May 29, 2013

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Website or email solicitations should comply with the same rules that apply to other solicitations, and no prohibition exists against a charitable organization using an Internet fundraising platform to raise funds, the IRS has recently reaffirmed.

donate button on computer

An organization that wants to raise funds, whether by Internet or otherwise, must ensure that it structures its fundraising programs in a manner consistent with its tax-exempt status.

The organization must describe its actual and planned fundraising activities in its application – Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, the IRS said in a recent information Letter to Congressman Peter Welch (D-Vt.).

Any expenses incurred with regard in fundraising must be reported on both Form 1023 and its annual information returns (Form 990, Form 990-EZ or Form 990-PF).

An organization that is raising funds and has not yet received recognition as exempt from tax under Code Section 501(c)(3) should make clear – with a conspicuous and easily recognizable statement in the solicitation material – that it has not yet received recognition and as a result contributions may not be deductible.

A tax-exempt organization cannot be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals or people controlled directly or indirectly by those private interests. No part of the organization’s net earnings may be to the benefit of any private shareholder or individual.

The IRS cautions that organizations should consider whether payments or benefits to fundraisers or other private parties may be excessive or may constitute impermissible direct or indirect private benefit or private inurement.

An organization that provides something of value to donors in exchange for donations must consider carefully the possibility that doing so may violate the rules against private benefit or private inurement. And it must comply with any substantiation and disclosure requirements for quid pro quo contributions.

In addition, organizations should consider any state laws and regulations that may apply to Internet fundraising by nonprofit or tax-exempt organizations.

This article was originally posted on May 29, 2013 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at