated to supporting Blues music awareness and musicians both local, national and youth. To generate funds we sell t-shirts, memberships and hold Blues music related events for which we charge an entry fee. A local for-profit brewing company that also specializes in Blues music is holding a festival and they have asked us to be a “sponsor” of the event by contributing “sponsorship” money. The money would be used by the for-profit brewing company to help cover expenses of the festival. We would not receive anything from the sponsorship other than a free booth (space) during the event. If the festival is profitable the brewing company will receive all of the profit and we receive nothing. Can we and are we legally permitted to act as a sponsor donating our non-profit funds to this for-profit company holding a Blues related festival? If not, is there any other way we can partner with this company to help them out?
If you and your colleagues (and your key stakeholders) believe that your mission will be promoted, enhanced and fulfilled by having a booth at the Festival, and the cost to do so is within reason, then I cannot see a problem.
For the sake of perception though, I suggest you do not consider the fee you will pay for the booth to be a donation, because you cannot/should not donate charitable funds to a for-profit entity. You can, however, spend money for a service to further the good work of your organization.
I suggest you stipulate that you not only will have hand-out promotions of your organization, but that you will sell t-shirts and give the Festival’s attendees an opportunity to become members of your group.
Without the solid benefits to your organization guaranteed by your purchase of booth space, you absolutely should not be participating in the event to only, or mainly, “help cover (their) expenses.” That’s their responsibility when they are a for-profit business.
You should take care, as a charity receiving tax-deductible contributions, regarding just why you should be looking to “help them (a for-profit entity) out.” Never mind their Blues connection. Their main business is selling beer to make money.
Your participation must be based on asking the company, “What’s in it for our organization?” Not the other way around.
Thank you for your comments Tony, I appreciate your insight. Maybe a few more specifics would help. We have been asked by the brewing company to sponsor the event and help pay for the talent that day by giving them $1500.00 for the sponsorship. That sponsorship money would get our name on all advertising media as a sponsor (and/or partner) and a “free” booth where we can sign up new members, discuss our organization, sell items such as t-shirts, coffee mugs and memberships. A fee for the booth would be waived because we were a sponsor of the event. If we did not sponsor the event we could still purchase a booth space for about $75.00. We could do the same in the $75.00 booth but our name would not be on any advertising or banners as a sponsor. We saw particular advantages to having our name on the advertising and banners to gain more recognition, potential new members and creating a relationship with the brewing company. Does this clarification change anything in your mind?
Do you have any examples of one private foundation donating to another?
Also, is it OK for those two foundations to have related family on the board?
Say it’s Howard Buffett’s foundation donating funds to his brother Peter’s foundation? (This may be a little more unique of an example since it’s essentially mostly shifting the amount of Warren’s donated money. Although, Warren, too, has a foundation: can he donate directly from ‘his’ (The Susan Thompson Buffett Foundation) foundation to his sons and daughter’s foundations?
Private granting foundations are set up to give money to IRS-State-registered charities; not to make grants to other such granting entities.
Even so, the example you cited brims over with conflict of interest.
No matter how honorably the family members might very well act, perception is everything.
Non-profit, operating, charities (foundations), are public, community, entities. They, in effect, are “owned” by the community. There can be no private operation or business or monetary gain of any kind which would be out of the realm of usual, practical, and defensible compensation for staff of the operation.
The charity must be developed with a core mission “for the public good,” as the IRS terms it. And all states and the IRS require a volunteer board of trustees—the minimum number required differs, but such an oversight and governing board is mandatory.
Therefore, a single individual cannot start up an operating charity and be the sole operation and beneficiary of donated funds. This would not be allowed by the IRS.
That individual would be far better off to be hired and engaged in such research where it would be appropriate—perhaps at a research-oriented university.
See the particulars of beginning a charity with the IRS’s “Life Cycle of a Public Charity.”
Your opening comment about “Howard and Cato” is not clear to me. Cato would need to have 501 c 3 status, and if so, no charitable funds are allowed to be given to Cato to the support or benefit of a named individual.
All of this is beyond my pay grade and experience to some degree. I can only relate what I believe to be true. You must consult an attorney skilled in non-profit law, your state’s Attorney General, and the IRS.
I work for a public school district which also has an established 501c3 “education foundation” that operates to raise money on its behalf. The Foundation is in need of administrative support but cannot afford to hire a full-time clerical worker. Can the school commit one of its employees to that purpose or split the costs of a clerks salary with the foundation?
I am the Association Executive for a 501(c)(6) organization. Are we legally able to donate to a 501(c)(3) as an organization?
Sure you can.
Just so the caveats I cite in the article are met.
Since contributions to your c 6 organization are not tax-deductible, you are, in essence, making a gift to the c 3, which must be OK with your members.
I belong to a non-profit fraternal organization 501(c)(8)and each year we host a fundraising event and raise money for two 501(c)(3) organizations. Are we able to deduct the expenses (paper, envelopes, postage, etc.) from the donations received from the event?
Naturally, the expenses must be kept reasonable and defensible.
And no one from your organization should benefit in any way as a vendor who was paid for providing the fund-raising resources.
Thanks so much for your time and previous reply, Tony. I hope I’m not asking too much of your time below. I’ve looked around and can’t really find resources that address some of these examples so I really appreciate this site and your input (any is most appreciated).
If Howard worked at Cato as a VP of research and had the bona fides, was hired in 2010, would it be OK for Warren’s private foundation to donate to Cato?
I’ve been thinking about think tanks and how small one could start one. Can you have a think thank of one? That is, one person starting a private operating foundation, and doing independent research on diabetes and obesity, for example (mission is to reduce the burdens of obesity and diabetes by research, analysis, and debate). She plans to start in the first year by doing a podcast, writing a blog, conducting research, writing papers, and submitting those papers to academic journals, newspapers, and other outlets. She has the bona fides as a researcher. She gets funding of $100,000. She takes a salary of $75,000 and has other related expenses (traveling to conferences, conference fees, etc) of $10,000.
Would this constitute a private operating foundation? Are there foundations out there like this?
Can a school require all funds or a large portion of funds raised by the school’s PTA to be given directly to to the school in form of a check, without acknowledging exactly how those funds are going to be used? Our new principal wants everything raised by our school’s PTA to be given directly to him to spend as the school desires. Without any proof of how the funds have been used.. in previous years we would simply write a check to the vendor to purchase the items that are needed by the school. Our new principal is stating that he wants to be in control of the money and does not want to have to ask for items or money from the PTA
From what little I know about PTAs and PTOs, it seems that the latter came into being in order to be independent of a national, parent, governing group. Most likely to keep from paying dues, to have total local control, etc.
Even so, either way, if any such organization of parents has its own 501 c 3 classification, and yours must be such since you are directly raising money which is tax-deductible to your donors, then you should give the Principal a loud and resounding “No” to his unreasonable and insensitive demand.
Does he not realize that a productive and dedicated band of volunteers can be lost through his actions?
Do you have any reason to suspect that, for whatever his purpose, he in fact wants your PTA to disband?
I cannot see any good reason for his behavior.
Your PTA should not be what the Principal apparently considers an arbitrary source of money—his school’s ATM.
You are raising money expressly for the good of the children, and you must have everything to say about where your hard-earned money goes.
The funds you raise can only be used for purposes approved by your own PTA members through a budget process you develop.
According to your charter/Mission, the use of the money you raise should be in line with those objectives.
You go against those regulations and abrogate your responsibility when the Principal takes the money to pay bills which should be paid for by the school itself.
No one outside the organization has the right to take your money and do with it as he chooses.
Think, as well, about how difficult it would be to raise money if you followed the command of the Principal. With donations going into a black hole of sorts at the school, you have no good case for support to present and compel your donors to give when you cannot readily identify programs, projects and services your PTA can produce for the benefit of the kids. You will have no convincing “selling” tools.
(Naturally, any parent support group created informally on an ad-hoc basis, raising money through a 501 c 3 belonging to a school, would need to follow such a dictate as you described.)
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
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!
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?”
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?
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?
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.
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?
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
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.)
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
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.
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..
Great idea, and a good and thoughtful thing to do—with a number of caveats.
(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.
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!
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?
Would a church (501c3) be able to donate to a ministry that is not a 501 C? What are the implications of doing so?
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.
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.
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.
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.
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.
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!
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?
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.
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.
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.
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?
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.
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!
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.
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
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.
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?
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.
Can a school board authorize a donation of school funds to support a local charitable event in town?
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.
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.
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.
Can a 501c donate to another 501c if any of the directors and on the board of both organizations?
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.
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!
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.
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.
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.
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.
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!
Such a practice is absolutely illegal.
See the IRS page from the following link:
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.”
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?
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.
Steps for Dissolving a Nonprofit
Can a 501c3 use funds to go on a field trip? We are a garden club and we would be going to a garden.
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.
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?
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.
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?
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.
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?
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.
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.
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”
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
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.
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?
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”
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.
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!
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.
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.)
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.
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?
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.
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
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.
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?
— Differences between 501 c 3 and 501 c 4 organizations
— 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”
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
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?
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.
Does anyone know if one local PTA at a public school can donate to another?
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.
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?
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
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.
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
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.
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.
