When looking to support international charities and receive U.S. tax benefits, many donors face the decision of whether to establish a “Friends of” 501(c)(3) organization or open a Friends Fund with Charities Aid Foundation America (CAF America). Each option offers a pathway to charitable giving, but the complexity, cost, and time involved differ greatly. This guide breaks down the key distinctions to help you make an informed decision.
The Friends Fund: Fast, Simple, and Cost-Effective Global Giving
CAF America facilitates charitable donations to over 1.8 million organizations in 135 countries worldwide. For donors seeking a cost-effective and streamlined way to support international causes, opening a Friends Fund offers numerous advantages over establishing a U.S.-based “Friends of” 501(c)(3) organization.
A Friends Fund at CAF America is ideal for organizations or individuals looking to maximize their charitable impact without the administrative burdens of starting a new nonprofit. Here’s how it works:
- Complete the Grant Eligibility Application: This simple step allows CAF America to vet and ensure compliance with U.S. tax laws.
- Pay Initial Setup Costs: Opening a Friends Fund requires a $1,000 setup fee, followed by an annual fee of $2,500.
- Receive Tax-Exempt Donations: Once your organization passes CAF America’s validation process, donors can contribute to your cause with the benefit of tax deductions.
The entire process can be completed in a fraction of the time it takes to establish a “Friends of” organization, with significantly lower costs.
The “Friends of” 501(c)(3) Organization: Complex and Costly
Creating a “Friends of” organization in the U.S. involves several legal and regulatory hurdles, including:
- Board Formation: Recruit a minimum of three board members to oversee the organization.
- Legal Requirements: Work with legal professionals to draft bylaws, file Articles of Incorporation, and prepare your IRS Form SS-4 to obtain an Employer Identification Number (EIN).
- Tax-Exempt Status Application: Submit IRS Form 1023 along with a comprehensive narrative and legal guidance to ensure the organization qualifies under Section 501(c)(3). This process often involves addressing the “conduit issue,” which ensures the U.S. entity is independent of its foreign counterpart.
- State Registration: Most U.S. states require registration to legally solicit donations, adding more time and expense.
- Wait for Approval: After months of waiting for the IRS determination letter, your organization can finally begin accepting tax-deductible donations.
This process can cost upwards of $15,000 (plus legal fees), and state registration adds an additional $2,700 to $3,000 annually. Compared to CAF America’s streamlined Friends Fund option, the time and resources required to establish a 501(c)(3) can be overwhelming.
Which Option Is Right for You?
If your priority is simplicity and speed, a Friends Fund with CAF America is the optimal choice. It offers a low-cost, ready-made solution that allows your organization to start receiving tax-deductible donations in a matter of weeks. In contrast, setting up a “Friends of” 501(c)(3) organization involves substantial legal work, higher costs, and lengthy wait times.
Contact Us to Learn More
CAF America is here to guide you through the process of opening a Friends Fund or exploring other options for international giving. For more information, reach out to us at friendsfunds@cafamerica.org or call +1 202-793-2232.