Nonprofit Law/Use of donation

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Question
Can a 501c3 take a donation and utilize it as a prize to support the sale of something which would in-turn provide a portion of it's proceeds as a monetary donation to the non-profit?  To be a little more specific, an author has generously offered to donated a portion of every book sale to a non-profit.  This particular book has a sweepstake attached to it (enter to win).  Can the non-profit solicit prize donations for that sweepstakes, offering a tax deductible receipt for the donor (with the knowledge that they would be benefiting from the sale of each book)?

Answer
A 501(c)(3) organization may not be engaged in activities that provides substantial private benefit to an individual. An extensive discussion by the IRS of the private benefit issue relating to 501(c)(3) organizations is found at http://www.irs.gov/pub/irs-tege/eotopich01.pdf

If the 501(c)(3) organization promotes the book of that individual then it may be engaged in giving too much private benefit.  But, if the 501(c)(3) organization treats the income as advertising income it may not have to face the consequences of the private benefit issue, but only if it receives from the author at least fair market value for the advertising. See the 1994 IRS internal memorandum "Corporate Sponsorship Income" www.irs.gov/pub/irs-tege/eotopico94.pdf especially page 10 "Advertising v. Acknowledgment".

Also see www.irs.gov/pub/irs-pdf/p3079.pdf "Gaming Publication for Tax-Exempt Organizations" as, evidently the 501(c)(3) organization will be promoting the sweepstakes and mentioning it it its solicitations.

I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations.  But I will give you the link for New York's law that regulates raffles and sweepstakes. N.Y. Rac. Wag. Law 185 to 195r
http://law.onecle.com/new-york/general-municipal/article9-a.html

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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