As a 501 c 3 organization, what is your direct and incorporated mission?
As I understand how IRS classifications work, one such as yours should not mostly or primarily be raising money for other non-profits. I am unclear regarding what it means that your organization “will maintain our distinction.”
Even with that declaration, will the focus on the golf-related website to fund-raise with an event, or otherwise, for three other organizations, outweigh your attention to your own organization’s original and prime reason for being?
I would like to know how the golf-related website, as a fund-raising tool for the benefit of other organizations, fits within, and with, your charter mission.
Then, I will be in better position to advise regarding your way or ways to formalize the agreement with the receiving charities. In advance however, I think that all you need is to post on your website your intention to divide among the three organizations the net proceeds of your fund-raising efforts. To my way of thinking, nothing more is required. You make a promise on your website for all to see, and you hold true to the promise.
Thanks Tony. That’s the way I am proceeding and if the organizations want to assist us along the way, all the better. I have re-written our Mission Statement to clarify that funds raised will be split equally among the 3 organizations.
We are a local Alumni Chapter of a national Fraternity (501c7).
We have various community care initiatives where we raise specific funds which are in turn divided and donated to different area non-profits (501c3’s).
Question: Can individuals that contribute to our (501c7) philanthropic fund raising efforts count their contributions as tax deductible if we provide them a letter indicating our (501c7) donation on their behalf made to “ABC-501c3”? What is the best way to publicize and market the intent and effort?
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.
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?
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
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?
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.
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.
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.
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.
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.
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.
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.
Any insight on restrictions to a 501c3 for making a contribution to a 501c6?
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.
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.
Please click onto the following link to an article on the Raise-Funds website:
— Greetings from America:
How U. S.-Style Fund-Raising Can Work In Your Country
While that short essay deals with how money can be raised in other countries, do be sure to scroll down the Addendum for information directly related to what you stated in your Blog.
The instructions there are from the IRS as I know them.
In essence, you must develop a US-based “Friends” entity which then must be in total control of the charity for which the funds are intended.
Wow! Sounds like you may be the to go person here. I have a Question. I am forming an LLC manufacture wholesaler that will sell my products to a retail buyer. The buyer/retailer allows me to sale my products at their locations. ON my products are labels that state we donate 10% of sales to the XXX program. The product sold will tell of the XXX program of which I formed and information on how the consumer of my product can donate to the cause of the XXX program. The XXX program is under a fiscal sponsorship 501(3)c entity. There will be no donations benefiting in any way my private LLC. PLEASE HELP OR AM I OFF MY ROCKING CHAIR,PLEASE FEEL FREE TO EMAIL ME. THANK YOU
I can only, in an unofficial capacity, give you my comments based on experience and some common sense.
My observations may help as you must press on to discuss this rather complex situation with those more appropriate:
— Accountant, Attorney, and the Fiscal Sponsor (FS).
I am sure that you must first work with the Fiscal Sponsor of your XXX non-profit program to get its OK in the first place.
From what I understand, all donations must first go through the FS. The FS has the 401 c 3 classification, which the XXX organization does not.
Then, whatever percentage of those donated funds, agreed upon in the contract, would go the the programs of the XXX organization.
Thus, not all of the 10% proceeds from sales would in fact go to XXX as advertised.
That the sale of your products would have the revenues from customers finally go to your XXX organization, makes urgent that no one connected to XXX derives any benefit whatever. That includes you if you have a paid staff position, or any of your family. I think this point is the one most sticky, and one which you must examine with great care.
Will your business claim a tax-deduction for the 10% donations going to the FS with which your XXX organization is affiliated? Maybe that is OK, but here is yet another example regarding why you must consult with the true experts to ensure you do not violate any laws.
Another point to address is for you to be ready with precise sales and financial reports to exactly prove and account for the true 10% donation claimed while selling the products.
No reflection on you, of course, but when such general statements are made, and funds are raised in that way, it is necessary to prove what is claimed.
And, is the 10% figure related to manufacturing costs, wholesale costs, or exactly from retail sales?
Just some initial thoughts to get the ball rolling. We would be interested in your comments regarding the points raised.
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.
The way in which you described the raising and the use of the funds, to my way of thinking, certainly rules out any hint of fraud, and of it being illegal.
The mission departure, however, is another thing. But such concerns are almost always due to an overall drifting of sorts away from the original core principles upon which a given non-profit was established. Your annual, one-time event, seem OK to me, though I am not an expert regarding the boundaries of the various IRS 501 classifications.
That brings my thought to the fact that yours may be a member-type organization of sorts, thus perhaps the member organizations pay dues. And those organizations, being of the sport and recreation type, suggests that the IRS classifications are not those of what I know best as being 501 (c) (3) charitable organizations.
If that is so, then it would seem that the only caveat/concern about raising money for the food banks, would be the status of the tax-deduction for donors giving to support the drive for the food banks.
These points are best discussed with your attorney, CPA, the state’s Attorney General, or the IRS, though from what we have been hearing, the latter does not reply to phone calls.
In summary, as long as you can account for every penny raised, and that absolutely the only beneficiaries are the food banks, without anyone enriching themselves, then it seems OK from where I sit. The mission departure, being one-time annually, could very well pass muster with most any critic.
Detailed, informative, appropriately caveated. Thank you.
The donation information was seen on an IRS form 990, well after the fact.
Other than those top officials being in the know, was the entire board aware of such a large donation being given to another organization?
There should be concern regarding the recipient non-profit foundation’s use of the funds to organizations which may have widely different missions.
If there was no financial gain by any official of the receiving organization, then I would think the worst conflict of interest may a conflict of loyalty. That would be hard to prove and even harder to rule against. Maybe not unethical, but certainly bad decision making, bordering on the money being given by a select individual according to his own preference–influenced by another family member.
It appears to me as more a matter of poor judgment, but far more serious if the board was not aware, and if donors to the college would be upset if they knew.
Thanks, Tony. I don’t know if the college’s board approved this 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.
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.
“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.
Apparently it is OK for a non-profit to accept a loan from an individual.
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.
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?
Can a non profit vote to give money to an individual member that is in need due to medical reasons?
The IRS forbids the giving of donors’ money to named individuals in the first place, and such an off-mission use of contributed funds is as well illegal. (Besides, how far could you go to continue meeting those expenses for that individual, and where could you stop regarding other needy individuals?)
The board members, and other caring individuals, can certainly make outright gifts of their own funds to help with the medical expenses of the ill member. Those gifts would not be tax-deductible.
Hi Tony, thanks for doing what you do.
In the case an employee of a 501c3 who is ill gets help through a separate non profit organization who has as there mission to help the ill, can we donate to the separate 501c3 without restriction to whom may get the help?
Can we use our website to solicit funds go to directly to the separate 501c3 or “GoFundMe”? Or use our list of members to send donations directly to the separate 501c3? Our employee is part time educator without medical benefits where education is a pillar of our 501c3 mission.
My nonprofit has been awarded a grant specifically towards a scholarship fund we raise each year for international students. The grant is coming from a private nonprofit foundation. Some of the terms they have presented to us seem to be clear conflicts – specifically, the contract says that if the funds aren’t used for a specific type of international student within the next year, then the remaining funds must be given to another institution of the donor’s choosing. Our nonprofit regularly raises scholarship funds for students of specific nationalities or fields of study – this is not a problem – but when we cannot find a student that fits the preferred criteria specified by a donor, our policy is to either roll the funds to another year or use it for anyone with the greatest financial need (this policy is in the agreement all scholarship donors sign, and they can specify which option they like best). We’ve never had a donor give us terms saying that we’d have to give the money to another organization of their choosing. This seems to be a clear conflict of nonprofit law, especially since there is no guarantee that the institution of the donor’s choosing would align with our nonprofit’s mission. Can you clarify?
Let me start with the usual caveat: I am not a lawyer and will not give you legal advice. You should contact your organization’s legal counsel for better clarification of your situation.
That said, my experiences as a fundraiser, nonprofit CEO and board member, and officer of a foundation tell me that a donor can include direction on how a gift is to be used. The organization can then choose to either accept or reject the gift. It is up to the organization to determine whether the restrictions attached to the gift violate its policies or bylaws or if they violate local, state, or federal law. If any of those conditions are true, then the organization should reject the gift, or negotiate with the donor to change the requirements.
As far as the requirement that your organization give the remaining money to another organization goes, I have never seen that restriction. I would be surprised if the actual wording of the contract says that. It seems more likely that the contract would require your organization to return the money to the donor if the organization violates the contract by not honoring the restrictions placed on the gift.
However, once again, I am not qualified to comment on the legality of such a situation. You really should discuss this with your organization’s legal counsel.
I am adding my comments to Dave’s good words. He has plenty of experience on the granting side, while all of mine has been on the receiving end. Nonetheless, here is my take on your issue.
I too must recite the usual caveats—not being an attorney, nor skilled in non-profit law, so my opinion is just that.
It’s an opinion from an old non-profit fund-raising development director who, for the most part, always takes any money offered and runs with it.
That is what I would do here. I see no ethical or legal problem. Only that human nature being what it is, it may be natural to resist the idea that you be told where to give your (actually their) money.
