The Law of Fundraising. Bruce R. Hopkins

of the registration.

      6 States in which the organization is registered but is operating under some type of conditional, temporary, or probationary status.

      The fifth step is to identify any jurisdictions in which the organization has been prohibited from soliciting contributions.

      The sixth step is to make an inventory of due dates for filing renewals of registration and reports.

      The seventh step (an ongoing one) is to persist in all reasonable endeavors to remedy the organization's difficulties as reflected in the fourth (items 5 and 6) and fifth steps.

      Any professional fundraiser or professional solicitor retained by a charitable organization has independent registration and reporting responsibilities. Therefore, the organization's compliance efforts should be carefully coordinated with those of its fundraiser(s), solicitor(s), or both.

(b) Public Relations

      To responsibly, accurately, and promptly respond to inquiries from the general public, an organization should be prepared to disseminate an annual report upon request. (This may also be sent to others, without waiting for a request, such as members, donors, community leaders, and other organizations.) A form letter from the organization's president or executive director may be effectively used to transmit the report.

      With today's heavy emphasis on the issue of fundraising costs, the annual report or like document should discuss the organization's fundraising program and costs.

(c) Record Keeping and Financial Data

      A principal focus of this field of government regulation is fundraising costs. Therefore, management should make a substantial effort to accurately ascertain and record both direct and indirect fundraising costs. This process will require careful analysis of individuals' activities (so as to isolate the portion of their compensation and related expenses that is attributable to fundraising) and careful allocation of expenditures (where an outlay is partially for fundraising and partially for something else, such as program activities).

Fundraising costs must be reflected in the annual information return filed by tax-exempt organizations with the IRS.⁶² Although percentage limitations on fundraising costs are unconstitutional,⁶³ some state laws require disclosure of these costs in a variety of ways.⁶⁴

In any event, most organizations wish to be able to consider their fundraising costs “reasonable,” particularly in response to inquiries from donors or the media. Therefore, a fundraising organization should be prepared to demonstrate the reasonableness of its fundraising costs.⁶⁵

NOTES

      1 1. There are, of course, other forms of fundraising, such as fundraising for political parties and candidates; federal government regulation of these forms of fundraising is summarized in § 6.15.

      2 2. See § 3.1.

      3 3. Reg. § 1.501(c)(3)-1(d)(2).

      4 4. See Tax-Exempt Organizations, § 6.3(c), Chapter 7.

      5 5. Green v. Connally, 330 F. Supp. 1150, 1159 (D.D.C. 1971), aff'd sub nom. Coit v. Green, 404 U.S. 997 (1971).

      6 6. IRC §§ 501(c)(3) and 170(c)(2). The first of these provisions is the basis for federal tax-exempt status; the second is the basis for eligibility for donee status for purposes of the federal charitable contribution deduction. (Most organizations that engage in fundraising are able to offer their donors assurances that their gifts are deductible for federal and state income tax purposes because these organizations are described in IRC § 170(c)(2).) Organizations that are engaged in “testing for public safety” are referenced in IRC § 501(c)(3) but not IRC § 170(c)(2). The charitable deduction law is summarized at § 6.7.

      7 7. Reg. § 1.501(c)(3)-1(d)(2). See Tax-Exempt Organizations, §§ 7.1, 7.2.

      8 8. Reg. § 1.501(c)(3)-1(d)(2). See Tax-Exempt Organizations, § 7.10.

      9 9. Reg. § 1.501(c)(3)-1(d)(2). See Tax-Exempt Organizations, §§ 7.8, 7.9.

      10 10. Reg. § 1.501(c)(3)-1(d)(2). See Tax-Exempt Organizations, § 7.7.

      11 11. Rev. Rul. 78-85, 1978-1 C.B. 150. See Tax-Exempt Organizations, § 7.11.

      12 12. Rev. Rul. 69-545, 1969-2 C.B. 117. See Tax-Exempt Organizations, § 7.6.

      13 13. Reg. § 1.501(c)(3)-1(d)(2). See Tax-Exempt Organizations, § 7.11.

      14 14. Rev. Rul. 76-204, 1976-1 C.B. 152. See Tax-Exempt Organizations, § 7.15(a).

      15 15. Rev. Rul. 78-84, 1978-1 C.B. 150. See Tax-Exempt Organizations, § 7.15(b).

      16 16. Rev. Rul. 80-200, 1980-2 C.B. 173. See Tax-Exempt Organizations, § 7.15(f).

      17 17. Kentucky Bar Foundation, Inc. v. Commissioner, 78 T.C. 921 (1982). See Tax-Exempt Organizations, § 7.15(f).

      18 18. Rev. Rul. 80-286, 1980-2 C.B. 179. See Tax-Exempt Organizations, § 7.15(f).

      19 19. Hutchinson Baseball Enterprises, Inc. v. Commissioner, 73 T.C. 144 (1979), aff'd, 696 F.2d 757 (10th Cir. 1982). See Tax-Exempt Organizations, § 7.15(c). Also, IRC § 501(j). See Tax-Exempt Organizations, § 11.2.

      20 20. The U.S. Supreme Court held that all organizations encompassed by IRC § 501(c)(3), including those that are “educational” and “religious,” are “charitable” in nature for federal tax law purposes (Bob Jones University v. United States, 461 U.S. 574 (1983)).

      21 21. See Tax-Exempt Organizations, Chapter 8.

      22 22. Id., Chapter 10.

      23 23. Id., Chapter 9.

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