What is an American “Friends of” Organization?

U.S. Friends of OrganizationlGenerally, contributions to organizations organized outside of the U.S. do not qualify for the charitable income tax deduction. Accordingly, foreign charities wishing to establish a base of support in the United States often seek to establish U.S. charities to solicit contributions from U.S. donors to support their causes. The U.S. affiliates of such foreign charities are often referred to as “Friends of” organizations.

To qualify as a U.S. “Friends of” affiliate of a foreign charity, U.S. law dictates how the U.S. organization must relate to its foreign affiliate. Under United States tax law, U.S. Friends of organizations must be operated independently of the foreign organizations they support.

To qualify as independent, the U.S. organization  cannot be controlled by its foreign affiliate. This means that at least a majority of the U.S. organization’s board should be independent of the foreign organization.

To further establish its independence, the governing board of the U.S. Friends of Charity must have the legal authority and discretion to carry out the U.S. organization’s charitable purposes and oversee its management, finances and disbursements. In other words, the legal relationship between the foreign organization and the U.S Friends of Organization must be similar to that of a U.S. foundation and its foreign grantee.

There is typically an ongoing tension between the desire to operate for the benefit of the foreign charity and the requirement for the U.S. Friends of organization to operate independently. To make the relationship work, the U.S. organization must follow clear processes and procedures for the approval of grants to the foreign organization and take care to ensure that funds raised are mission restricted rather than earmarked for the foreign organization.

If the U.S. organization lacks independence, is dominated by the foreign affiliate in its decision-making process, or accepts contributions earmarked for the foreign organization, the IRS will likely view it as a mere conduit of the foreign charity and deny or revoke its tax-exempt status.

3 Responses to What is an American “Friends of” Organization?

  1. How does a Friends of status affect funding decisions? Does it all have to go to the designated foreign charity or can some of it be used for local needs (i.e. related outreach events, contributing to similar goals in the local community)? We are wanting to partner with an organization that works with sexually-exploited women and children in Nepal but are also hoping to address this issue in our own community.

  2. We have a foreign organization that we want to support with an American organization, but some of the people do not want it to be called Friends of – they want to express a closer relationship to the organization to indicate we are part of it as well.

    Can a friends of organization non-profit not use the term friends of – instead of saying American Friends of Cor Nostrum, can it be American Cor Nostrum or Cor Nostrum of America or the US?

    Sharon

  3. Dear Ellis

    I am investigating for friends who has a occupational therapy based charity in Madagascar. They have willing donors in the States and they are weighing up the options to make themselves as accessible (also tax deductible) as possible for United States donors.

    Can you please give your opinion on which of the following will work best for them:

    1. Donor-advised fund such as CFA America or King Baudouin Foundation United States
    2. To be a foreign affiliate of a US “friends of” organization

    Any advise would be much appreciated!
    Regards
    Juaneen du Plessis