What is a “Friends Of” Organization?
From feeding malnourished people in South Sudan to promoting gender equality in Afghanistan, nonprofits play a crucial role in the fight to improve the world – and US citizens are often keen to support their causes.
Unfortunately, when an American makes a donation to a charity that is based in a foreign nation, they cannot claim a deduction when filing their taxes. According to federal law, only donations to domestic 501(c)(3) organizations are eligible to receive such a deduction.
That’s where “friends of” organizations come in.
A “friends of” organization is a US-based charity that solicits donations from the American public with the intention of granting the funds to a specific foreign charity. It gives US citizens the ability to make tax-deductible contributions to international causes.
IRS Requirements for “Friends Of” Organizations
To comply with IRS regulations, a “friends of” organization is obliged to function independently. It cannot act as a mere middleman between US donors and the foreign nonprofit.
To assess whether a “friends of” organization is acting independently, federal regulators typically consider factors such as:
The Organization’s Mission
A “friends of” organization should have its own charitable mission. That mission can be similar in nature to the foreign nonprofit’s goal, but it should comply with 501(c)(3) rules in its own right.
Generally speaking, “friends of” organizations cannot say they exist exclusively for the benefit of a specific non-US charity.
The Organization’s Board of Directors
It’s not unlawful for a US “friends of” organization to share some board members with the foreign nonprofit it supports. However, federal authorities may question the operational independence of the American charity if its list of directors is too similar to that of its foreign counterpart.
“Friends of” organizations that do not wish to attract IRS scrutiny should ensure that the majority of their board members are unaffiliated with the foreign nonprofit.
The Organization’s Control of its Funds
To comply with federal regulations, a “friends of” organization must retain full control of its funds. The foreign charity cannot direct it to spend its money in specific ways.
Further, the “friends of” organization should have the right to refuse to issue funds to the non-US nonprofit.
The Projects the Organization Funds
The IRS does not allow “friends of” organizations to transfer money to foreign charities simply to cover general expenses. They can only write checks to help fund specific projects that align with their mission.
It is generally advisable for a “friends of” organization to have a pre-approval process in place to ensure funds are dispersed in accordance with the tax code.
Your Experienced California Nonprofit Lawyer
Would you like to learn more about the benefits and drawbacks of “friends of” organizations? Do you need help setting one up? If so, please do not hesitate to reach out to a knowledgeable San Diego nonprofit attorney from the Semanchik Law Group. We have been assisting local charities with projects like this for years, and we would love to provide you with the assistance you need!
To set up a consultation, all you need to do is give us a call at (619) 535-1811 or fill out our short online contact form. We look forward to hearing from you!