Chances are you will find a way to use all of the funds anyway in keeping with the needs as they develop for you to meet with specific scholarship parameters established, in keeping with your mission, and the conditions of the granting foundation.
Were you to have unused funds, and be directed to give them elsewhere, I think the scholarship use by itself would keep you well in the margins of your mission.
Besides, you would not be using your regular donors’ money out of the way they intended, but using those funds from another donor as that grantor specifically directs.
My additional thoughts:
The granting foundation cares enough about your non-profit to give you money.
Maybe they know, or have an idea, that at times — with prior agreement with funders — you have some unused funds which may, in effect, go into general operating use.
This particular funder does not want that to happen with their grant. They want their money to go for certain to your scholarship use, or if need be, to the use of another scholarship-giving non-profit.
Driving that thought, I believe they want to avoid any chance they would need to develop the considerable paperwork and expense from having funds they grant be returned to them.
I think those are the reasons why the granting foundation would insist upon selecting the non-profit of their choice for you to give any remaining funds.
If I am correct, then you need to work even harder to fine-tune your scholarship recipient process to ensure that you in fact use all of their funds. It is clear they do not want to waive the use of unused money in any way within your organization. Thus, they would go outside of it.
It would not hurt, perhaps, were you to ask for a grant extension period so you could have more time to find appropriate students to receive the scholarships.
Not only would they not want the money returned, but I would think they would rather not be in the position of selecting the other charity to receive the unused funds.
That’s even more paperwork and more reporting accountability.
Why do that? They can give such funds outright and straight away to any non-profit of their choice in the first place.
How does the receiving organization record investments received by another organization? Fair value based on a valuation similar to other large donations from individuals or for-profit companies?
By “investments,” I expect you are referring to your organization receiving gifts of stock.
If so, you value and acknowledge the worth of that particular stock on the day you received it. That is how it is done when such gifts come from individuals, and it would be the same in any instance. You just check the market status of the stock on that day, or get the number from a stockbroker if such a professional is handling the stock donation.
Were you to hold onto the stock and sell it at another time, chances are the stock market value would be higher or lower. No matter, what the stock was worth on the day received is what must be observed.
By the way, with such gifts, when seeking support the next year, we were sure to cite the donation at the value on the day received the year before—not the value, if at the date of the sale, the stock was worth more or worth less.
Gifts of property would be more complex, what with seeking accurate market values, rates of depreciation or appreciation, etc. Such transactions would need to be worked out with an attorney or accountant—both to be skilled in non-profit law.
Thank you for your article! I have a related question: can my nonprofit raise money and make a cash contribution to a for-profit that is operating a program that aligns with our environmental mission? In other words, they are operating a program which would have a beneficial environmental effect while bringing in revenue for themselves. Is this possible? Or would it be possible if we were to contract with them to run a certain program?
Thank you for your time!
Right at the top, I think you should not make that donation. (Actually, giving the money to a For-Profit business is not a donation.)
I’ve been thinking about your Blog, knowing from the time I read it, that the answer must come from your attorney, upon review of your non-profit’s Articles of Incorporation, its Bylaws, and its Mission Statement.
If what is being contemplated runs counter to the first two, you have your answer regarding the next move, especially if the proposed affiliation with a for-profit business ends up causing a diverging by your non-profit’s Articles of Incorporation from the state in which you operate, and as the IRS rules about a non-profit’s purpose, i.e., its reason for being.
With those points addressed, as in some other instances, a non-profit can develop such an association with a for-profit, when doing so in no way results in gain or profit for anyone connected with the non-profit charity. And if the money given is for general purposes, then you would need to be concerned that your donors’ money is going to help pay the salaries and general business expense operations of a for-profit company.
I understand that a great deal of valuable medical research is done by for-profit organizations for non-profits who give money for such service. Again, the key point —- the money you give, as was given to you by your donors, must be given in a manner they (the donors) endorse and understand as they were compelled to give according to your Mission Statement.
The non-profit in instances such as this is usually set up as a foundation “feeder” of funds to projects, programs, or services. The NP should retain control of the program. The money must not be given to the FP to be used at the FP’s sole discretion.
But now, I’m getting into what must be precisely set-up with the help of attorneys who know NP laws and IRS regulations.
As well, I would imagine that the accounting procedures would be demanding and exacting. When dealing out a non-profit’s donated funds to a profit-making organization for worthy and defensible programs, accounting for each penny is not an exaggerated requirement.
To repeat, from most of such arrangements I have come know, what you are talking about is quite often done by NP research departments in universities who apparently commonly work such agreements with both non-profits and for-profits. You might want to check with a few of your local Academia development departments to learn more and perhaps be able to streamline your process.
This is out of my fund-raising plans and tools territory, but I wanted to tell you about what I have picked up along the way, plus suggest the application of some practical sense regarding the very careful use of your donors’ money.
Even traveling to such (for me) undiscovered territory, my instinctive reaction is that you may be getting into trouble to simply give your donated funds to the For Profit business. Perhaps a very exacting and specific project, program or service—working a true and sensible budget accounting of every dollar, will do it.
Thank you very much for your insight. I really appreciate it!
What does “No violation of donor restrictions” mean. Let’s say a retirement fundraising party is being planned and the donations are coming to our 501c3 organization and the plan is to give some of those donated funds to a children’s summer camp. Can that legally be done without specifying that intention to the donors.
The caveat you cited, regarding the use of donors’ funds being restricted, applies only when a donor expressly directs that the donation be used in a clearly stated way, i.e., for endowment, a capital campaign, a scholarship fund at a college, mission work for a church, medical research at a hospital, etc.
By your words, “ … retirement fundraising party …,” I interpret that to be a fundraising event to honor a well-known person of some value to your organization, or one recognized for some other prominence in the community — but of a stature big enough to attract enough paying patrons and sponsorship and underwriting funds to made a good net profit and to justify the time, effort, and expense.
That person, of course, must not be a recipient of any of the donated funds whatsoever. (Were that to be the case, the donations would not be tax-deductible since the IRS forbids charitable funds going to a named individual.)
That assumption being the case, that the honoree is not a recipient of donated funds, I see no problem with how you use the net proceeds from that fundraiser:
(1) if the receiving children’s summer camp is in fact a non-profit organization,
(2) and if it is an organization whose mission is similar to yours.
Those two points, to my way of thinking, are required by law.
Read again my article above to have further reinforcement to what I feel are the elements you need to have in place.
Hello Tony, my question really isn’t about in-kind gifts. I hope that is okay. The Non-Profit I work for has been fortunate in that groups and businesses will hold fundraisers and in turn write us a check for the funds they raised. On several occasions we are asked to provide a receipt to either sponsors or individuals who participated in the fundraiser. This happens mostly with golf or fishing tournaments. I always say we cannot do that because we are not receiving the donation or payment to play from the individual or corporation directly. My boss however, is feeling pressured to give receipts to individuals who played in a recent tournament. I understand the Quid Pro Quo contribution, but in these cases we are not hosting the event and do not pay any of the costs or collect the payments made by those participating.
Is it okay to send a receipt to those asking with the amount they paid the other organization on it? Or should I include in the letter the name of the organization that held the event? Technically they did not receive anything from us for their payment to play in the tournament.
I’ve read through tons of IRS publications and I cannot find an answer directed toward this issue.
Though not an attorney, nor skilled in non-profit law, the answer—to me anyway—is a simple one.
The groups (if non-profits) and businesses, are the ones, and the only ones, who can or should provide some sort of receipt; be it for a legal deduction, where applicable after the value of goods and services are deducted from cash, or the businesses to possibly declare their “contributions” as business expenses.
In-kind donations should be handled in the ways I suggest in my article:
— In-Kind Gifts: How to Acknowledge and Recognize Them
The best, and only, thing you can do (only with the OK of the groups and business) if you choose, is to send notes of appreciation to those patrons of the golf and fishing events (and other such), simply thanking them for participating in ______________’s _________ event, which in turn, had your organization as beneficiary from the net proceeds.
No mention whatever should be made of what the attendee or patron spent or contributed.
What you received are checks after the fact, and those entities sending you the checks should be thanked by your organization, but only to acknowledge the amount you received—with no hint of anything they can do legally for tax breaks, and certainly not what the groups or businesses can provide to their supporters of the events for tax-deductions.
A Music and Drama presenting non-profit organization here in Cleveland raised money from their members and friends from producing and hosting a special program.
From the net proceeds, the M & D organizations sent a check to the Cleveland Orchestra for its support.
I could in no way send any tax-deductible-related statement to the M & D donors which would have any meaning or value. Their payments went first and foremost to the M & D organization.
Their patronage and contributions directly supported M & D and we were simply the recipients in general and in total.
For good PR, and to possibly cultivate new donors—and with the agreement of the M & D organization—I did send notes of appreciation to several selected major donors/patrons to the event, but I only thanked them for making the M & D event a success, which resulted—thanks to them—in my Orchestra benefiting. Any tax-deduction citing had to come straight from the M & D organization—such as I see in your situation.
Thank you Tony
What does “No violation of donor restrictions” mean. Let’s say a retirement fundraising party is being planned and the donations are coming to our 501c3 organization and the plan is to give some of those donated funds to a children’s summer camp. Can that legally be done without specifying those intentions to the donors.
