Friends Of Organizations

What They Are, How They Work, and Why the Distinction Matters

A Separate Charity, Not a Fundraising Conduit

A “Friends Of” organization is a U.S. tax-exempt organization that generally advances charitable work associated with another U.S. organization or a foreign institution or cause. It may be closely identified with one overseas hospital, university, museum, or relief organization. The organizations may share a name, history, mission, supporters, and fundraising priorities. They may collaborate every day. For those Friends Of organizations that support foreign entities, the IRS has very specific requirements on how they can operate and send the funds abroad. The primary requirement is that the U.S. entity must maintain discretion and control over funds it receives before they are used for the stated foreign purpose.

The Discretion-and-Control Standard

The IRS’s reason behind this structure is because contributions made directly to a foreign organization generally are not deductible for U.S. income tax purposes. When a donor or funder seeks to support a foreign organization through the support of a Friends Of organization, that individual or funder is able to take a charitable deduction only because the U.S. organization, through its board and grantmaking procedures, exercises expenditure responsibility over the funds.

The IRS calls this the “discretion and control” standard, and it has applied the same core test to cross-border grantmaking for more than sixty years. ¹ A domestic charity satisfies it when its board:

• has the exclusive authority to decide whether a grant is made at all;
• reviews each request and requires the foreign organization to specify how the funds will be used before approving it;
• documents the permitted use of funds and requires an accounting of how they were actually spent; and
• retains the ability to change the terms, defer the decision, or decline the request outright.

The IRS has revoked or denied exemption to organizations that failed to meet this standard in practice, including where an individual overseas cashed checks and distributed funds with no accounting back to the U.S. board, ² and where a domestic organization could not show it had ever reviewed or approved how its funds were used abroad. ³ The lesson in each case is the same: the control has to be real, not just recited.

Not an Ordinary Operating Charity

An operating charity usually carries out its mission directly, while a Friends Of organization often carries out a substantial part of its mission indirectly by funding projects conducted by a separate foreign institution.

A Friends Of organization may also operate its own programs in parallel with its grantmaking role. For example, it might conduct educational programming in the United States, organize professional exchanges, publish research, sponsor public events, or provide technical assistance while also funding the foreign institution. Its direct activities and its foreign grants can advance the same charitable mission.

Donor Agreements and Earmarking

A Friends Of organization may tell donors about an approved scholarship program, medical initiative, building project, or relief effort and invite support for it. Donors may indicate that they would like their gifts used for that project.

The U.S. Friends Of organization must determine which foreign projects advance its mission, approve the use of its funds, and obtain enough information to confirm that the approved work occurred. It cannot simply defer to the foreign institution because that institution performs the underlying charitable activity. Doing so would potentially be viewed as “earmarking” which can undermine the discretion and control standard.

The IRS could view the U.S. charity as a conduit for the foreign organization and likely refuse the charitable deduction to the donor or funder. Instead, the U.S. charity must retain authority to determine that the project remains charitable and feasible and to respond if circumstances change — for example, if the project is fully funded, cannot proceed, or no longer advances the organization’s mission.

Governance in Practice

The process for implementation can vary and doesn’t have to be complicated. That said, it does need to demonstrate that the U.S. board made an informed charitable decision and followed up on the use of the grant. The IRS has focused on whether that authority exists in practice, not merely whether appropriate language appears in the bylaws or a grant agreement.⁴ The same standard applies whether the U.S. charity is writing a grant check, buying equipment, or paying a vendor directly on the foreign institution’s behalf. ⁵

Successful Friends Of organizations translate legal independence into ordinary operating practices. Projects may come to the board through donor conversations, communications with the foreign institution, or more formal written requests. However a project is identified, the U.S. board evaluates it rather than approving it automatically. Grant agreements or other documentation identify the approved use of funds. Reports are received and reviewed. Donor communications accurately describe the U.S. charity’s role.

A Friends Of organization can coordinate strategy, fundraising, and programs with the foreign institution. The line is crossed when the U.S. organization no longer exercises its own judgment and instead functions as the foreign institution’s agent or conduit, and risks the U.S. charity’s own legal status.

Potential for Increased Scrutiny

Organizations that support foreign institutions, whether through a Friends Of structure or another arrangement, may soon see increasing scrutiny.

As noted in prior blog posts, in January 2025, an executive order paused and triggered agency-by-agency review of federal foreign assistance funding. ⁶ A presidential memorandum the following month directed federal agencies more broadly to reassess funding to nongovernmental organizations, citing concerns that some NGOs “undermine the security, prosperity, and safety of the American people.”⁷ A March 2025 executive order on student loan forgiveness defined the kind of “substantial illegal purpose” that can support IRS revocation of tax-exempt status to include facilitating funding to organizations designated as foreign terrorist organizations.⁸ And in February 2026, the House Ways and Means Committee held a hearing specifically examining how nonprofit structures — including donor-advised funds, fiscal sponsorships, and other cross-border funding arrangements — can be used to move foreign money into and out of the United States.⁹

H.R. 9772, the “Foreign Funding Transparency Act,” was proposed in the House of Representatives Ways and Means Committee,¹⁰ which follows Department of the Treasury announced plans to increase Form 990 transparency and accountability, including for those organizations that support other entities.¹¹

Regulators and lawmakers are paying closer attention to organizations with a core function that involves moving money across borders. Organizations may want to take this opportunity to tighten documentation and board oversight now, and be aware as this area further develops.

Why the Distinction Matters

When structured properly, a Friends Of organization provides an effective bridge between U.S. philanthropy and charitable work abroad. It gives U.S. donors a domestic charitable organization through which to support an overseas mission, while creating U.S.-based governance and accountability for how those funds are used.

The model is specialized because it combines several roles: fundraiser, grantmaker, partner to a foreign institution, and sometimes direct program operator. Recognizing those roles, and knowing which organization is making each decision, is what allows the structure to work.

A Friends Of organization is not merely a funding vehicle. It is an independent charity that may support a closely connected foreign institution, conduct its own programs, or do both in service of its charitable mission.

Lakshmi Sarma Ramani is a Partner and Practice Area Leader at Outside GC. Lakshmi has over 25 years of significant transactional experience and handles a range of legal matters for privately held companies and exempt organizations.