Can one 501(c)(3) donate (funds) to another non-profit?
This question (really about donation of funds, not items) has raised some spirited discussion in another thread. It is something that definitely bears discussing, so I'm starting this posting devoted to this issue.
I've been reluctant to join in the fray, because I didn't have specific language/laws to cite. However, an IRS rep once told me it was fine - at least in our situation. Periodically, our Principal asks us to fund a variety of things and we transfer money to the school's "Activity Account". Sometimes it's for a specific item (for which they are paying). Our school year begins before our state's fiscal year, and new budget, so the Principal also has to keep some startup funds in this account. If the account is too lean towards the end of the year, we may supplement it. The IRS rep with whom I spoke last year, said this was fine.
I haven't noticed the IRS make any distinction about the donation of cash assets versus other assets. If this were true for cash, how could we legally donate books, computers, and other resources to our schools?
Let's share knowledge about this question. We all know the tax laws can be murky. And, we've probably all been given a very logical wrong answer by someone in authority at some point. But maybe together we can put this one to rest.
As I had stated in another thread, I called the IRS non-profit division after trying to decipher pages of tax laws and codes. As a 501(c)(3) we are clearly in the scope of our authority to donate to another 501c3. The IRS expert mentioned that as long as we are operating within our scope-as a charitable organization-its perfectly legal to do so.
I only brought this up because I noticed that it was mentioned in a few posts recently that we could lose tax-exempt status if we donated to another 501c3. I have been in the PTA for 10 years and had never heard of such a thing and wanted to clarify because we have in the past and probably will in the future donate to other charities.
OKAY JHB, you asked for it, below is a copy of a sample articles of incorporation that came directly from the IRS application for 501c3 tax exempt status(i condensed it just a bit)
Sample Articles of Organization
The following are examples of a charter (Draft
A) and a declaration of trust (Draft that
contain the required information as to purposes
and powers of an organization and
disposition of its assets upon dissolution. You
should bear in mind that requirements for
these instruments may vary under applicable
Articles of Incorporation of the under-signed,
a majority of whom are citizens of the
United States, desiring to form a Non-Profit
Corporation under the Non-Profit Corporation
Law of , do hereby certify:
First: The name of the Corporation shall
Second: The place in this state where the
principal office of the Corporation is to be located
is the City of _______________
Third: Said corporation is organized exclusively
for charitable, religious, educational,
and scientific purposes, including, for such
purposes, the making of distributions to or-ganizations
that qualify as exempt organizations
under section 501(c)(3) of the Internal
Revenue Code, or the corresponding section
of any future federal tax code.
Fourth: The names and addresses of the......<hr></blockquote>
As you can see, the IRS in their own example, has declared that contributions must be made exclusively to other 501c3's.
So if there is anything else I left out, I'm sorry. I missed the Sopranos researching this the other night(its ok, repeats anyway). Now if I don't finish the dinner dishes and get the kids ready for bed, I am going to miss West Wing, and that would be a tragedy. (its a Rob Lowe thing)
I am CERTAIN that the IRS told me, too, that one 501c3 can donate to another 501c3, no problem. In fact, I understand it to be just about the only way we can give cash away.
Our example: prior to filing for 501c3, our PTO would give each teacher a check for her own use as she saw fit for classroom supplies (or she could take her husband out to dinner...we didn't care because every teacher spends way more of her own $ on classroom stuff anyway). When we began researching Form 1023, I asked the IRS about this example. No, the rep said, it's not kosher to just hand out cash anymore, because our PTO had no way of ensuring the $ was being used within the restrictions placed on a non-profit charity. Thus, the only way we could give the teachers $ was to reimburse receipts that proved the money was spent in accordance with the mission and constitution our PTO has filed with the IRS.
However, if we give $ to another 501c3 (and all non-profit schools are automatically 501c3), then the money is guarenteed to be used in accordance with the IRS's rules, since the other organization has agreed to abide by the same rules that govern non-profit status. Makes sense?
So, it's completely backwards for someone to suggest that an organization could lose its nonprofit status for giving to another 501c3.
IRS Publication 557 ("Tax Exempt Status for Your Organization, page 4) lists the reasons why a 501c3 could have its status revoked. Basically, if your organization doesn't do what you said itdoes, or you engaged in a prohibited acitivity of a 501c3 like intervening in the campaign for a candidate for public office (see page 14).
what kind of bothered me about this was this example, what if, my non- profit was given $1,000 , I took out a little to pay my employees and expenses and donated the rest to another non-profit (school, charity, etc....). They in turn, took out their expenses and donated the rest to another non profit, as opposed to actually buying food for homeless people, buying school supplies for children or whatever. And after taking out there expenses and salaries, they donated whatever they got left to another non profit and so on and so on until there's nothing left or by the time it actually was put to use there was hardly anything left. Basically all the money was used for a variety of organizations expenses and salaries.
also related to this......can a non profit be a group that raises funds that solely distributes to other non profits, charity's etc.....? and their existence is to just raise funds.
Jake -- Interesting points. Your question about can a nonprofit just raise money to distribute to other nonprofits -- the answer is yes. The United Way is probably the most well known example. But that doesn't mean every nonprofit can do that. The IRS cares that you spend your money in line with your mission. If a parent group raised $10,000 a year and gave all of that money to a soup kitchen, that wouldn't be in line with their mission and they could lose their tax-exempt status. On the other hand, a $100 donation probably wouldn't raise eyebrows, and if it were in conjunction with a student community service project, it would actually fit their mission.