Hello, a group of us recently started a 501c3 fund to raise money for the family of my brother who recently passed away. We will be having golf tournaments, softball tournaments, etc to raise money through sponsors and donations. All sponsors ad people who donate are aware the money is to go to the family.
Is it ok to gift money from the fund to my sister in law and her children? The money will be for medical bills, mortgage payments, college funds, etc.
I have heard conflicting answers to this question. The mission of the 501c3 is exactly for this purpose.
Sorry to say–as I know it to be–that you cannot designate tax-deductible funds to a named individual or to named individuals.
The IRS is quite clear on this.
I cannot see how you could have developed a 501 c 3 in that specific way.
Maybe your mission statement was prepared to provide such support in general, to meet a stated need in the community. If so, you then cannot direct contributions to specific individuals, no matter how needy.
See IRS Publication 526 and note the section titled, “Contributions You Cannot Deduct.”
The prohibition is quite clear, so there should be no conflicting statements which are credible from unofficial sources.
You can, however, raise non-deductible funds in the manner that they be outright gifts. But, you must upfront let any prospective donors know that their contributions are not tax-deductible
My regrets, to be sure, considering the hardships and closeness involved here.
But, on another practical matter, I urge that you revisit your Mission Statement to be sure you are not in violation of IRS regulations. The Mission cannot be, as noble as is the cause, to better the lives of named, specific, individuals.
I work for a city government and it has been defined to us by city council that we will only set up and take down for CITY sponsored events, which do not collect any donations or sell anything during those activities. Our Fire Department is volunteer and has annual sales all year long which we, city workers, set up and take down about 90% of everything. It takes about two weeks to set up and take down their events so THEY can raise funds. Question is, can this be a misappropriation of city funds? Eight city employee pay checks, plus fuel for two weeks?
1. If the City Charter is explicit, and so orders that you can only set up and take down facilities for City-sponsored events, then the question, as I see it is, Who then, gives the orders for the same procedure to be expended for the volunteer Fire Department’s events? To my way of thinking, the answer to your questions starts there.
2. Perhaps of significant impact to the issue you cited, is the fact that the Fire Department is volunteer, thus the work of that crew is inestimable. Any refusal to help them with arranging the facilities they need for fund-raising, could be a serious and damaging service and volunteer-relations situation.
3. Though the work is done for volunteers (on behalf of what they do for free for the City), the City workers doing the setting up and taking down, should be paid. I would think they must be paid.
4. As well, the volunteer Fire Department leaders should have a clear and fair look to what they expect from the City regarding how much time and effort is to be expended for their fund-raising events. Depending upon how successful each event is, considering the cost to produce them, and their net profit, it could be that a given event is not worth the expense in total, including the cost to the City with their workers doing the set ups and take downs.
I do not see so much as a misappropriation of funds, as I see the City perhaps bending over backwards to provide what the volunteer Fire Fighters want, considering their irreplaceable value to the City—its property and citizens.
Maybe the City Charter should be amended.
Perhaps the Fire Department could be more selective with their choice of events they want to produce; how many of them, and when they want them.
A review of the points I cited above could hopefully help to clear the air.
Maybe I should have been further detailing, yes the “volunteer” dept is irreplaceable and we are appreciative of them. BUT the city already pays for their fuel, their maintenance, their trucks, their facilities and they have one PAID full time firefighter and a paid chief paid by the city. It’s the volunteer association we are setting up for, they’re a 501-3c.
Their are also other non city sponsored events that the city manager is not disclosing to the citizens that the city is actually using funds for as well, but we do as we’re instructed.
If you’d really like to get technical their is a maintenance fee here as well, that fee goes on top of taxes citizens pay and not ALL citizens are required to pay it. Pretty sure it’s more of a donation situation since it can’t be enforced and not everyone has to pay it, am I wrong? But as you guessed it doesn’t go towards maintenance of the city either, it goes into their general fund.
Something is definetly fishy here, just wondering what to do or who to contact. I’m sure the employees here would like to know if they’re following through on any sort of illegal activity as well.
The additional details do help considerably. I’ll just go down your latest Blog and make my off-the-cuff comments:
(1) The City should pay for the volunteer fire fighters’ vehicles’ fuel, maintenance, and any other related expenses.
Though there are two paid positions, you still have a volunteer fire-fighting force. There would no doubt be serious trouble without them.
You are appreciative for what they do, but with the listing of what the City properly pays for, it seemed to me that the appreciation had a touch of resentment in general for the volunteer association’s requests/demands for the setting up and taking down of facilities for their fund-raising events.
(2) With the City Manager spending funds for non-city-sponsored events, I would think you have a serious misappropriation of funds going on there. How such financial dealings could get past the City Finance Director, be missed in an outside audit – be it by an accounting firm, or the State Attorney General – seems to me to be a critically important question to ask.
Imagine what that could do for the City’s image should the media get a grip on the situation. Even if things could be explained in a rational manner, there is major possible mis-perception problem—it appears to me.
That issue would be one far more serious than the setting up and taking down of facilities for the volunteer fire fighters.
(3) The so-called non-mandatory maintenance fee, could in fact be an illegal slush fund—to have those in power and in control of the funds use them as they wish when absorbed into a general fund. If the collection of those funds are for a specific reason, then there is nothing “general” about that money.
That practice could be the biggest scandal of all.
You know the lay of the land there well enough to have some idea of the scope and depth of the situation to warrant a whistle-blowing, be it via a person in the local government, state government, or the media.
I am the scoutmaster of a boy scout troop. I would like to give 10% of the money we raise through selling donuts, Pancake Breakfast and Spaghetti Dinner to local charities.
Examples of the places we want to give to are the county orphanage, soup kitchens and places that help feed the homeless.
Someone mentioned it was against the law to give money we raise in our fundraisers to other organizations.
How or where can I confirm this statement?
Yes you can.
Read again my above article for the caveats to such transfer of funds to see how you meet those points. If all is OK, then you can go ahead and do your good deeds.
Can funds raised while we were a local little league be used to rent ballfields for Cal Ripken baseball – which is also non-profit. We just want to change names so all kids can play rather than be restricted by small boundaries.
Anyone know this?
You may need advice from the IRS or from an attorney.
But, your note reads to me as if yours “was” a non-profit, saying … “while we “were” a local little league …”
If you filed for dissolution, then the articles of such an action would guide you to properly donate any unused funds, once creditors have been paid, etc.
If you simply changed your non-profit’s name, then it seems to me to be OK for you to follow through with your plan.
Again, I am not an attorney, especially one skilled in non-profit law.
Still, if your organization is currently operating as a 501 c 3, then what I write in my article above could be used to see how your plan fits with the caveats I have listed.
I am currently working with a 501(c)(4) who does a major fundraiser and donates to 501(c)(3) charities who help those who offer free assistance to those in our community (Medical Free Clinic, Hearing Free Clinic, our local Habitat for Humanity Chapter etc.) We are currently in the process of applying for a 501(c)(3) status and making sure we satisfy the concerns of the IRS.
My question is 1. Do you have any tips on how to define the purpose to satisfy the IRS and
2. Do you have any tips on what they are looking for.
We have already submitted our application and now are responding to questions such as how have we significantly changed and changed our Bylaws to reflect the IRS recommendations.
Thank you for your help.
Perhaps I am missing something, but from a reading of your Blog post, I get the impression that the organization’s (main) reason for being is to raise money to give to other humanitarian-oriented charities.
Right or wrong, your organization’s exercise of a Mission Statement development would definitely pin-point your Mission in terms of what services you directly provide to better the lives of people — or animals, or help the environment.
I suggest that you and your leaders review my short article regarding Mission Statements and see where and how you fit, especially to comply with the IRS’s dictate that you “do something for the public good.”
Just how much good you do indirectly, with funds provided to other charities from your fund-raising endeavors, to my way of thinking, impacts greatly upon whether or not yours is true public-service organization in the truest sense.
What you do must make a direct and positive difference directly to a cause or constituency, and not mainly as a provider of money to other service organizations.
No matter what, please work the Mission Development exercise and see where you stand.
That is how you will possibly in time define the purpose of your organization to the IRS, to your own volunteers and donors, and to the general public.
— Don’t Make Your Organization’s Statement Of Purpose A “Mission Impossible”
What they (the IRS) are looking for is what I cited above: that you provide something good, and which is needed, to an identified constituency which will positively impact on their lives.
I have a question on “Nepal Earth Quake Fundraisers” going around now. Can one charitable organization (indended for religious work) collecting donation for Nepal Fund and offers to give to another charitable organization who really do relief work. I am wondering whether the donations receipts provided by the first organization is really valid? Is this type of activities is legal?
I know of a small for-profit organization that claims to be a “project” of a larger non-profit(501c3). Donations to the non-profit are tax-deductible even though the donations pass through to the for-profit.
On its website the for-profit never claims to be a 501c3 but it does state that it is a project of a 501c3. Links to the 501c3 are provided.
Is something fishy here?
I would need to see the respective websites.
But, though not an IRS rules expert, my initial reaction is that any money given in the way you describe cannot be tax-deductible.
And, the 501 c 3 charity involved here had better let the public know that.
