Fundraising - Pbpatl

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State governments regulate a nonprofit’s charitablesolicitations. Deceptive or abusive techniques are prohibited. Use IRS Form 990 and 990-EZ to disclose the percentage of fundsraised that are used for program expenses vs. fundraising andadministrative expenses. Adopt policy regarding donor privacy and use of donornames. Credit card companies will require strict safeguarding of the donor’sinformation. Small nonprofits can use Network for Good or other third partyprocessors to avoid the cost of complying with the requirements.45

39 states and the District of Columbia requirenonprofits to register with the state before raisingfunds, including: CT, DC, GA, MD, NJ, NY and VA. Requirements differ depending on the state. Generally a nonprofit must register to solicit thegeneral public for charitable contributions.46

Ask: “Has my organization purposefully directed acharitable solicitation to a resident of State X?” If yes: Does that state require registration? If yes: What kind of solicitation was it? And does the organizationconduct activities or have a presence in that state? A nonprofit must register in every state where it solicitscontributions if that state requires registration.Registering only in the jurisdiction where the nonprofit isincorporated is not sufficient. Particularly importance in places like NYC and DC metro area.47

The organization must disclose financial and otherinformation in its registration. The registration fee ranges from 0 to 2,400. Registration is required prior to soliciting. Thenonprofit may be subject to fines for failure toregister before soliciting. Nonprofit organizations, paid solicitors, fundraisingconsultants and commercial co-venturers arerequired to register. It is illegal to use anunregistered fundraising solicitor or consultant insome states.48

Every state has certain exceptions to the registrationrequirements. The most common exceptions are: Religious organizations Organizations raising small amounts of money –usually less than a few thousand dollars in total, notjust from that particular state. Certain types of organizations (schools, firedepartments, etc.)49

The term “soliciting” encompasses a wide range of activities,including: Fundraising appeals made to the general public, including appealsmade via mail, email, Facebook, Twitter, telephone, public serviceannouncements or other broadcast advertisements, on-lineadvertisements or in-person solicitation. Solicitation of corporations and private foundations. Government grants. Ticket sales and other requests in connection with special events,such as galas, silent auctions, golf tournaments, and similar events. Some states will exempt an organization from registering if itonly solicits from the government, corporations or foundationsin that state.50

A nonprofit must register in every state where it: Is physically “present” in the state Has offices or regularly conducts business in the state Soliciting via mail, telephone and other clear solicitation topeople in the state creating a “presence”AND Solicits contributions51

State charity officials have issued advisory guidelines – known asthe “Charleston Principles” about internet fundraising and whomust register in a state. In determining whether to register, thenonprofit should ask: Does the nonprofit’s website allow for on-line donations?If yes, does the organization receive contributions on a repeatedand ongoing basis or substantial basis through its website from aparticular state? If yes, the organization may need to register in thatstate.Do offline solicitations ask a donor to complete the donation on-lineor does the nonprofit solicit via emails by promoting website giving?If yes, the nonprofit must register in every state where it solicitsdonors using this method or from which it regularly receivesdonations.52

If the nonprofit’s website does not allow for on-linedonations, does the nonprofit: Use its website to invite offline donations or send emails orother communications to individuals in the state directingthem to the website solicitation, and Receive contributions from the state on a repeated andongoing basis or substantial basis? If yes, the organization may need to register in that state.53

If a nonprofit re-solicits donors who donate viaits website, the return mail may trigger theregistration requirements, even if the initialdonation did not. If a nonprofit fundraises using social media thesame rules apply.54

Soliciting via email is the same as soliciting viatelephone or direct mail. The nonprofit must register in a state IF: The nonprofit knows or reasonably should know that theperson being solicited is a resident of the state. In such case, the nonprofit must register in that state if it isotherwise required.55

The States designed the Unified RegistrationStatement for nonprofits registering in multiplestates. It is the alternative to filing individualforms in each state. More information can befound at Some states require additional information. Not accepted by every state. Only for use with initial registration – not for annualupdates.56

Individuals soliciting contributions on behalf ofa nonprofit are also subject to the charitablesolicitation laws.Generally, employees and volunteers are notrequired to register in order to solicit funds.However, in some jurisdictions, an individualemployee or volunteer may have to register ifengaging in person-to-person fundraising, suchas on the street or in the airport.57

