Author: Jayme Mika, CPA, Tax Manager | Not-for-Profit Team
The life blood of most not-for-profits is its ability to raise funds. Fundraising is part art and part science and you have to be able to find the right combination within your board, clients you serve and the community you service, in order to make it work. Once a new fundraising idea is proposed, it should be analyzed carefully for impact to the organization’s public support test (if applicable) and possible unrelated business income tax. Here are some quick tips about some of the more popular fundraising methods:
Qualified Corporate Sponsorships:
A charity holds an event and a for-profit business makes a payment to have their name associated with the event. If everything is structured properly, the business treats the payment as marketing expense and the charity as charitable contributions. The key to this arrangement is that the sponsor receives “no substantial return benefit” for the “payment”.
- No substantial return benefit – use of the for-profit’s name, logo, goods or services that have no qualitative or comparative descriptions. (the for-profit may be the exclusive sponsor, may display sample products or may provide listings of products, locations and internet addresses)
- Payment – money, property or performance of services
The charity is limited in what it can offer to their corporate sponsors but they are able to include these payments as charitable contributions and public support. If the charity does not follow these strict guidelines, it runs the risk of the revenue being subject to tax as advertising revenue. A good due diligence procedure is to have your finance and tax professionals review any qualified corporate sponsorship contract before signing.
Social Media (Twitter, Facebook & YouTube):
Fundraising by social media allows individuals to create their own fundraising webpage when they are participating in fundraising events and leverage the power of their personal networks. The Ice Bucket Challenge is a very good example of social media fundraising. The cost to the charity is minimal but the downfalls could include the following:
- The charity may or may not end up with the donor information
- The charity needs to make sure that the social media site is set up with language that issues the donor the donor acknowledgement letter at the time the donor is supporting the participant in the charity fundraising event
- Donor is entitled to a full charitable contribution amount (not net of fees depending on the payment platform used)
Crowd Based Funding:
Crowd based funding are websites that a charity can use to facilitate online giving. There are several websites available that charge a flat fee and possibly a per donation fee to run the website, handle donations, collect money and forward it to the charity. Contracts between the charity and the website must be read carefully for any legal fine print such as minimums, goals, taxes, payment schedules and hidden fees. There are several risks for the charity, including:
- Anyone can set up a site (and say they are the charity)
- Need to monitor the websites for imposters
- Be cautious of when online fundraisers turn into online raffles (online raffles (gaming) are very risky and the websites are not going to caution the charity in any way because their contracts are very clear that all legal and tax issues are the charities’ responsibility)
Questions about fundraising methods for your not-for-profit? Contact your Keiter representative or firstname.lastname@example.org | 804.747.0000
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.