What kind of “project,” and how such a pass-through passes muster with the IRS and the true donors to the charity, are all questions which must be answered.
But, I am sure that donations which pass-through the for-profit are not eligible for a tax break. If any break is apparent here, it may be a breaking of the law.
The first organization can collect tax-deductible donations, letting the donors know that their contributed funds will be given to an accredited international organization for its work in Nepal.
That would be something akin to a church doing the same for its mission work in another country.
I am the controller for a university development foundation that has a mission as you might expect – to support the university and its students. We recently received a large donation from longtime donors to support the construction of a sports complex on campus. We received the money and were preparing to cut a check to campus when campus notified us that the check need to come from another of the supporting foundations. The requirement comes from how building project for public universities work in our state – the state needs to approve the funding avenues before construction can start, so if you say you are receiving funds from NFP A, you cannot substitute them with funds from NFP B.
Are we allowed to transfer the funds to this organization? The other organization is indeed a 501c3. Its mission is also to support the university (with a narrower mission of supporting athletics). The concern is two fold – are we supporting the university, or are we supporting the other 501c3? One would be a violation of our tax exempt purpose, in my opinion. Secondly, if the transfer is legal, is this a donor advised fund situation? That is not an avenue that our organization currently wants to go down.
Thank you for any insight that you could provide on this topic! Wonderful article, by the way.
I meant Tony! Sorry – not sure where David came from!!
It’s OK, I know from where David came.
We have been good friends, colleagues and partners for nearly twenty years.
He now owns the Raise-Funds site.
There is no exchange of money whatsoever, just to have me transfer the domain to Dave for his complete control to carry out what we two have been doing all along to volunteer our knowledge and experience of fund-raising for any and all in the non-profit world.
I have retired from being more active on the site, and know it is the best time for me to put it in the best hands.
Dave redesigned the site in 2011, refreshing it greatly from what I had at the beginning in 1997.
You can note that Dave has a number of articles posted. He was my astute editor of most of my articles and was instrumental in the writing of my book.
Dave is the ultimate in believing in the volunteer support of the non-profit community, and you can see from his bio that extensive and successful experience is his to offer you and his other visitors to Raise-Funds.
Note my reply to your original Blog above.
Maybe the other material I provided as the go-between you and a major university top pro, was enough. However, my friend sent the following to me just minutes ago. I would think that by this reading you would believe to be on safe ground with the transfer of the funds as you described.
Quick response on the pass-thru question. Unless there are any state rules that prohibit such a transaction, I see no legal issues and to do so is still within the mission and spirit of his foundation.
Here is a very common example from Florida public universities. Funds are given to BFU (Big Football University) Foundation for a scholarly project such as research or new curriculum development.
Some of the funds are for faculty salary and a grad student. We would transfer those funds from the BFU Foundation, to the BFU Research Foundation (a 501c3 which handled non-governmental grants and licensing) which then went to BFU to get the salary funds into the payroll stream.
As you know, a 501c3 can transfer funds or Gifts In Kind to another 501c3 100% legally. In his (and the aforementioned cases) since the funds are supporting the institution that the donor wanted to support, I see no ethical problems as all is in keeping with the spirit and letter of the donor’s intent.
I was asking the other questions as there are some limits on a private foundation making a grant to certain 509a Type III supporting organizations, which might have a donor making it to the regular foundation if the athletic foundation is that Type of Type III org in order to qualify under IRS standard.
I think your fellow asking the question is fine. Please pass along that “wisdom”.
And, I have don so, Josh.
One of the real blessings of being in the non-profit fund-raising profession for so long is that I have come to know so many capable and generous professionals, all willing to help a colleague in need.
Such is the case here with your good question which is out of my usual fund-raising knowledge range.
Perhaps there is more needed to fill in any remaining blanks, but after I passed on your Blog to a good friend, who is the Director of Foundation Relations for a major university, here is what he came up with:
“… My initial reaction is that it’s fine, but want to give it more thought.
Could you at least tell me the state in which the university is located? That will allow me to check the state statutes to see if there are any restrictions.
Two more details I need to know:
• Is the check from the donors coming as a personal check or from a family/private foundation or a DAF?
• Second, is the athletics foundation a Type III non-functionally integrated support organization?
How the athletics org is structured under IRS Section 509 (a) and how the gift is made can limit the path the gift takes.
Either way, to answer his last question, it would not make his foundation a DAF.
It’s just a “pass-thru”. Our university as a 501 c 3 has a couple of foundation grants that support program that result in regranting the funds to local area nonprofits. No big deal.”
So, Josh, if what my friend provided does it for you or not, let me know.
But, I did have a sense as well as he that capital funding laws for a state institution can vary from state to state.
That should be something you can determine from your state’s Attorney General, or some other office.
Again, let me know how what my friend said means to your understanding and resolution.
I have an interesting question and have hit several road blocks in trying to find any help/answers from the IRS directly. I am the treasurer for a 501c3 charity. A group would like to make a donation to our cause, with the caveat that we split the donation 50/50 with another charity who has a similar mission. The catch is that the other charity is NOT a 501c3. The donors want to write the check in the full amount to our charity, and then have us write a check for half the amount to the other group.
I have no misgivings that the other group is a legitimate organization and will use the money appropriately. But, I am concerned whether or not this is even something that can be done without any tax implications for my charity (or risk our 501c3 status) in the process.
What are your thoughts?
My first, admittedly knee-jerk, reaction, is that the group seeking tax-credit, where there is none to support a favored charity, is using yours as a pass-through.
That does not sound good to me in the first place, even though the other charity has a mission similar to yours.
I may be a purist, but being used in that way, would make me wary.
I would wonder why their drive to support the other organization, probably a (c) (4) organization, has them looking to yours as a platform to do so.
I know it may be tough to give up a donation, but the IRS, even not seeing the pass-through, could possibly find fault with your donation to a what is other than a 501 (c) (3) organization.
If that charity is not eligible to offer tax-deductions to its donors, then how can your “donation” be received? What credit or break do you get? Or are you then just making an outright gift?
This question must be discussed with either the IRS or an attorney skilled in non-profit law.
Simply put, you need to know the ramifications between your organization giving a donation to a (c) (3) regarding how it is handled on your books and with the IRS, and what happens when that donation goes to an organization with a different classification which cannot offer tax credit.
I just found this article after I made my posting.
“Can a 501 (c)(3) Donate to a 501 (c)(4)?
It could be helpful.
Still, Like Elvis, I have a suspicious mind.
Thank’s Tony! All of the concerns you’ve raised were my questions and concerns as well. The link you provided did offer some insight to this situation. To me, the offer did not really seem practical for my organization. Yes, we’d love the money, but I’m not really willing to even remotely call our 501(c)3 status in to question. I do really appreciate your insight to know that my “gut” was right to question this particular offer.
I am a director of a non-profit whose articles state that the purpose of the organization is to promote education and health to the public through yoga. The organization has informal ties to Nepal and a particular school there. WE have visited very recently and see the work they do for single mothers and children. Following the earthquake, we want to raise money via tax deductible donations and send it to the school. Likely we wouldn’t raise over $5000.
Can we do so? Can we provide letters to donors allowing them to deduct the donations?
Be careful about the stretch (no pun intended) from yoga education to the “informal” ties to a school in Nepal.
Mission drift, indeed a radical departure, could be of concern.
You should read the Addendum to my article:
Greetings from America:
How U. S.-Style Fund-Raising Can Work In Your Country
I expect that those tight rules still apply–that the only way you can send money, tax-deductible or not–to the school in Nepal is for your parent organization to be in control of the school.
Having informal ties, to my way of thinking, will not do it.
The reasons are stated clearly in that piece which I gleaned from the IRS rules.
Better to raise money, if you will, to give to an authorized non-profit already doing humanitarian work in Nepal: The Red Cross, Doctors Without Borders, other international humanitarian and religious organizations.
From my non-lawyer point-of-view, you cannot raise funds here to give to the school in Nepal, unless you have total control of the school’s operation, just as the USA-based Friends groups I describe in the article.
please advise. I am planning to open a nonprofit . The purpose of that nonprofit will be to collect donations in USA and help small struggling nonprofit organizations in different countries like Haiti, Mexico, China, India .
I’m not clear as to which laws would apply to this nonprofit
and whom should I contact for the paperwork
Good humanitarian intent, but there are indeed strict laws regarding the raising of charitable funds in the USA and having those funds spent abroad to support charities.
Do take a reading of my article:
Greetings from America:
How U. S.-Style Fund-Raising Can Work In Your Country
Read especially the Addendum section, “Raising Money In The United States To Support Charities In Other Countries.”
While generally, IRS rules are ever-changing, I rather doubt if that is the case here. You should check though, with the IRS or an attorney skilled in non-profit law.
Still, I am rather confident that the rule continues to be firmly in place that the non-profit entity in the US collecting charitable donations as “friends,” must be the “parent” body governing any charity out side of the USA for which the charitable funds are given.
If that law is now binding, it would be a sure thing that you cannot arbitrarily dispense funds to various foreign charities–or even one, without that USA Friends “ownership.”
what about being a Type 2 Supporting Organization 509a?
