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Nonprofit Law/(c)4 soliciting donations for (c)3

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Question
Our 501(c)3 organization accepts donations for scholarships to students at our community high school. A local 501(c)4 is hosting an event to honor a community leader. As our cause is near and dear to the honoree's heart, the (c)4 would like to allow those who purchase tickets to the event to also make a donation at the time of ticket purchase toward our scholarship fund. They want to know how they may do so while maintaining the deductibility of these donations for the contributor. Can this be done? If so, are there special restrictions on a specific type of payment (cash, check, credit card online)?

Answer
The U.S. Supreme Court Case Davis v. United States, and the other cases and revenue rulings provide clear guidance that under IRC 170, a contribution is made "to or for the use of" the charitable organization is deductible as a charitable donation.
http://pages.citebite.com/c1x0m7h3w8mdo

In order for the 501(c)(4) organization to insure that donations for the 501(c)(3) organization's scholarship fund are deductible by the donors, there are two choices.

1.  The donors give the funds directly to the 501(c)(3) organization, which may be any method that you listed (cash, check made to the 501(c)(3) organization, credit card online).

2.  The 501(c)(4) organization would make it clear that certain funds given to them will be held and passed on 100% to your 501(c)(3) organization. This is what the Davis court referred to:
--- Start of Excerpt ---
Accordingly, we conclude that a gift or contribution is "for the use of" a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement.
---End of Excerpt---

It appears that you are asking specifically about the second method.  That is the same method that utility and other for-profit companies use when they advertise that $1 (or another named amount) of the total payment (bill for utility services plus any additional named amount) would be going to a named charity. There are no restrictions on a specific type of payment (cash, check, credit card online)?   The 501(c)(3) organization would give to the donors the acknowledgements (receipt) of the donation to help them later in case they are audited by the IRS.

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

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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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