Defining a Conduit Organization (a.k.a. Fiscal Agent or Intermediary)

"Water Pipes" by jm_teychenneWhen grants or gifts cannot be made directly to a recipient (individual or organization) many times Fiscal Agents are used. These Intermediate charities are commonly referred to as Conduit Organizations because they are not the intended final recipient, rather just a pass-through.

With the right due diligence, control, and by-laws, this type of seemingly-indirect charity can be perfectly legal and advisable. (Please consult your lawyer to see if this solution is right for you or your organization.)

One such group that uses Conduits in this way are charities located outside of the United States (and, thus, not considered tax-exempt in the eyes of the IRS) that are looking to fundraise in America.


Let us be clear: This post is not looking to define the legal interpretation of a Conduit or Fiscal Agent. Nor is it seeking to extrapolate the ramifications vis-a-vis the IRS and related tax code.  Rather, this post will seek to better understand the strategy and purpose behind these types of organizations.

This understanding is crucial in order to better address the more important question and the topic of my next post in this two-part series: How a Charity Can Choose the Right Conduit.


Tax incentives are some of the most powerful marketing tools available to nonprofits trying to convince the average citizen to donate to the cause.  In general, a private individual can receive money back (a % of charity given) on the income taxes that he or she has paid to the Federal Government; an arrangement that benefits both the donor and the charity.  Granted the particulars are more complex than the simple formula I’ve presented, but the basic principles are true enough.

However, only donations to American organizations designated as 501(c)3 by the IRS are tax-deductible (see previous post summarizing What is an American Nonprofit).

This creates the obvious challenge to those registered outside the United States that would like to fundraise in America as donations given directly to these organizations are not tax-deductible.

Solution One: Establish an American nonprofit organization to support the cause abroad. These charities are commonly referred to as “Friends of” organizations. (See What is an American “Friends of” Organization? by Ellis Carter.)

Solution Two: Ask would-be supporters, instead, to send donations to a Conduit Organization registered in the United States, recommending that the funds be used for the charity registered abroad.  The donation to the local Intermediary is tax-deductible, even though the final beneficiary isn’t a tax-exempt organization.  So too, the foreign charity is, thus, not forced to set up an American 501(c)3 tax-exempt charity and is able to avoid the corresponding fiscal and regulatory headache.

Keep in mind, that not every organization can act as a Fiscal Agent and that these Conduits must have (among other things):

  • Written in their by-laws the ability to forward monies to other nonprofit organizations that promote similar goals.
  • Retain control of the donation, reserving the right to reject the donor’s wishes, should it deem necessary.

(Again, as these issues are very tricky, an organization’s lawyer and Board of Director should be consulted before deciding to act as or use a Conduit.)

While the first solution allows for greater independence and control by the foreign nonprofit, the first solution also necessitates the axiom made famous by Spiderman: With Great Power Comes Great Responsibility.  The second solution, in contrast, uses a preexisting Fiscal Agent and circumvents all of this hassle. Or to paraphrase the above truism: With No USA Registered Charity Comes Much Less Responsibility. (See also 4 Reasons Why Not to Establish an American Friends Organization.)


The name Conduit can have negative connotations as it implies lack of control or subterfuge.  This, of course, doesn’t have to be the case and these types of charities can have the full blessing of the IRS. (See International Giving by Public Charities by Guidestar for additional tips.)

Additionally, while Conduit Organizations contain certain similarities to Donor Advised Funds  and Fiscal Sponsorship, the three are each unique and different tools; i.e. this post does not address Donor Advised Funds nor Fiscal Sponsorship.

(See Time to Convert for an interesting take on DAF’s by the Wall Street Journal and Fiscal Sponsorship is Maturing as Field on the NonprofitLawBlog for more information on FS’s .)

Next Post: 6 Questions to Help Choose the Right Conduit Organization

Tizku Lemitzvot,


Disclaimer: This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

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