“Subject to certain requirements, a Type I or II supporting organization may support an organization not organized in the United States. A Type III supporting organization may not.” (From: http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Supporting-Organizations-Requirements-and-Types)
I believe this status is granted when applying for 501 c3…also is there way to contact you by email?
You appear to have tapped into the appropriate IRS regulations.
Your good study of those rules should point you in the right direction.
Note that in just about all of my replies regarding such issues that I walk a line too close to appearing to be an expert in what are complicated and ever-changing regulations.
I am just an old non-profit fund-raising practitioner, and as such, must excuse myself from getting too deep into what are very deep IRS waters.
There is a real risk that I could inadvertently mislead.
You should contact an attorney who is skilled in non-profit law.
You must be a generous man with your time to answer all these various questions – and with wisdom. I hope you get rewarded for your energy given.
Our company is not yet a recognized NPO – but are pursing the process. But let’s say we become a NPO shortly. Can we donate to cover a high school student’s tuition in exchange for him volunteering some hours at our thrift shop? We’d like to call it a work-scholarship program. A private school in the area loves the idea. We sure could use the helping hands – and it seems likely the government would look favorably on our NPO helping with tuition. This would not be considered wages, as our NPO is giving directly to the school specifically for tuition. Do you see any issues with this arrangement?
While I have the conversation open, we also have a second pool of volunteers that we want to compensate indirectly. These are men in a residential addiction recovery home program. We’d like to have them work with our thrift store. In exchange for their voluntary hours, we’d like to contribute directly to their most pressing needs, which is usually one or more of three categories: 1) court costs / fines, 2) child support, and/or 3) continuing their education on the college level. Would the IRS look at our direct contribution to these categories as wages for these volunteers?
Then we have a third pool of volunteers to draw from – and this scenario seems plenty safe. These are elderly folks who would like to come in a couple hours here and there to help clean and such. Their reward for volunteering is our NPO contributes a donation to a local missions board. These workers just want to support missions work, and do so by volunteering their time. Does all this seem doable?
Thanks much for your mental energy to think things through and reply.
Thank you for your welcome and appreciated words of support for what we love to do here on Raise-Funds. It’s reward enough to Dave, Joyce and me to know we do some good.
You can see from many of my replies that I reveal some unease when it comes to my opinions and guidance regarding explicit IRS and state rules and regulations the governance of non-profits.
I must always cite the caveat that I am not an attorney, nor an expert in that field, but I do have some experience.
As you are contacting the preferred professionals to ensure verifiable answers, I will give you my opinions, for what they are worth.
Scenario No. 1
IRS Publication 526 does, with exactness, forbid charitable donations to favor a named/given individual. So, the school must independently choose the student.
Passing that test, I doubt it would pass further muster to oblige that student to work for the donating charity as a requirement for tuition paid. Even with legal issues aside, there should be no strings to your presentation of the scholarship.
The only way around this, maybe, is if the school itself has a policy of tuition-granted to donated time and effort in support of a community non-profit.
But, even at that, you cannot escape the direct tie-in to the granting of the scholarship to being obliged to volunteer at your specific charity. The scholarship recipient must be only given the opportunity to choose to work in your gift shop.
In summary, I do not see how this can work within the IRS rules, or even in just the stand-alone partnership you have with the school.
What do you do if that student does not like volunteering at your non-profit, or that you find that he or she is not a good fit, unreliable, or that the student is even undesirable?
Scenario No. 2
Simply put, and sort of a tie-in with No. 1, I am uneasy with the idea that you would provide your humanitarian support to your clients in exchange for volunteering.
You can make the volunteer work needs be known, but the choice to work or to not work, to my way of thinking, must be up to the beneficiaries of your good work alone to decide.
Your intentions are noble, but you risk the wrath of the IRS, and public and client perception, that to be served, you must work. Not so, but that is how it will be perceived.
Scenario No. 3.
Maybe. Just how much work done, by how many volunteers, leads to the issue of determining the amount you will donate to the local missions board.
Too little, perhaps, no matter the amount, as thought by the volunteers putting in their time—or even as thought by the receiving charity.
Through all three scenarios, I see the honest intent, good thinking, and dedicated folks all wanting to do good things for others.
But, I see too much of those good works being contingent on adhering to self-developed rules and guidelines—all of which are not too imposing on the surface, but in time, I believe they will wear thin and cause problems from the IRS, your state, and especially from the volunteers and recipients themselves.
No donation on your part should be contingent on the receivers/donees needing to do something on your organization’s behalf.
There is a NPO 501c3 that I give money to monthly. This organization helps less fortunate people worldwide. They do several Mission Trips a year and take teams of volunteers (who pay their way) on these trips to serve the target groups. When the volunteers raise funds, money is given to the organization by friends and family members donating to an individual and the donations are ear marked for a particular volunteer. Are these gifts tax-deductible gifts because they are written to the NPO but ear marked for use by an individual? This NPO is not a church but my experience with churches, is churches can NOT consider donations made to the church, but ear marked for an individual, a tax-deductible contribution, is this correct? The church basically just becomes a funnel of money from one person to another. However, if the donation is made to the church and it is put in the “general fund” and distributed per its budget per se then that is a tax-deductible gift. Do the same rules apply to 501c3 NPOs? Thank you for your insight.
What I read between the lines as perhaps your misgivings, is correct–no matter it be a humanitarian NPO or church.
There is no tax-deduction allowed for money given to any type of NPO when those funds are earmarked for a specific individual. (Even a needy and worthy beneficiary of the NPO.)
— IRS Publication 526 makes that clear.
— See “Contributions to Individuals”
The trips can be paid for by friends, families and others to specific individuals, but those funds would be outright gifts, and should be directly used to pay expenses.
There could be an overall travel fund set up by the NPO, inviting any and all donations (which would be tax-deductible), but then the NPO does its own, independent and appropriate distribution for travel.
Such personalize “donations” as you described cannot/should not pass through the NPO to be given to pre-identified volunteers and used to pay their trip expenses.
Such a practice clearly violates the IRS regulations.
Hi Tony. I run a 501(c)(3) sports-based charity whose mission is to provide education and recreational opportunities to children in highly impoverished areas. A private sports club (not a non-profit) has proposed the following fundraising idea to us: their players raise money to benefit our programs and in return our charity would give approximately 75% of the funds raised back to the club to purchase equipment for each player. Do you see any problems with this idea? Thoughts?
From my non-attorney, and not being an IRS expert, position, I see a major problem; possibly to have your status as a non-profit put into serious jeopardy.
You would be allowing the sports club to solicit charitable funds in the name of your charity — then to have that sports club in effect, “keep” 75% of what was raised.
Worse, your charitable donations mostly help to subsidize the club’s expenses and gives direct and personal benefit to its players.
To me, that’s almost criminal on their part. It could very well be, according to the non-profit laws of your state’s Attorney General.
The club is, in effect, nothing more than a paid solicitor, keeping an outrageously high amount of what they might raise.
If, and I say again, if —- you enter into such an agreement, there would be the need for exacting control of the solicitation process in terms of how the money is raised, from whom, and for you to beware of problems when cash exchanges hands.
As much as possible, donations must be made in the form of checks, payable to your charity—absolutely not to the club.
Donors can claim tax-deductions only when their donations are directly traced to your non-profit by cash receipts and by checks.
There are no industry standards when it comes to outsiders raising donations for non-profits regarding the percentage they keep of the funds they might raise.
But, were I to be in your position, the first thing I would be sure of absolutely, is that the fund-raising process is totally known to me, and that all possible precautions are taken when it comes to the handling of cash.
No money at all should pass through the books of the sports club.
Then, I would let them do it, and in turn,I would give back about 30% of what was raised.
We have a 501c3 that we belong to as a member group. They say that they claim $40,000 a year of in-kind donations to each of their member groups to the IRS and each of their grants they apply for. I don’t see where they come up with that figure. They are not open telling me either. I was wondering what law I could use to make them share the detailed information on how they itemized out that amount of money per group or at least for my group? I don’t want to have to claim $40,000 in-kind donation to IRS when we aren’t actually getting it.
The IRS does indeed require non-profits to report annual In-Kind donations of property—not services—on Form 990.
Non-cash (In-Kind) donations are accounted for with their description, Fair Market Value (FMV), and date received.
It is hard to understand how the parent organization justifies to its own finance department what are apparently made-up numbers, and dates received of the In-Kind donations.
Even more surprising, is how the annual audit allows this procedure.
What would the organization do should it be asked for names of those In-Kind donors from what looks like contrived and unsubstantiated data?
Why the IRS has not yet flagged what would look like an obvious fixing of numbers—-to have the same In-Kind declaration cited for each member–is mystifying as well.
You member groups have every right to see the books of the parent organization representing your interests.
You have every reason to be concerned, since the parent organization may be risking its own status as a non-profit, thus possibly bring you and the other members down with them.
They are promoting and providing financial data in your name, but which data is something you did not provide, and worse, which is erroneous.
You should relate these facts to the leaders of the organization, especially the board member responsible for finance and accounting.
In what I see from your note, there is a fraudulent practice going on unchecked, that is, until someone, or the IRS gets wind of it.
I understand that a 501(c)(3) organization (Org 1) “give” funds to another 501(c)(3) organization (Org 2) for an Org 2 event if it aligns with their purpose. My question is can Org 1 be publicly listed as a sponsor of Org 2’s event?
