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US "Friends" Organizations

Legal Counsel for Philanthropy and the Nonprofit Sector

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US "Friends" Organizations

GIVING IN AMERICA

This article, by Ken Hoffman, originally appeared in Third Sector on November 11, 1999.

If only I were paid a dollar, or better yet, a pound, for each time I have heard a UK charity executive saying: 'We need an American Friends group. Where do I register our charity?'. I don't know how this idea gained so much currency. It contains a dangerous misperception.

First, you should assess whether your charity will appeal to US donors. Second, consider what type of donor you expect to solicit: foundation/trust, corporation, or individual?

Most UK charities start with applications to foundations and trusts, which are fairly easy to reach. There are no rules against US foundations making grants to non-US charities. The Internal Revenue Service, which regulates charities, requires only an affidavit and a support schedule, a presentation of income, arranged in stated categories over the prior four years. No middleman, no costs.

With corporate gifts, the picture is even rosier. No rules, no limitations. Corporations can give to anyone, anywhere, anytime. It is just a cost of doing business, no different from placing an advertisement in an overseas magazine.

'But it's the rich Americans we are after!' you cry. Not a bad idea, since giving by individuals accounted for 85 percent of the £108bn in US contributions last year.

But my first preference would be to find a cooperative American charity, willing to enter a joint fundraising project. Might they accept a grant on a UK charity's behalf? Possibly. Will they charge me for it? Possibly not; but if they do, it should be between 1 percent and 5 percent.

Second choice are US charities set up explicitly to make philanthropy available overseas. Two of the best known are CAF America (www.cafonline.org) in Arlington, Virginia, and British Schools and Universities Foundation (www.bsuf.org) in New York City. Each of these requires special procedures so that they can accept funds. They, too, may take a fee. Don't apply to either for outright grants. Neither has built up its unrestricted income to that point.

The least desirable solution to providing tax advantage to US donors is an American Friends group. It costs money, creates a perpetual administrative burden, and has a hidden pitfall maintaining control over funds.

The big surprise with such groups is that money received cannot simply be transferred to the UK. They are not a conduit of funds, but independent charities and must retain legal control over the funds given to them.

The Internal Revenue Service decides how much control is enough, but they only hint at it. Different friends groups have different solutions. One group awards a grant and then raises the money. Another only accepts unrestricted gifts. A third requires the magic word, 'suggest', in every gift, as in, enclose $1,000 and suggest it be used for the new bursary endowment.

Which path you choose depends on how much and what kind of activity you undertake. The right method may change as your scope increases. As for the answer to, 'Where do I register our charity?' Nowhere. You can't.