In a follow-up post on the issue of internationally-targeted charitable donations, Lee Rosenbaum writes:
"There's one thing, though, that puzzles me in Zaretsky's pro-'friends' group analysis. He advises us:
"U.S.-based nonprofits may (1) engage directly in charitable activities overseas and (2) re-donate funds they receive to foreign charities (in the latter case, as long as the intermediate U.S. charity is not deemed to be a 'mere conduit').
Isn't 'mere conduit' a perfect description of these 'friends' groups, whose raison d'être is to funnel tax deductible U.S. donations to foreign institutions?"
She has every right to be puzzled; on first glance (and maybe second) "friends of" organizations do seem to violate the "conduit" restrictions. Nevertheless, the IRS has for years relied on a "control and discretion" theory to allow donations to such groups to qualify for the charitable deduction. So long as the "friends of" organization maintains sufficient control and discretion over the use of funds donated to it, the deduction remains intact. But there's no denying that the "friends of" groups push the water's edge policy almost to the breaking point. The key IRS rulings are Revenue Rulings 63-252 and 66-79.