To my way of thinking — Yes.
Just be sure that this deal is OK with the leadership and the donors of (Org.1).
Though the Missions are in line, there should be no surprises regarding this specific use of funds given donors to (Org.1).
Quick question I hope someone is still looking at these. I work for a non-profit (501)C3 and they are purchasing new computers. Can they gift their wiped clean computers to their employees or do they have to sell them?
I would certainly think there is an IRS rule prohibiting such gifting, but even if not, perception suffers when such property accrues to the benefit of non-profit staff or volunteers.
As you know, all assets of a non-profit belong to the community, so to speak.
They were made possible by donations. As such, should there be market value, I would think the articles must be purchased at that amount.
In my opinion, you cannot/should not, give away items of value, especially to employees.
We have an LLC where we currently put together celebrity fundraisers for local and national children focused charities. We want to change to a nonprofit so that our sponsors can write off their donations. I saw a previous post from 2013 about someone looking to do the same thing and you didn’t feel it would be approved by the IRS. Is your position still the same? We get approached by nonprofit organizations wanting our help and services.
This is from my non-attorney point of view, and personal judgment, to how the IRS might see the change you are thinking about regarding your commercial business:
Changing to a non-profit, mainly to allow sponsors to write off their donations, is not a mission in the recognized sense, according the IRS, to do something for the public good and which is necessary to make a positive difference in the lives of those served.
In the instance you cited, the move seeks only to benefit the bottom line of the sponsors.
Yours is a commercial event planning and production company. To attempt to go non-profit, it seems to me, would be impossible given that your good work is just that:work to enable non-profits to produce special events.
It is action culminating in non-profits being able to earn income from proceeds of those special events, the proceeds which would directly benefit those served by those organizations. You simply help make it possible from your professional services.
Your good services are not the direct “ends” to making the positive difference to an identified constituency—as each of those non-profits have their own clients.
On an even more sober note, remember that, even if your LLC did end up as a non-profit organization, you would no longer own it.
Once you go charitable, the organization belongs to the community.
You would be required to recruit volunteer board members—board members who make policy and hire and fire staff.
The ownership, policy-making, management and doing business, would then be in the hands of others.
Our non profit 501 c 3 (lets call it organization “A”)ran a fund raiser for another non profit (organization “B”). Individuals at the event wrote checks out to “A” – in turn when organization “A” tallied the total donations Organization A wrote a check for that exact total to organization B.
How do I phrase the donation receipt letter for tax purposes?
Do i mention Organization B at all or say something along the lines of thank you for your donation to A on the behalf of B??
just want it clear where their donation went.
I expect that donors to your event knew clearly–without a doubt–that their contributions were to ultimately benefit Organization “B.” (If not, then you could have a problem when you do need to make clear where their donations went.)
Since your Organization “A” was the first recipient, acknowledgments and other such communication should come from your organization to the donors.
You cite in your communications that, thanks to their generosity, the good work of Organization “B” will continue and be made better to those whom they serve. You thank them as well for supporting your Organization “A” in such a way as to allow Organization “B” become the beneficiary.
It could thought by some that Organization “B” should as well perhaps themselves thank key donors, but I do not think that to be a good idea—should it come up. The donors are yours, regardless of the stated purpose of their donation. Best to keep it that way should the issue arise.
thank you so much! This just the right language. I appreciate it. Now to get those letters printed, and off in the mail!
I ask 20 groups to raise a certain amount of money for a non-profit (the groups can raise it anyway they want). Each group will have a different goal to meet. If the groups are able to raise the amount, the prize will be their group gets an opportunity to win a prize. The members of the group can enter their names to win a prize. Does this process count as a raffle (which I know has strict guide lines)?
To my non-attorney way of thinking, since you are not selling tickets in the usual raffle setting, I see nothing risky with your plan.
The prize-winning opportunity seems to me to be but an outcropping anyway of the main thrust to raise money for a charity. I see it more as an incentive to the groups/solicitors.
However, from this literal and figurative distance, not knowing the details of the fund-raising campaign, I nevertheless offer a few comments which may or may not apply.
— Be certain that the named charity has full knowledge of the plan, and that the charity is in total agreement with the operation.
The charity must agree to aiding the groups in every way possible, especially when it is appropriate to send official thanks and other acknowledgements to donors.
The charity should provide all needed promotion, publicity and solicitation materials.
— Trust is major issue when handling donated funds. With 20 groups going forth to ask for money, it is safe to expect that many donations will be made in cash, and personally handled by many people. Try as best you can to have all donations made by checks made payable to the charity, otherwise, there is a good chance of unwanted, and perhaps, accusatory, requests for strict accounting.
Supplying receipt books to each solicitor may be a good idea.
Honesty is not in question here, but a concern for damaging perception when donations of cash flow around and along loosely.
— Be absolutely sure that no money collected as donations will be used by any individual or by a group to pay for expenses connected to the fund-raising. Any such expenses should be donated.
I’m talking about gas for auto travel, fund-raising materials, etc.
You cannot allow anyone to withhold donated money for what they claim as expenses connected to their volunteer fund-raising effort.
I appreciate all the information you share. Here is my question. I have a friend who runs a non-profit organization (501c3) and is looking at “spinning off” a large fundraising event that has gotten rather large into another separate (501c3). The donations (ie: restricted cash, and a physical asset (vehicle) are to be “donated” to the new entity once approved by the IRS. I believe the missions are in line with each other, seeing how the donor was actually performing this task and is now separating it to the new entity. Do you see any red flags, etc.?
It’s the “spinning off” action which bothers me. The work, time and expense given to make the event so successful, should not have those who made it work see their resources disposed in that way.
It could be that the very reason for the event is falsely advertised when the profits are given to another NP.
And I would look very carefully to make sure that this proposed spinning off to a yet-to-be-established non-profit has any links to relationships which could bring such asset assignments into question.
Practically speaking too, such a major disposal of resources and assets to an organization not yet operating, is risky, in my opinion, when one does not know if the new NP could be up and running securely on its own.
I have a 501(c)(7) non profit and would like to apply for a 501(c)(3) organization that has a similar mission as our current non profit. Should I apply for it separately or operate under the umbrella of our first non profit? Also can the 501(c)(3) contribute a donation to the 501(c)(7) without it being a conflict of interest?
This is surely something you must research with your state’s Attorney General, the IRS or a lawyer skilled in non-profit law.
From my non-lawyer view, to one of your points, operating one NP version to the terms of another NP classification, may bring you nothing but trouble.
Before you go through the time, effort and expense to develop another non-profit, since its proposed mission is similar to the one you are now operating, you should ask yourself what would be the benefit to having what may be redundant or even conflicting dual organizations.
Conflicts of interest are issues usually easy to determine when individuals personally benefiting directly from the donations of others, or when otherwise use the resources of a non-profit for personal gain.
Hi Tony and thank you for your prompt reply. By similar mission I meant to say the inspiration is the same but this would be for more charitable efforts with communities locally.
Inspiration, alone or mostly, will not do it with your state or the IRS.
What counts is that you must fill a definite, non-served, need and the mission must address the ends, not the means of the NP’s activity.
Serving diverse groups may take your Mission a distance from its own core values.
Hard from here to know exactly the situation there, but this is my best try.
Work with accredited officials so you do not risk problems later.
I work for a non-profit that recently received a donation of used coats. Our clients used some of the coats, however a portion of the donated coats were not used. Can we legally donate those coats to another non-profit?
With the usual caveat that I am not an attorney, nonetheless, my opinion is that you can go ahead with your plan to donate the coats to another non-profit.
However, I would expect the other non-profit to have a Mission similar to yours, and that the used coats go to those in need.
Should the other non-profit not fit those criteria, and the non-profit simply sells the coats, then I think you could have a problem.
My high school mountain biking club is a non-profit. We want to donate $ to another non-profit organization that is doing a fundraiser to repair the dirt trails we ride our bicycles on. The fundraiser also has a “raffle” component to it (one donor will “win” a nice cruiser bicycle). Do you see any red flags?
First, some states prohibit raffles. A check with your state’s Attorney General’s office via phone or information on that department’s website may give the guidance you need. If raffles are not allowed, you take a chance when you present one anyway, even as harmless and in such an obscure setting.
Next, just about all of my experience regarding fund-raising has been with 501 c 3 organizations. Yours is a non-profit, but perhaps it may be classified as a 501 (c) (7), or such, as yours is club.
Such groups mainly exist from dues of members. Even so, how and if you donate your funds should be according the criteria I present in my article above.
Factors such as the other non-profit’s status in the eyes of the IRS, and that they are presenting a fund-raiser for your organization’s benefit, must be explored in the same fashion. That is, does aiding your group fit with the other non-profit’s Mission, and you should assess how my other four criteria fit.
Just make sure you take no risks with the raffle and ensure that donors/members would approve of giving each organization’s assets to another, while having the respective organizations staying is sync with their Missions and Articles of Incorporation.
The nonprofit I am inquiring about is a children’s home (call it A). One of the house parents has their own nonprofit (call it B). B wants to resell the non-cash donations that A receives, and give the money back to A (after paying rent and themselves).
