Fundraising Law and Regulation January 2015 PLI Presentation

Transcription

1 Fundraising Law and Regulation January 2015 PLI Presentation Elizabeth M. Guggenheimer Lawyers Alliance for New York

2 What is Fundraising Activity? Fundraising activity refers to raising funds through voluntary gifts of cash, goods or services Not all revenue received by nonprofits is fundraising revenue Special events are a particular type of fundraising activity which, if successful, can lead to increased fundraising dollars 2

3 Fundraising Regulation Federal Internal Revenue Code State Charitable solicitation laws Contract law principles Local: Administrative codes Non-governmental: donors, press, charity watchdogs, others 3

4 Topics Deductibility and documentation of donations Charitable solicitation Donor intent and restricted gifts Particular fundraising practices Practical realities 4

5 Tax Deductible Contributions: Qualified Organizations Organizations exempt under Section 501(c)(3) of the IRC and other qualified organizations may receive tax-deductible contributions The organization must serve a large or indefinite group, not particular, pre-selected individuals A 501(c)(3) organization will jeopardize its tax exemption if it is not operated exclusively for exempt purposes 5

6 What Is Tax Deductible to a Donor? Contributions must be to a qualified organization A restriction associated with a donation does not prevent deductibility, so long as restriction does not prevent use Unreimbursed expenses incurred by volunteers are deductible For further details, see IRS Publication 526, Charitable Contributions 6

7 What Is Not Tax Deductible to a Donor? Donated time or services Earmarked contributions to specific individuals Cost of raffle, bingo or lottery ticket With limitations: Certain large gifts Part of quid quo pro contributions 7

8 Quid Pro Quo Contributions: Definition and Exceptions Contributions made in exchange for goods or services are deductible only to the extent donor's payment exceeds the fair market value (FMV) of the goods or services received in exchange. Exceptions: No donative intent. Excess amount is not a gift. Donor receives only an intangible religious benefit. Treat full amount as gift. Donor pays $75 or less per year and receives limited membership benefits. Donor receives goods or services of insubstantial value. Treat full amount as gift. 8

9 Quid Pro Quo Contributions: Insubstantial Value The IRS periodically adjusts insubstantial value definition due to inflation. For tax years beginning in 2014: a) The fair market value of the items exchanged is not > than 2% of the payment or $104, whichever is less; OR b) The payment is >$52, and the only benefits exchanged are token items which contain name or logo and cost in aggregate <$ The 2015 inflation adjusted amounts are: $105, $52.50 and $10.50, respectively. IRS Rev. Proc

10 Quid Pro Quo Contributions: Examples 1. Organization provides donors who give at $1,000+ level with 2 theatre tickets with face value of $100 each and 2 candy bars with wrapper containing organization s logo. 2. Example 1, but donor does not attend the show. 3. Donors at $2,000+ level also attend a pretheatre cocktail reception and receive an autographed playbill. 10

11 Quid Pro Quo Contributions: Establishing Fair Market Value Make good faith estimate. Use reasonable method to compute. Proper standard is fair market value, not cost. Doesn t matter if all food, drinks and tickets are donated, still look at FMV. Doesn t matter if organization spent a substantial amount on decorations or supplies, still look at FMV. 11

12 Documentation of Contributions: General Rules to Claim a Tax Deduction Monetary contributions of under $250: Taxpayers must maintain a written record, i.e., bank record or written communication from donee. Contributions of $250 or more: Taxpayer must have a contemporaneous written acknowledgment from donee. Obligation is on donor. Quid pro quo contributions: Charity must give the donor a written disclosure statement if the payment is over $75 and is a quid quo pro contribution. Failure penalties. See IRS Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements. 12

13 Contents of Written Acknowledgements and Disclosure Statements for Donors Name of organization Date Amount (if cash) or description (if non-cash contribution) Statement whether charity provided goods or services in exchange, e.g., no goods or services were provided in exchange For quid pro quo contributions, add: Description and good faith estimate of the FMV of goods or services provided by the charity in exchange Statement that the donor can deduct only the amount by which the contribution exceeds the FMV of any goods or services received 13

14 Additional Documentation for Non-Cash Contributions The contribution amount is the FMV of the property at the time of the contribution. A charity may need to provide additional substantiation: $250+ in value: written acknowledgment, but charity need not estimate value; describing property is sufficient. $500+ in value: above, plus donor completes IRS Form $5,000+ in value: above, plus charity and a qualified appraiser must sign IRS Form Special rules for used closing or household items. See IRS Publication 561, Determining Value of Donated Property. 14

15 State Regulation and Charities Registration Constitutional implications of state registration requirements. Free speech is protected, but states may: o protect donors from fraud and o publish financial disclosure information. State registration and reporting covers those that o solicit: charities and their paid fundraisers. o administer charitable assets. New York s Nonprofit Revitalization Act effective July 1, 2014 explicitly excludes from the definition of fundraising counsel those who only engage in grant writing. 15

16 Updated Audit Thresholds Under Nonprofit Revitalization Act New York s Nonprofit Revitalization Act increased the annual gross revenue level that triggers a charity s obligation to file certain financial documents as part of its annual filing with the Attorney General s office: For example, for reports filed July 1, 2014 June 30, 2017: - Unaudited financial report: < $250,000 - Independent CPA review: $250,000 - <$500,000 - Independent CPA audit: >= $500,000 16

17 Additional State Regulation of Charitable Solicitation Internet solicitation o Constitutional issues: limits of state authority o Charleston principles on internet solicitation Fundraising contracts o Common law contract principles o State statutory requirements 17

18 Prohibited Conduct Fraudulent and deceptive solicitation Failure to apply contributions as promised Registration violations Telemarketing fraud Remedies 18

19 Restricted Gifts Types of restrictions Use restrictions: check gift instrument, language in solicitations Board restricted funds Endowment funds: not wholly expendable on a current basis Observance of restrictions Relief from restrictions UPMIFA 19

20 Particular Fundraising Practices: Special Events & Charity Auctions Rules regarding deductibility and documentation of contributions apply. Consider those who contribute items and those who purchase such items. Priceless items: price paid by bidder will likely be deemed the fair market value. Gifts of partial interests in property generally aren t tax deductible. Check state and local rules about licenses. 20

21 Charitable Gaming & Federal Regulation At the federal level, the IRS, in most instances, deems gaming to be business (not charitable) activity. A charity conducting gaming as an insubstantial part of its activities ordinarily will not jeopardize its taxexempt status, but gaming income may be subject to Unrelated Business Income Tax (UBIT). There are UBIT exceptions, such as Gaming at annual fundraising event: not regularly carried on Gaming furthering organization s exempt purposes Certain bingo games in certain jurisdictions Substantially all (i.e., 85%+) of hours/work is done by volunteers, not compensated workers Qualified public entertainment activities 21

22 Charitable Gaming & State Oversight Sometimes charities seek to hold a raffle, bingo tournament, casino night, or other game of chance as a recreational and/or fundraising activity. Each state has an agency (or agencies) that regulates gaming, including gaming by charities. States and localities may restrict gaming to authorized nonprofit and religious organizations and/or to particular types of activities. The most commonly permissible activities are bingo and charitable raffles and certain types of casino games. Proceeds typically are to be used exclusively for charitable purposes. 22

23 Conclusion The law and regulatory schemes can be a tool rather than a burden for your organization s fundraising endeavors. Advance planning helps. Today s presentation is informational only. Nothing does or is intended to constitute legal advice. Consult with appropriate counsel for guidance pertinent to your organization. 23