Frequently Asked Questions about Fundraising for Community Foundations
Raising money for community needs is the central function of community foundations. No surprise, then, that we receive more questions about fundraising than about any other topic. Following are some common inquiries we receive by telephone and e-mail and the replies we give.
Documents for Donors
Q: What sort of documentation does the foundation need to provide to donors?
A:When an individual or corporation makes a gift of $250 or more, the foundation must provide a written acknowledgement. This may be a receipt or letter and must include the amount of the contribution (or a description of the gift if it is something other than money) and the value of any goods or services provided in exchange for the gift. If no goods or services are provided, the acknowledgement should state this. In order to claim an income tax charitable deduction, the donor must have this document by either the due date of the tax return that covers the period in which the gift was made or the date on which the tax return is actually filed, whichever is earlier.
If a donor makes a contribution of $75 or more that is part gift and part purchase of goods or services (say, a ticket to a benefit dinner), the charity must provide a receipt that indicates what portion of the contribution covers the fair market value (FMV) of the goods or services provided and what portion may be taken as a charitable contribution.
Contributions of items (other than cash or publicly traded stock) with a value of $500 or more may require the donor to complete IRS Form 8283 (which the community foundation must sign) and submit it with his or her tax return.
Q: If we hold a fundraising event and the food and entertainment are donated, do we still need to include the value of these items as goods and services provided?
A:Yes, the FMV of the event is based on the value of goods and services provided, not how much the community foundation paid for them.
Q: If we give out T-shirts or key rings with our community foundation's name and logo on them to donors, do we need to include the value of these items as goods and services provided?
A:No, there is an exception in the IRS rules for low-cost articles that are provided to donors in the course of a fundraising campaign. So long as the contribution is $38 or more and the items bear the community foundation's name or logo and cost less than $7.60 (a figure that is adjusted each year), the community foundation need not provide a value for the items, and donors need not reduce their charitable deduction.
Another exception in the IRS rules provides that where the value of the goods or services
provided is less than the lesser of 2 percent of the contribution or $76, the goods and services will be considered to have insubstantial value. The community foundation will not have to provide a value to the donor and the donor will not have to reduce his or her deduction. This exception provides less relief than you might think; after all, 2 percent of a $500 contribution is $10, so any donor thank-you that is more than a coffee mug is likely to fall outside the exception.
Reporting to the IRS
Q: How should a community foundation show the revenue and expenses of a fundraising event on its Annual Information Return, Form 990?
A:A community foundation's best resource for this information is its (knowledgeable) accountant, but here are a few points to keep in mind:
- The IRS expects to see fundraising expenses on the information returns of public charities and may be curious about the operations of a group that raises lots of money without expending any funds.
- A contribution to a fundraising event may generate both revenue and a contribution for the community foundation. Revenue will consist of any payment that covers the FMV of goods and services provided; the contribution will be any amount that exceeds this FMV.
- Fundraising expenses are to be broken down in Part II, column D of Form 990.
- The IRS requires that public charities provide a schedule that sets forth the gross
receipts, contributions, gross revenue (gross receipts less contributions), direct expenses and net income or loss (gross revenue less direct expenses) of their three largest special events, as measured by gross receipts. The schedule must also summarize figures for all the year's other special events.
Q: A group of donors would like to hold a golf tournament to raise money for a memorial fund. Can checks be made out to the community foundation?
A:Yes, but there are serious ramifications for the foundation. If a community foundation permits a donor group to use its name and tax exemption, the community foundation may well find itself legally responsible for all aspects of the fundraising event, from providing donors acknowledgements of their contributions to paying vendors if the event does not generate sufficient revenue to cover costs. The community foundation may also be the target of any liability claims that result from the event.
Community foundations that wish to permit what we call donor-initiated fundraising need to ensure that they have policies and procedures in place that allow them to exercise appropriate oversight in connection with these events. Community foundations that do not wish to permit these activities should take steps to inform donor groups that they may not use the community foundation's name or tax exemption for fundraising.