Is this a conflict of interest since B is on the payroll of A, and will be benefiting by receiving a paycheck from B? This could also be deemed a violation of donor restriction since 100% of the proceeds are not going back to A. I am looking for substantial clarification before this situation moves forward (ex. IRS code).
If this situation is allowed, how would this be tracked on the 990? I have searched IRS and cannot find any guidance for a nonprofit making a donation to another nonprofit.
Thank you for your help.
To my non-attorney mind, the situation you described is absolutely a conflict-of-interest, as (B) is gaining personally.
Doing as (B) suggests, could surely jeopardize the non-profit status of (A) and be illegal in the extreme.
See the IRS Form 1023: Purpose of Conflict of Interest Policy
There is plenty of applicable language in that Policy Statement which can be applied to the situation as suggested by (B) to have both parties see that the scheme is fraught with danger.
We are a very small non-profit organization that relies on public donations (as “members”) and foundation grants for our funds. One higher level member category of giving is “Friends” of the organization. Our board would like to donate to a charity in memory of a family member of one of our founding “Friends”, who recently passed away. The charity has nothing to do with the mission of our organization. If this donation an issue?
Since the potential donation does not advance the mission of your non-profit, you could run the risk of coming to terms with the IRS and with your regular donors/members.
Though the gift is meant in the best of ways, it would also seem to be a stretch when the one remembered is a family member of one of your non-profit’s founders.
There is no practical basis for such a contribution. It’s driven by emotion. On its own terms, such a gesture could start a troublesome precedent.
The board members themselves should personally make the donation, and not at all use the funds of your non-profit in that way.
I work for a non-profit that holds an event (lets call it a run) that allows individuals to raise money for the non profit of their choice, or the non profit I work for (by default).
Is there a legal problem here? A question came up that we would be responsible for how the money was used at these other non profits. Or, that if someone misused the money raised for another non profit we would be liable.
It seems like a nice community-care gesture on the part of your non-profit, but why operate an event, spending money, time and effort, to have participants donate to charities they choose?
That your organization would benefit by “default” seems rather unfair to those working on your behalf. What’s in it for your organization, and for those whom you serve?
But, to directly respond to your question, in my non-attorney position, I see nothing legally wrong if the participants make checks payable to the respective non-profits of their choice. No cash deals here, as that sets up all sorts of potential problems.
If any of the non-profits so named as beneficiaries are accredited non-profits, then you have no liability whatever when participants to your event donate to those charities. You cannot be responsible for how they use donated funds. The oversight and responsibility of their trustees, finance manager, auditor, and the state in which they operate, and the IRS, is where the accountability lies.
Just make certain that checks are made directly payable to any receiving charity. Absolutely, no cash should be passing from hand to hand.
Can a non profit give money to a church to help with a remodeling project. The non profit board members are all members of the church that they are thinking of donating the money for a remodeling project. Are the members of the church benefiting from this>
Looks like a conflict (though no doubt well-meaning) of interest to me. Not being an attorney, nor skilled in non-profit law, I’ll take the leap anyway and say that such a contribution may be illegal at worst, and definitely ill-advised at best.
Anyway, I would guess that the Mission of the non-profit would not be in sync with what we know churches do, especially to serve a limited, congregation, beneficiary group.
I would further guess that the Mission of the non-profit would not in any way point to its being able to give to a specific religious organization. Such a deal could put at risk its non-profit status and negate its Article of Incorporation with the state in which it operates.
As well, do review again my article above for the IRS-inspired guidelines to one non-profit giving to another.
I run a newly formed small nonprofit organization, I currently tithe to a local church ( x 20 yrs now ) but I would like to donate to the Nonprofit I run to meet some of the clearly stated needs and is there a limited amount of money that I or one of the Board members should or could donate . At this time we are under 50,000.00.
I have been searching through IRS regulations for something which I recall deals somewhat with what you are asking. No luck so far.
You should go into the IRS site and look for a regulation which states in percentages a ratio of sorts, intended to make sure the non-profit obtains a good portion of its contributions from others in the community than from just one or a very few donors.
I think you should look for the ruling to see if it applies, check directly with the IRS, or ask an attorney who is skilled in non-profit law.
Our small non-profit is a beneficiary of a fund with a community foundation. Can we donate to this fund this year, recording an expense on our books and later years receive money back recording as income?
I did reply earlier, but somehow the Blog did not appear.
My question is why, if you are a recipient of a donation from the fund in the Community Foundation, would you be giving a gift in return?
The fund is a donating fund, not a charity, so you would not be donating to another non-profit. Donating foundations are set up by law in totally different ways than a 501 (c) (3) charity.
If I am off the mark, perhaps a reading of my short piece on this topic will help.
— Can One Non-Profit Donate Money To Another?
If one 501(c)3 charity was handling fund raising as a favor for another 501(c)3 who had family issues and needed to take a hiatus, both for the same reason, dog breed rescue. Is there any law against them transferring money. The one helping can no longer help and is now transferring whatever balance that has not be used yet to the one who is now up and running again. If funds were designated to help the same breed, would there be a problem between these organizations?
This is something for your respective attorneys and CPAs to handle.
I am concerned about donated money being moved around as a favor, influenced by family issues, and the leadership taking time off from performing what are the core values of the organizations.
Raising money for, and transferring money, between organizations, does invite some scrutiny. A non-profit cannot arbitrarily manage its donated funds based on the officials taking time off for family, or other personal, issues.
The charities are public charities, so I urge that as much as possible the respective officials operate them with no direct personal influence.
Care must as well be taken by the organizations to respect the wishes of their respective donors, some of which, may not be pleased to see they gave to one organization, going to another–no matter if they are similar.
Your state’s AG and the IRS would want to be sure that neither organization is violating its mission, being more concerned with financial balancing than there would be with a straight-out donation at the end of a fiscal year.
Here is my ethical dilemma:
A cultural non-profit is helping another health and social services non-profit with support and monetary donations (approximated value of $3000) In exchange, the cultural organization wants a donation of 10 tickets ($500 value) to participate in a raise funding GALA for the health and social services organization!
Is this possible? how could be possible?
Your offline note to me indicated that your board has resolved the dilemma.
From what I can glean from your Blog, it seems to me that the demand for those comp tickets is unreasonable.
It is usual policy and good donor relations to comp such tickets to underwriters and in-kind donors, but necessarily to the degree that such comps are in reasonable number. After all, the event is to make money, and the more you give away, the less net profit you will have.
It is strictly a judgment call, and if demands are excessive, there needs to be be reasoning if possible. If not, you either swallow the loss, or you might even find that the donation is not worth what you would in turn be giving away. Just do not burn bridges behind you.
Can a non profit preschool be run financially by a church, even when it’s a separate business? Are they allowed to control the budget/funds, and is it okay for them to funnel the profits of the school into the church?
These are questions to be answered by an attorney, one skilled in non-profit law. I am just an old non-profit fund-raising practitioner, and yours is an organizational issue, dealing with IRS and state laws.
However, from my non-lawyer view, I see where a few questions could be answered.
— If the preschool is a non-profit, and has its own IRS 501 (c) (3) status, I would question why the preschool would want to be run financially by the church. The preschool could find itself in position to lose donors who would only want to make out their checks to the preschool, not to a church. Companies and granting foundations would most likely have policies in effect which would not allow donations to a religious entity directly.
— If the preschool is operated as an outreach ministry of the church, then certainly, the church would have a great deal to say about the management of the preschool, including its finances.
— The mission of the preschool would be quite different from that of the basic mission of a church. Support of the church in that way, by funneling profits to the church, could very well violate the mission of the preschool.
Again, because I do not know how the preschool is aligned with the church, and if so, in what way, and whether or not the preschool has its own IRS “determination letter” to provide to prospects and donors, it is hard for me to give a clearer picture than what I have provided.
You should have your questions addressed by an attorney.
Can our nonprofit sell inkind donaations as a fundraising activity?
Yes, you surely can. It is frequently done by countless non-profits which, for example, accept In-Kind donations and sell them through their gift shops–or through other means.
Just make sure that you meet IRS requirements which stipulate that you annually secure regular donations in the required ratio to funds you raise selling things.
Non-profits cannot live alone with income derived mainly or solely from selling items, be they In-Kind or from any other source.
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?
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.
LoL, no. It’s called money laundering and it is still illegal in this country. You could always buy a car wash..
Not so harsh. No one is going to post in public any scheme being illegal–knowingly.
My colleague, Dave, gave another David a good bit of sound advice.
We often see such things in the non-profit world based mostly on individuals just not knowing what is acceptable with the IRS and state law.
Opening up dialogue to air out the question is a good thing.
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?
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.
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?
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.
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.
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.
Just had a meeting yesterday re: between 501c3 and 501c7
Is it ok for 501c3 org to donate any goods or $$ to 501c7 org??
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.
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?
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.
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?
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.
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!
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.
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?
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.
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?
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.
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.
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?
Is it necessary to include tax language on the donation acknowledgment when one nonprofit is gifting to another?
We are a community foundation and hold funds for over 300 nonprofits in the community and their is some discussion about whether nonprofits need that language on the acknowledgment or if we look ignorant and incompetent when we include it.
Glad of any insight you could offer.