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Nonprofit Law/501c3 donating to foreign school

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QUESTION: We have a non profit here in the US and have donated extensively to orphanages and non profits in Ethiopia. We now would like to help a local school there and sponsor their non paying students. They are half paying students and half non paying. Can we legally do this? The school will give us detailed records on what our $ was used for- expenses for the non paying students.

Thank you!

ANSWER: First I will assume that the school there is a public school.  If, instead, the school is a private school, let me know and I will adapt my answer to that situation.

Your organization may give grants to schools to benefit students as to tuition reductions.  The IRS has published:
--- Start of Excerpt ---
Generally, distributions made to
individuals may advance educational
purposes if selection is made:
In a non-discriminatory fashion in terms
of racial preference,
Based on need and/or merit, and
To a charitable class in terms of being
available to an open-ended group, rather
than to pre-selected individuals.
A scholarship or fellowship is tax free
to the recipient only if he or she is:
A candidate for a degree at an eligible
educational institution; and
Uses the scholarship or fellowship to
pay qualified education expenses.
... Selection of individuals using a lottery
system generally has not been approved
by the IRS.
--- End of Excerpt ---
From  page 23 on instructions to Application for Exemption
https://www.irs.gov/pub/irs-pdf/i1023.pdf in the middle column

An example of an approval Scholarship Grant-Making Procedure is the
4 page letter from the IRS that may be read or downloaded (save) at
http://goo.gl/CHXwE

Note that you may not solicit funds as charitable donations that are deductible when you indicate in the solicitation a named beneficiary.  As to charitable deductions, see IRS Publication 526 "Charitable Donations" which is available at  http://www.irs.gov/pub/irs-pdf/p526.pdf
on page 6 where the IRS lists as not deductible "Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is
for a specific person."  

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather more information.

---------- FOLLOW-UP ----------

QUESTION: Thank you so much. This is a private school. We have a full list of costs to run the school and have divided it up to see the actual per cost expense. It is about $25 per month per student. We are wanting to cover the costs of all 150 beneficiaries. We also want to donate for the building supplies.

ANSWER: You are welcome.

For grants to a private school in another country, you would need to maintain evidence that the 150 are, in fact, in what the IRS calls a "charitable class".  See pdf page 13 of
http://www.irs.gov/pub/irs-pdf/p3833.pdf under the heading "Charitable Class"
--start of excerpt  ---
The group of individuals that may properly receive
assistance from a charitable organization is called a charitable
class. A charitable class must be large or sufficiently indefinite
enough that the community as a whole, rather than a pre-selected
group of people, benefits when a charity provides assistance.
--end of excerpt  ---
More details are found starting at pdf page 6 of
http://www.irs.gov/pub/irs-tege/eotopick99.pdf

The IRS would, of course, not approve your proposed activity if, for example, the school was for the children of employees of a particular U.S. corporation affiliate.

In addition, as your grants will be to a private school, you would not be able to name the school during solicitations. See the IRS publication at http://www.irs.gov/pub/irs-wd/0504031.pdf for details about international grants to and international activities of U.S. exempt organizations, and,
especially page 3-4 about grants to foreign organizations starting on page 3 at "Deductibility - Control Rules".

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather more information.



---------- FOLLOW-UP ----------

QUESTION: Thank you again for your assistance on these questions. I am starting to wonder if this is even possible as I had hoped.

When you say we cannot name the school when fundraising, do you mean we cannot tell people what school their funds are going to?

Answer
That is what the IRS states in that publication about foreign organizations -- you cannot tell people what school their funds are going to.  If you do, then the IRS treats the payment by those people as a pass-through to the foreign organization and that is treated just as if the people sent the funds direct to that foreign school -- those donations would not be deductible.

However, if you list several organizations in Ethiopia as possible recipients, then you can solicit funds that would not be excluded from deductibility under that pass-through rule.

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather more information.

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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