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Nonprofit Law/Class Reunion sponsorship

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Question
I run a School Foundation that raises money for our local public schools. Recently I had a large donor contact me to say he and another alumni were "sponsoring" their class reunion with $2500 donations each. Class reunion attendees will be asked to pay $40 for the reunion, but those who can't pay will be covered by the $5000, along with any other expenses that run over the funds collected from the $40 per person fee.

The donor contacted me, and wants to be able to have the two $2500 sponsorships be donated to our Foundation, and have the Foundation run the reunion as a fundraising event (we would collect the $40/person fee, pay the food vendor, musicians, etc) and keep whatever profit as we would any typical fundraiser. They will actually have classmates who are running the event, and we would just be running the money.

Question 1: Would the "sponsors" be able to claim the entire $2500 (less their $40 ticket prices) as a charitable deduction this way? I expect the $40 ticket prices will have no charitable deduction as it will just cover the costs per person (and maybe not even all the costs).

Question 2: I would actually prefer to have them run their own reunion, and just donate the balance left in their account after paying all expenses. If they did this, and let's just say they donated $3000 at the end, would each of the original donors just get to claim $1500 each?

Can you see any other issues or legalities with either scenario?

Thank you!

Answer
A class reunion is considered by the IRS as a social or recreational event, not something that is undertaken by a 501(c)(3) organization (which is supposed to conduct exclusively charitable, religious or educational activities).  Therefore, your school foundation would jeopardize its exempt status if it allows the classmates run the even and have then "run" the money through the 501(c)(3) organization.

If the school foundation does decide to "run" the money through, it would not be able to give the sponsor a full amount acknowledgement of a donation.  As to charitable deductions, you can direct that sponsor to IRS Publication 526 "Charitable Donations" which is available at  http://www.irs.gov/pub/irs-pdf/p526.pdf
on page 6 middle column under the heading "Contributions You  Cannot Deduct" is "3. The part of a contribution from which you receive or expect to receive a benefit". He is going to be receiving the benefit not only of his admission, but also the benefit that his associates would be able to attend a dinner/dance. It appears from what you wrote that there may be some amount retained by the school foundation out of the $5000, but you did not give any evidence that it would end up a substantial amount.  But, whatever it does end up, that could be considered a charitable donation, deductible.

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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