Nonprofit Fundraising Issues - Tips

Posted on October 15, 2018

Originally published in October 2018

This article has not been updated for current law since the date of its posting on the website. This article is not intended to provide any legal advice. Please seek advice of your professional council.

Any U.S. federal and state tax advice contained in this communication is not intended or written by the Knox Law Firm to be used, and cannot be used by you, for the purpose of: (i) avoiding penalties under the Internal Revenue Code that may be imposed upon you, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

TIP #1: Ensure You Are Properly Organized and Exempt

Ensuring the nonprofit is properly and correctly organized is critical to ensuring no personal liability to trustees/directors.
Ensure you are using the correct Employer Identification Number (EIN).
Ensure your organizational documents contain proper tax-exempt language.

If these steps aren’t followed, trustees/directors may have personal liability, be subject to Attorney General enforcement actions, and may have upset donors whose charitable contributions are not tax-exempt.

TIP #2: Register with the State Attorney General's Office

Generally a $25,000 threshold annually to register.
Other types of organizations, such as religious or school organizations are excluded, but may require official approval of their exclusion.
This statute also governs payments to individuals or companies to conduct fundraising on the organization’s behalf.
Violations can include both civil and criminal penalties.

TIP #3: Send Donation Acknowledgements

A donor cannot claim a deduction of $250 or more unless they have an acknowledgment containing:

The name of the organization,
The amount of the cash contribution,
A description (but not value) of any non-cash contribution, and
A statement that no goods/services were provided in return for the contribution or a statement of the good faith value of goods/services received by the donor.

The acknowledgement should also include disclaimer language, such as “deductible to the fullest extent allowed by law.” There are safe harbors for token items provided to donors (mugs, bumper stickers, pens, etc.).

TIP #4: Have a Gift Acceptance Policy

Have a procedure for evaluating what types of property, and under what circumstances, gifts will be accepted.
Do not sign any statement of value. This is for the donor to prove to the IRS the value of the item contributed.

TIP #5: Beware of the Differences Between Types of Funds

Endowments provide a set stream of income from assets. The amount utilized ban be determined by the board, so long as it is within prescribed statutory range.
Temporarily restricted funds must be used for the purpose for which they are held. Preference should be given when to board designated funds, which the restriction can be altered without other approvals.
Unrestricted funds can be utilized for any purpose the board requires.
Restrictions on funds can be changed, but does generally require court and/or Attorney General approval.

Originally published in October 2018