Ken Goldstein, MPPA

Ken Goldstein has been working in nonprofits and local government agencies from Santa Cruz, to Sacramento, and back to Silicon Valley, since 1989. He's been staff, volunteer, board member, executive director, and, since 2003, a consultant to local nonprofit organizations. For more on Ken's background, click here. If you are interested in retaining Ken's services, you may contact him at ken at goldstein.net.

Wednesday, July 19, 2006

Transferring Assets Between Nonprofits

Here's a question that I received by email this week:
What are the rules for giving part of your profits from a fundraiser to another nonprofit?
What follows is from my email response:

Interesting question! If you are asking about IRS rules for transferring assets to another nonprofit, I don't think it's very difficult at all, although you should consult with your accountant to make sure it's done properly.

I think the bigger question here is the ethical one. What was the donor's intent?

If the money were from a grant, or from a single large donor, there'd be no doubt that you'd have to have a conversation with that funder about your intentions and to get their approval for the transfer.

Your email suggests to me, however, that it was from many smaller donors as part of an event that you held, making it more difficult to ask each donor.

Many nonprofits would (erroneously) assume that money raised this way is completely unrestricted and that they can use it for whatever purpose they choose. But, you really have to look at how the event was advertised, and what implied promises were made regarding how the money raised would be spent.

If the nonprofit you wish to give a portion of the proceeds to has very little to do with your mission, or the program promoted in association with the event, then it's probably not a wise decision. For example, a child welfare organization giving a portion of their assets to an addiction recovery clinic.

If, on the other hand, the reason for the transfer is that the other organization is now running the program that the event was held to support, it is clear that moving the funds would keep with the donor's intent. For example, if you were partnering with the other organization on the project, but they are now the sole fiscal agent for it.

In a situation where a nonprofit is dissolving and closing operations for good (such as in a bankruptcy), one of the last decisions the Board is required to make is to select a successor organization with a mission as close to the old organization's as possible to receive any liquidated assets once creditors are fully paid. As a nonprofit, these remaining assets cannot be taken as profits; they must remain with a 501(c)(3) (or similar) organization.

I hope this information helps in your decision. Please let me know if you have any follow-up questions.

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