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Nonprofit Law/501c3 Fund Raising

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Question
I represent a non-profit organization and has a 501c3 status in the State of Kansas.

We have been approached to conduct a fund raising event for an individual whose spouse passed away and are financially burdened.

My questions are..
1.  Can a donor to this event, claim their donation to our organization as a charitable contribution when filing their taxes, even though this is benefiting just one individual?
2. If our organization collects money to support an individual, is the collected money taxable for our organization?
3. What other legal/tax issues do you see in this regard?
Please advice.
Thanks and Regards

Answer
A 501(c)(3) organization may not use its resources to collect funds for a particular family. The number of beneficiaries of a fund-raising event much be sufficiently large to comprise a charitable class. As to the size of the class to be benefitted, see page 6 of the IRS
publication from 1999, "Disaster Relief And Emergency Hardship
Programs"

---Start of Excerpt--
A disaster relief or emergency hardship organization will avoid the
problem of a limited class if, in addition to meeting the other
organizational and operational requirements, it defines its class
of beneficiaries in an "open-ended" manner.  For example, an
organization might be formed to aid those injured or killed while
undertaking fire fighting efforts.  This open-ended class would
include victims of future fires, rather than being limited to
victims of a particular fire.  If the class is open-ended, the
presence of ascertainable beneficiaries does not preclude exemption
under IRC 501(c)(3). However, the class must be truly open.  If an
organization operates to benefit particular individuals, the fact
that it broadly describes a theoretical class of beneficiaries will
not save it.
---End of Excerpt--
http://goo.gl/tOUkd

As to your specific questions:

1. If your organization does the fundraising anyway, donations are not deductible.  As to charitable deductions, see IRS Publication 526 "Charitable Donations"  which is available at:
http://www.irs.gov/pub/irs-pdf/p526.pdf
on page 6 where the IRS lists as not deductible "Contributions to
individuals who are needy or worthy. This includes contributions to
a qualified organization if you indicate that your contribution is
for a specific person."

2. If you simply ask for donations and do not make sales, the money is not taxable to your organization, although your 501(c)(3) organization status with the IRS is jeopardized.  However, if any of the family members are insiders in relation to your organization, then there may be fines to your organization (intermediate sanctions).

3. The above are the issues as to the IRS. I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. You may also run into State law issues.

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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