Charitable Contribution Deduction for Feeder Organizations

A feeder organization is a for-profit business that gives its profits to a charity. Before 1950, feeders were exempt from paying income tax, much like a nonprofit. The government then decided that the tax exemption gave the businesses an unfair advantage and revoked it. If you want to set up a feeder that can accept charitable contributions, you'll have to plan carefully.

Primary Purpose

The IRS defines a feeder organization as one of which the primary purpose is making money, not doing charitable works. Even though the profits go to a designated charity, the feeder itself is not a charitable organization. There is no absolute dividing line for deciding the primary purpose of an organization; instead, it's decided case by case. If your nonprofit runs a small business, it may come down to how much of the nonprofit's activity is business and how much is tax-exempt work.


Thrift shops run by charities can be tax-exempt. If most of the goods for sale come from donations, or if the staff is almost entirely volunteering for no wages, that would qualify. If it qualifies, people who donate items to the store can claim a charitable write-off. Buying from the store isn't deductible, because shoppers are getting something for their money. Another special case is if the business furthers your charity's goals. For example, a business that hires the homeless to teach them marketable job skills might qualify as tax-exempt.

Giving Service

Organizations that provide services to the parent charity can also qualify to receive donations. A company you create to provide electricity to your charitable group, for example, could qualify as tax-exempt, even though it shows a profit. This only works if the service goes entirely to your charity, or to several affiliated charities. If the company provides service to unrelated charitable groups or the general public, it's just a for-profit business like any other.

Taking Deductions

Customers can't get a deduction if you don't provide them with documentation. For a cash contribution, their canceled check may do. If it's over $250, you need to provide a written acknowledgment as well. For noncash contributions, the bare minimum is a receipt with the feeder's name, the date and location of the donation, and a detailed description. The more valuable the item, the more paperwork you need to provide.