Registration of US 501c3 as a "friends of" for international coordination
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Non profits operating internationally
Related article on 501c3 international
To register a U.S. nonprofit as a "Friends of" organization supporting a foreign nonprofit, the U.S. entity must be established as a separate 501(c)(3) public charity under U.S. law, as foreign organizations cannot directly receive tax-deductible contributions from U.S. donors.
The process involves several key steps and compliance requirements to ensure the U.S. organization maintains control and discretion over funds, avoiding classification as a mere conduit for foreign donations.
First, the U.S. nonprofit must be formally incorporated in a U.S. state, which includes recruiting a minimum of three board members, creating bylaws, and filing Articles of Incorporation.
The organization must then apply for an Employer Identification Number (EIN) using IRS Form SS-4. To obtain tax-exempt status under Section 501(c)(3), the organization must file IRS Form 1023, which requires a detailed Organizational Narrative that clearly outlines the charitable mission and justifies the need for tax-exempt status.
The "Friends of" organization must have its own independent charitable mission that aligns with but is not exclusively dedicated to supporting the foreign charity.
It should not simply act as a pass-through for funds; instead, it must retain absolute discretion over grant decisions, including the right to refuse funding requests from the foreign organization. Grants should be made only for specific, pre-approved projects that further the U.S. organization’s own exempt purposes, and the foreign charity must not assume perpetual funding.
To maintain compliance, the U.S. nonprofit must establish a formal grant agreement with the foreign organization, which outlines expectations for fund usage and requires periodic financial and narrative reports to verify that funds are used appropriately.
The U.S. organization must also maintain its own books and records, issue tax receipts to donors, and register for charitable solicitation in any state where it solicits donations—approximately 40 U.S. states require such registration.
Additionally, the U.S. nonprofit must implement safeguards to ensure it is not seen as a conduit, including having a board majority independent of the foreign charity, not depositing donor funds directly into accounts controlled by the foreign entity, and ensuring fundraising, donor databases, and accounting are managed solely by the U.S. organization.
The organization must also comply with U.S. regulations such as OFAC sanctions, the Foreign Corrupt Practices Act (FCPA), and FBAR reporting for foreign financial accounts exceeding $10,000.
While forming a full "Friends of" organization is a common and effective method, an alternative is establishing a "Friends Fund" through a fiscal sponsorship arrangement with an existing U.S. 501(c)(3) public charity, which can be less expensive and time-consuming.
However, even in this case, the same principles of control, discretion, and compliance apply to ensure donor tax deductions remain valid.