Funding International Programs: IRS and Compliance Rules for U.S. Nonprofits

U.S. nonprofits regularly support work outside the United States, including missions, humanitarian aid, and international partnerships. While this is permitted under U.S. law, sending funds abroad must be done carefully to protect tax-exempt status and, in certain cases, donor deductibility. This article outlines the key rules U.S. nonprofits must follow when transferring funds overseas, providing general information, not legal advice. 

If your organization needs legal support with international compliance, charitable structuring, or foreign grantmaking, our team is available to help. We have extensive experience guiding nonprofits through the regulatory requirements that apply when charitable work crosses borders.

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Is It Legal for a U.S. Nonprofit to Send Money Overseas?

Yes. The IRS allows U.S. tax-exempt organizations to operate and make grants outside the United States, provided the activities further the organization’s charitable purpose.

However, the IRS expects the U.S. nonprofit to retain control and discretion over how funds are used and to ensure funds are not diverted to non-charitable or prohibited purposes.

What the IRS Requires When Funds Are Used Abroad

When a U.S. nonprofit sends money overseas, it must be able to demonstrate (among other things):

• The funds further its own exempt purpose
• The nonprofit retains oversight and decision-making authority
• The funds are not simply passed through to a foreign entity without review
• Adequate records are maintained showing how funds are used

The IRS is especially concerned about “conduit” arrangements, where a U.S. nonprofit merely funnels donations to a foreign organization without meaningful oversight.

Learn more about IRS Charities & Nonprofits, Exempt Organization – International Activities: https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-organization-sample-questions-international-activities

Common Ways U.S. Nonprofits Send Money Overseas

1. Direct Program Expenses: The U.S. nonprofit pays vendors or expenses abroad directly for program activities it controls.

2. Grants to Foreign Organizations: The U.S. nonprofit makes grants to foreign organizations but maintains oversight through written agreements, reporting requirements, and monitoring.

3. Support Through U.S. Intermediaries: Funds are distributed through another qualified U.S. nonprofit that already manages international programs.

Each method requires documentation and internal controls appropriate to the level of risk.

Required IRS Reporting for Foreign Activities

Many nonprofits overlook the reporting side of international work.

If a U.S. nonprofit conducts activities or makes grants outside the U.S., it may be required to file Schedule F (Form 990) once certain thresholds are met.

• Part I applies when foreign activity expenses exceed $10,000 in the aggregate, or when foreign investments are valued at $100,000 or more.
• Part II applies when more than $5,000 is provided to a specific foreign organization or foreign government.
• Part III applies when more than $5,000 in total is provided directly to foreign individuals.

Schedule F discloses:

• Countries where activities occur
• Amounts of foreign expenditures
• Methods of oversight and control

Learn more about IRS Instructions for Schedule F (Form 990): https://www.irs.gov/pub/irs-pdf/i990sf.pdf

Even when Schedule F is not required, foreign activities may still trigger other reporting, recordkeeping, or compliance obligations.

‍OFAC and Anti-Money-Laundering Considerations

Beyond IRS rules, U.S. nonprofits must also be mindful of:

• U.S. sanctions laws
• Prohibited countries or individuals
• Banking compliance requirements

Banks frequently request additional documentation for international transfers, and nonprofits should be prepared to explain the charitable purpose and controls in place.

Learn more about Office of Foreign Assets Control (OFAC) – Sanctions Programs: 

https://ofac.treasury.gov/

Common Mistakes That Create Risk

• Sending funds without written grant agreements
• Failing to monitor or document how funds are spent
• Treating the nonprofit as a pass-through for a foreign organization
• Incomplete or inaccurate Form 990 reporting

Sending money overseas is legal and common for U.S. nonprofits, but it requires intentional structure, documentation, and oversight. Organizations that treat international transfers casually often face banking issues, donor concerns, or IRS scrutiny.

If your nonprofit is preparing for international activities or facing questions about foreign operations, our team can help you navigate the legal framework and establish the right structures from the start.

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The information provided in this article does not, and is not intended to, constitute legal advice or investment advice; instead, all information, content, and materials available in this article are for general informational purposes only.  The information contained in this article may not constitute the most up-to-date legal or other information.  This article contains links to other third-party websites.  Such links are only for the convenience of the reader, user, or browser; the author does not recommend or endorse the contents of the third-party sites.

Readers of this article should contact their attorney to obtain advice with respect to any particular legal matter.

Anthony & Sparkman, PLLC is a law firm with attorneys located in both Dallas/Fort Worth and Kalispell, Montana, that provides legal counsel to both churches and nonprofits around the world. John Anthony & Michele Sparkman have spent over a decade providing general counsel to churches and nonprofits on issues ranging from incorporation, governance, employment, policies and procedures, taxes, succession planning, real estate development, and much more. For more information, visit our website at www.thenonprofitteam.com.

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