Q: Can nonprofits tithe to another nonprofit from donations or contributions it has collected? If so, under what expense category should this be listed in our books?
A: Great question!When you say “tithe,” in my mind it conjures up a regular remittance, which would probably raise some flags with donors and the IRS both. It should also raise flags with your board of directors.
Let’s start with your board. Regular readers of this column have seen me harp on the fact that directors have the legal duty to make decisions in the best interest of your organization. Taking money away from YOUR programs to support another organization’s programs are not working in the best interest of your organization. Beyond the legal and moral issue here, it is conceivable that a recipient of your services who feels harmed by a decision such as this – perhaps that recipient has to pay more for services or faces the loss of services altogether because revenues are now insufficient to cover your programs – could sue the organization and the individual directors.
And let’s consider how your donors might feel. They are giving to YOUR organization to support YOUR mission. They clearly believe in what you are doing and wish to invest in the future you have painted for them.While that does not necessarily mean that they don’t already or wouldn’t also choose to invest in this other organization, that choice belongs to them. Perhaps they know this other organization and for some reason do not support it. They would resent that their money is going there. That is not a good way to maintain long-term relations with your donors!
Then there is the IRS. It gave you a determination letter based on your raising money for YOUR cause. It may not look too favorably on such a situation. While it may not come down to that, are you willing to risk your nonprofit status?
There may be instances where it is politically wise to make a donation to an organization with which you are collaborating or that has a shared mission. But generally, such donations are relatively minimal and only made if your bylaws permit them.
If your bylaws do permit them, the conditions for making such donations should be spelled out. And, to answer your last question, if your bylaws permit such donations there should be a line item in your budget for donations.