mission Matters Why Nonprofits Should Avoid Acting as a “Conduit” Even When Missions Align July 28, 2026 Thinking of joining forces with another nonprofit organization? Organizations with shared values often partner up to raise money, build awareness, and make a bigger impact than they could alone. Nonprofits must be especially careful with how donations are received and distributed when more than one nonprofit is involved. Quick Takeaways Even well-intentioned nonprofit partnerships can create risk if one organization simply passes donations to another.Conduit arrangements can jeopardize donor tax deductions and create Form 990 and audit reporting issues.Charitable organizations must retain discretion and control over all contributions they receive.Properly structured grants and clear governance help nonprofits collaborate while staying IRS-compliant. What Is a Conduit Arrangement for Nonprofits?A conduit arrangement occurs when one nonprofit collects donations on behalf of another and passes the funds along without exercising discretion or control. Even if the organizations share a mission, simply acting as a “pass-through” can create:IRS compliance risksJeopardized donor tax deductions, andQuestions about governance and accountability. Nonprofits must maintain independent judgment over contributions to ensure they are used in alignment with their own charitable purpose.Why the IRS Prohibits Conduit ArrangementsWhile it may seem like an efficient way to support a partner’s mission, “According to IRS Rev. Rul. 68‑489, charitable organizations must maintain full control and discretion over contributions they receive to avoid acting as a conduit and to uphold IRS compliance requirements” both to protect donor tax deductions and to uphold legal and financial accountability. When a nonprofit is obligated to transfer a fixed percentage or a donor‑directed amount to another charity, it can compromise donor deductibility, lead to improper acknowledgment letters, and create reporting problems on Form 990 and audited financial statements. Donor Acknowledgments, Form 990, and Financial Reporting RisksAs highlighted in recent nonprofit guidance and collaboration policies, nonprofits must acknowledge only the portion of the gift they retain and control, and any subsequent transfer to another charity must be treated as a discretionary, mission‑aligned grant, not an automatic pass‑through.However, if the donor directs that the funds must be given to a specific organization or if the receiving nonprofit is obligated to automatically transfer the contribution, the IRS may treat the nonprofit as a conduit, making the donations non-deductible. In those cases, issuing a standard donor acknowledgement would be improper because the organization did not exercise the required discretion and control. Failure to structure donations correctly can expose nonprofits to audit findings, donor confusion, and regulatory scrutiny.Governance and Independence Considerations in Nonprofit PartnershipsBeyond tax compliance, conduit behavior can also raise concerns about governance, independence, and whether an organization is truly operating for its own exempt purpose. Nonprofits should support their partners through thoughtful, compliant structures that preserve discretion, maintain transparency, and protect both donors and the organization, ensuring the collaboration strengthens (not compromises) their charitable mission. How to Properly Join Forces With Another NonprofitNonprofits can collaborate effectively without straying from IRS rules by structuring partnerships thoughtfully. Instead of acting as a conduit, organizations should establish formal agreements that define each nonprofit’s roles, responsibilities, and control over funds. Contributions should remain under the receiving organization’s discretion, and any transfers to partner organizations should be treated as discretionary, mission-aligned grants.Clear communication is key: both parties should document expectations, decision-making authority, and reporting responsibilities. This ensures that:Donor intent is respectedContributions are acknowledged correctly, andFinancial and governance obligations are met. By planning upfront, nonprofits can combine resources, share expertise, and maximize impact while maintaining compliance and transparency.
