Avoid these traps in your fall fundraising

by Linda M. Czipo

September is here, and for many nonprofits, that can only mean one thing two things: the return of everything pumpkin spice, and the high-gear kickoff of fall and year-end fundraising campaigns. It’s also a great time to make sure that your fundraising strategies and appeals are in compliance with state, federal, and local laws and regulations.

Noncompliance can result in delays, lost funding, or even fines or criminal penalties. With a reminder to always consult knowledgeable legal counsel, here are a few common fundraising traps you’ll want to avoid.

Is your organization registered to solicit donations in New Jersey AND in other states where you’re fundraising? You probably know that most New Jersey charities need to register annually with the New Jersey Division of Consumer Affairs, Charities Registration Section before soliciting donations in the state. But you may not realize that if you fundraise in other states – including email or online solicitations – you need to obey those states’ registration and reporting requirements as well. The National Association of State Charities Officials (NASCO) publishes periodic summaries of state-by-state registration requirements. Some state charity offices voluntarily follow the Charleston Principles, NASCO’s nonbinding guidelines for a common-sense framework for regulating multi-state solicitations. But other states have taken a more aggressive position, such as interpreting a website “donate” button as triggering a registration requirement. This article on the CharityLawyer blog offers insights regarding charitable solicitation in multiple states.

If you hire a fundraising firm, register the contract. In New Jersey, all agreements between charities and fundraising counsel or independent paid fundraisers must be set forth in a written contract, signed by two authorized officials of the charity including at least one from the governing body, and filed with the Division of Consumer Affairs at least 10 days before fundraising begins.

Logo of the New Jersey Division of Consumer Affairs

Does your written appeal include the mandatory charities registration disclosure statement? Many states, including New Jersey, require specific disclosure statements to be provided at the point of solicitation to direct prospective donors to a state office for more information. In New Jersey, written or printed solicitations, tickets, receipts or reminders, must include the following “conspicuously printed” message:

“INFORMATION FILED WITH THE ATTORNEY GENERAL CONCERNING THIS CHARITABLE SOLICITATION AND THE PERCENTAGE OF CONTRIBUTIONS RECEIVED BY THE CHARITY DURING THE LAST REPORTING PERIOD THAT WERE DEDICATED TO THE CHARITABLE PURPOSE MAY BE OBTAINED FROM THE ATTORNEY GENERAL OF THE STATE OF NEW JERSEY BY CALLING 973-504-6215 AND IS AVAILABLE ON THE INTERNET AT http://www.state.nj.us/lps/ca/charfrm.htm. REGISTRATION WITH THE ATTORNEY GENERAL DOES NOT IMPLY ENDORSEMENT.”

If you’re soliciting in more than one state, you’ll need to include each state’s disclosure statement separately, so be sure to check those requirements. You can find an updated detailed summary of New Jersey’s charitable fundraising law and regulations on our website here.

Fun fact: six months and 180 days are not the same. New Jersey annual charities registration renewals are normally due six months after the close of an organization’s fiscal year. If your organization’s previous filings are up to date, you can request an extension of an additional 180 days. The distinction is important. For example, if your fiscal year ends December 31, your annual registration is normally due six months later, on June 30. But a 180-day extension brings you to December 27, not December 31. That four-day difference could cost you a $25 late fee, possible lost or delayed contributions if your organization’s registration status is flagged online as noncompliant, and extra time to correct the error and then wait for your online status to be updated. Be sure to allow extra time to get your filings in ahead of the deadline or extension.

Your event tickets are likely not fully deductible to your donors. You need to tell them. The IRS has long held that “quid pro quo” donations – a payment of more than $75 for which the donor receives a benefit in return – are not fully tax deductible to the purchaser. Only the portion of the purchase that exceeds the fair market value (FMV) of the benefit being provided is deductible. (Unfortunately, the federal charitable contributions deduction is currently only available to donors who itemize on their federal tax returns. Advocacy to restore and expand a universal charitable deduction continues.)

How does this play out for events? If you’re holding a gala that includes a dinner and a celebrity performance, you need to make a good faith estimate what a similar event would typically cost a person to attend; that’s the fair market value (FMV). Only the portion of the ticket price that exceeds the FMV is tax deductible. For example, if dinner and a performance by the celebrity (or one with similar name recognition) would typically cost $150 and your gala ticket price is $200, only $50 of the purchase is tax deductible ($200 purchase price minus $150 fair market value). This is the case even if all of the goods, services, venue and performances were donated, because the fair market value is not the same as the cost to the charity.

Logo of the United States Internal Revenue Service (IRS)

It’s the charity’s responsibility to provide a written disclosure to the donor setting out the fair market value of the goods and services received, and informing the donor that only the portion of the contribution that exceeds this fair market value is tax deductible. For more information about IRS gift substantiation and disclosure requirements, see this page on the Center’s website.

Raffle ticket purchases aren’t tax deductible as charitable contributions, even if the purchaser doesn’t win. The IRS’ position is that the purchaser has bought a chance to win something and the fair market value of that chance is whatever was paid for the ticket. See IRS Publication 526.  (Also note that in New Jersey, charities are still not allowed to sell raffle tickets online – we’re still working to change that.)

“_X_% of your gift goes to program.” This last one isn’t a compliance issue, but rather a plea for change. You may have included a statement like this in your fundraising appeals. Please don’t. Statements like this unintentionally perpetuate the destructive notion that program expenses (as opposed to management and general or fundraising) are the only legitimate expenditures for charities to make. This “overhead myth” has taken stubborn hold over decades. It makes it much harder for charities to raise the resources needed to sustain their missions, and exacerbates inequity in our sector. The phrase is misleading anyway, since indirect costs like insurance, auditors, facilities and the like have to be funded somehow. Don’t encourage reliance on metrics of limited value. Instead, demonstrate to donors how your organization, and their gift, is creating a positive impact for the cause and community you serve. If you’ve already moved on from these overhead ratios, thank you. If not, now is the perfect time to start. Feel free to share these informed giving tips with your colleagues and donors.

Your charitable work is already challenging enough. Hopefully these tips will help you avoid some unnecessary headaches.

Wishing everyone a thriving fall – with or without the pumpkin spice.

Linda M. Czipo is President & CEO of the New Jersey Center for Nonprofits.