Today, August 17th, 2023, is National Nonprofit Day! This day recognizes the positive impact that nonprofit organizations have on our local communities and around the world. Donors and volunteers often serve as the backbone for many nonprofit organizations. It is important as a nonprofit organization to ensure you remain in compliance with the various disclosures to donors and volunteers.
Requirements for Soliciting Contributions to Donors
You have received your 501(c)(3) status, now what? If a nonprofit wishes to solicit contributions, they must register in most states in which they plan to solicit contributions. The nonprofit organization should be cognizant of new donors who are outside of their traditional market, as this may trigger additional registrations in new states.
Other requirements include:
- Telling donors the organization is recognized as a 501(c)(3) tax-exempt organization under the Internal Revenue Code. Make it easy for donors – include a statement about the 501(c)(3) recognition on all solicitations.
- Disclosure statements should be evident and not hidden. If a magnifying glass is needed to read the disclosure, an organization may want to rethink its disclosure.
- For contributions of $250 or more, the donor is required to have a receipt or written acknowledgement from the nonprofit organization to be claimed on the taxpayer’s tax return. Ensure these acknowledgements are also included in the disclosure statement required by the state in which the contribution was solicited.
Requirements for Fundraising Events
As many nonprofit organizations have begun resuming fundraising events since COVID-19, now is a good time to make sure nonprofits know what they can and cannot do with these events.
Disclosure of value of items provided to donors
When a donation is made in cash in the amount of $75 or more, and the donor receives goods or services in exchange for a contribution, the organization is REQUIRED by law to disclose the fair market value of the goods or services provided to the donor. This disclosure must be in writing. The donor must also be informed that the amount of their contribution deductible for federal income tax purposes is the excess value of the contribution over the value of the goods or services received. There are IRS penalties for failing to comply with these disclosure requirements. A nonprofit organization may be assessed a penalty of $10 per contribution and up to a maximum of $5,000 per fundraising event for violations.
Disclosure of deductibility when donors receive something in return for contributions
Nonprofit organizations must tell the donor that the portion of the contribution that is tax deductible is the portion of the amount that exceeds the fair market value (FMV) of whatever the donor received in return. The organization must provide the donor with an estimate of the FMV for the goods or services provided to the donor. An example, if you are hosting a gala with $100 tickets and where food and entertainment with an FMV of $50 is provided, you must include in the solicitation materials a statement that only $50 of the ticket price is tax deductible and that the FMV of admission to the event (including food and entertainment) is $50. If the FMV of food, entertainment, merchandise, etc. is equal to or greater than the cost of the ticket or amount of contribution, then no portion of the contribution is deductible and should also be disclosed.
Also, it is important to note that the IRS does not allow for deductibility for raffle tickets at the event, and the donor may deduct the full value of the charitable contribution by refusing the goods or services offered.
While these requirements may be complex, it is important the nonprofit organization adheres to them, so they can continue to perform great work within our communities.
Please contact us if you have questions about the information outlined above, our seasoned and experienced nonprofit professionals are here to help. You can also learn more about our Nonprofit services by visiting our website.