What is a Pass-Through Contribution?

A pass-through contribution is a contribution made to one non-profit entity, which then transfers the funds to a second non-profit organization. The first non-profit may be acting as the sales arm of the second entity, taking in and passing along contributions to the final beneficiary. In this situation, the pass-through entity does not use the contributed funds for its own operational requirements.

Example of a Pass-Through Contribution

As an example of a pass-through contribution, a A philanthropist wishes to support a specific educational program at a local school but wants his donation to be managed by a nonprofit organization. Accordingly, the donor makes a $10,000 donation to a nonprofit foundation that supports education initiatives. The nonprofit foundation allocates the $10,000 directly to the local school to fund the specific educational program requested by the donor.

In this example, the nonprofit acts as a "pass-through" entity, channeling the funds from the donor to the intended recipient while potentially providing logistical support or meeting legal requirements for tax-exempt donations. The nonprofit may or may not take an administrative fee for facilitating the transaction, depending on the arrangement.

Tax-Deductibility of Pass-Through Contributions

Donations made to a pass-through entity are still considered to be eligible for a tax deduction by the donor, as long as the ultimate receiving organization is a qualified entity (which generally means that it is a 501(c)(3) entity).