Friends-Of vs. Branch Office: Structuring International Nonprofits in the U.S.

International ministries and nonprofits often ask whether they should form a U.S. “Friends-Of” organization or establish a U.S. branch office. While these structures sound similar, they are treated very differently under U.S. law. Understanding the distinction is critical for compliance, fundraising, and governance.

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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What Is a “Friends-Of” Organization?

A “Friends-Of” organization is a separate U.S. nonprofit, typically organized as a 501(c)(3), that exists to support a foreign charity or ministry.

Key characteristics:

• Incorporated in the U.S.
• Governed by a board that exercises independent authority and is not controlled by the foreign organization.
• Generally, it files its own annual IRS information return (Form 990-series), unless an exception applies.
• Controls and approves how funds are distributed
• Issues U.S. tax-deductible receipts

The IRS requires that a Friends-Of organization operate independently and not function as a mere fundraising arm of the foreign organization.

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What Is a Branch Office?

A branch office is an extension of the foreign organization itself, not a separate U.S. nonprofit.

Important limitations:

• Generally doesn’t seek U.S. tax-deductible receipts
• Typically does not try to qualify as a U.S. 501(c)(3)
• Subject to additional tax and reporting complexity
• Less attractive to U.S. donors

In most cases, branch offices are used for administrative presence, not fundraising.

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Why the IRS Treats These Structures Differently

The IRS allows tax deductions only for contributions made to qualified U.S. organizations. A Friends-Of nonprofit qualifies if it meets all requirements of Section 501(c)(3).

A branch office of a foreign organization usually does not.

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Control and Governance Matter More Than Name

The IRS focuses on substance over labels. Calling an organization “Friends-Of” is not enough.

Red flags include:

• Foreign organization appoints and controls the U.S. board
• U.S. entity automatically transfers funds overseas
• No independent review of expenditures

A compliant Friends-Of organization must exercise genuine discretion. That usually includes documenting board approval of grants and requiring reporting/accounting from the foreign recipient.

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Which Structure Is Right for You?

A Friends-Of organization is generally the right choice for international ministries that want to engage in long-term fundraising in the United States. This structure allows the organization to build a U.S. donor base, issue tax-deductible receipts, and establish credibility with American churches, foundations, and individual supporters. Because a Friends-Of entity is organized as a separate U.S. 501(c)(3), it can operate within the expectations of U.S. donors while maintaining appropriate oversight of how funds are used abroad.

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A branch office, by contrast, is typically more appropriate when the goal is administrative presence rather than fundraising. Branch offices are commonly used for coordination, representation, or operational support related to a foreign organization’s work, but they are not well-suited for receiving charitable contributions from U.S. donors. In most cases, a branch office does not qualify to issue U.S. tax-deductible receipts and may create confusion or compliance risk if used for fundraising purposes.

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Common Mistakes to Avoid

One of the most common mistakes international organizations make is assuming that a U.S. branch office can issue tax-deductible receipts. Another frequent issue arises when the foreign organization maintains control over U.S. funds, rather than allowing the U.S. entity to exercise independent oversight and discretion as required by the IRS. Organizations also run into trouble when U.S. donations are treated as automatically belonging to the foreign entity without documented review or approval. Finally, failing to properly document oversight, decision-making, and fund usage can create significant compliance and audit risk, even when the underlying charitable work is legitimate.

Choosing between a Friends-Of organization and a branch office is not just a branding decision. It determines whether U.S. donors can give tax-deductible gifts, how funds must be controlled, and how the IRS evaluates your structure.

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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