Q:  We are involved in a 501(c)(3) organization. The question has come up about whether we can donate money to another 501(c)(3) organization?

 

A:  Without much to go on here, the short answer is yes. Private foundations, which are 501(c)(3) organizations, often exist for the very purpose of giving money to other nonprofits. And, the IRS specifically speaks to the ability of nonprofits to help in times of disaster by making donations through organizations whose mission is disaster relief if they themselves are not set up to provide that sort of emergency aid. But, unless your desire to give money to another nonprofit fits in the first category, I would be judicious about both the frequency of doing so, and the amounts you are committing to.

Assuming you don’t already have a policy on such contributions, I suggest writing one ASAP. It should codify the circumstances under which you could give funds to another organization, and the maximum amount you will expend. The latter condition might address both the amount allowed per instance and the annual aggregate.

You might want to specify that the money go to an organization that furthers your philanthropic mission. After all, this is something you pledged to do with the monies you raise when you sought your determination letter from the IRS anointing you as a tax-exempt charity. Besides, you don’t want to take the chance of incurring the public’s wrath. Consider whether the money you intend to contribute honors your donors’ intent. They have entrusted your organization with their hard-earned money because they believe in what you do and they want to help you extend your impact. Unless you can make a good case that you have done just that with their money, you may likely never see any more of it if the word gets out. Remember, if they wanted to donate to the other organization, they could have. More importantly, they are likely to believe that if you have “excess” funds to give away, maybe you don’t need any more of theirs.

Take into account any precedents you might be setting with these donations. For instance, organizations wishing to make tribute donations in stakeholders’ honor or memory often find the situation spiraling out of control. I spoke to this issue in “Public Pay for an Internal Tribute.

Regardless of what your policy says, I suggest you always ask yourselves if you can afford to make this sort of donation at this time. No matter how worthy a cause, you certainly never want to put your own organization behind the financial eight ball to support another.

Finally, give some thought to how and why you are choosing the organization(s) to which you are making these contributions. Does one of your board directors – or a family member of that person – sit on the board of the other organization? Is he or she “strongly suggesting” this is an important thing to do? Be careful! You could be disregarding your legal duty of loyalty.

Executed with care, though, making such donations can be a beautiful thing.