If a nonprofit hires an independent contractor tosolicit contributions on behalf of the nonprofit: The arrangement must be in writing. In many jurisdictions,the solicitor must file the contract with the state as part of thefundraiser’s registration under the charitable solicitations act. Check to make sure that the fundraiser is properly registered.In some states it is illegal to hire an unregistered fundraiser. Form 990 requires a nonprofit that hires a thirdparty fundraiser to report how much was raised bythe fundraiser, and how much was actuallyreceived by the nonprofit.58

The IRS requires nonprofits to properly reportand acknowledge cash and in-kindcontributions. The nonprofit’s failure to do somay result in IRS penalties. Under the IRSrules: A donation of personal services or facilities – such asthe free use of office space – is NOT deductible andshould not be receipted. The donor cannot take a deduction for a donation ofany amount without a receipt from the nonprofit or bankor credit card record. The evidence of the donationmust state the name of the charity and the date andamount of donation.59

A donor cannot claim a deduction for any singlecontribution of 250 or more unless the donor hasa written acknowledgement from the nonprofit. Thedonor must receive the acknowledgement by thetime the donor files a tax return. The donor, not the nonprofit, is responsible fordetermining the value of all non-cash donations.The nonprofit should acknowledge receipt of thedonated property, including a description of theproperty, but NOT include an estimate of the value.60

Donations throughout the year may be bundledinto one acknowledgement. Theacknowledgement should include: Name of the nonprofit. Amount of cash contribution or description of non-cashcontribution. One of the following: Statement that no goods or services were provided (if true), Description and good faith estimate of the value of goods thecharity provided in return for the donation, or Statement that goods or services provided consisted entirelyof intangible religious benefits.61

The nonprofit must provide a statement to anydonor who makes a payment of more than 75,partly as contribution and partly as payment forgoods or services received from the charity.The disclosure must: Inform the donor that the amount of payment that may bedeductible is limited to the amount given in excess of fairmarket value of goods or services. Provide a good-faith estimate of fair market value of goods orservices. The nonprofit is subject to a penalty of 10 perdonation if the nonprofit does not provide thisinformation.62

Insubstantial goods or services provided inexchange for contribution do not have to beincluded in the receipt if: The fair market value of the benefits received does notexceed the lesser of 2% of the donation or 102, or The donation is at least 51 and the only itemsprovided bear the organization’s name or logo, and thecost of these items is within the limit for “low-costarticles.” ( 10.20) Free, unordered low-cost articles areconsidered insubstantial.63

Arrangements where a for-profitcompany/commerical co-venturer uses thecharity’s name or logo to sell its products orservices and makes a charitable donationbased on sales. Marketing approach: Company A does well by doinggood for Charity B. Payments should be structured as royalties. The nonprofit cannot provide additional services toCompany A. If the nonprofit does so, part of the incomewill be taxable as unrelated business income.64

State law: the commercial co-venturer may besubject to state registration and reporting underthe state’s charitable solicitations act. The test is whether the products are sold in the state. Some states require a contract that includes specificprovisions. Some states require the contract be submitted to theAttorney General of the state while some just requirethe nonprofit to retain the contract.65

Nonprofits may rent mailing lists withoutincurring taxable income. Logo may be rented as well.66

Advertising income is unrelated business incomeand subject to tax.Sponsorship income is treated as a donation andnot unrelated income, provided: Acknowledgement of the sponsor includes only the sponsor’sname, logo, address, phone number, description of productor services & hyperlink to main website. The nonprofit does not make a statement about the quality orprice of the goods or services. The nonprofit does not endorse or encourage the use orpurchase of donor’s products or services. No other “substantial return benefit” is provided to the donor. Any goods and services received by the sponsor from thenonprofit do not exceed 2% of sponsorship payment for theyear.67

Gaming: casino nights, poker, raffles, bingo,door prices, etc.Gambling has three elements: Chance Prize Consideration Gaming is illegal in many jurisdictions.If it is legal, it is heavily regulated and thenonprofit may need a local license.Winnings may be subject to income tax.There is a UBIT exception for traditional bingo.68

Galas, silent auctions, dinners, wine tastings, orspecial performances. A donor’s deduction is reduced by the value of anythingreceived in return for the ticket. Silent auction donations are limited to what the donor pays inexcess of value of the property. Purchasing a chance to win is not deductible. Celebrity appearances alone do not increase the fair marketvalue of an event. If the nonprofit gives something of value to the donor inexchange for the payment, there may be sales taxrequirements Galas, silent auctions and similar events may beconsidered a charitable solicitation.69

Fundraising appeals made to the general public, including appeals made via mail, email, Facebook, Twitter, telephone, public service announcements or other broadcast advertisements, online - advertisements

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