The IRS recently released an Information Letter, written in response to a congressman’s inquiry about an unidentified charity’s unidentified practices, confirming that Section 501(c)(3) organizations may use the internet to raise funds. The IRS stated that solicitations made through a website or e-mail should comply with the same rules that apply to other solicitations. However, any organization raising funds over the internet should consider any state laws and regulations that may apply.
The IRS reminded organizations of several important considerations for Section 501(c)(3) organizations, whether or not they use the internet to raise funds:
- Deductibility of donations. An organization that is raising funds, but has not yet received recognition as a tax-exempt organization under Section 501(c)(3), must include a clear and conspicuous statement on its solicitation materials (including its website) stating that it has not received Section 501(c)(3) recognition, and, therefore, donations may not be deductible.
- Professional fundraisers. An organization should consider whether any fees that a fundraiser or other private party charges could be excessive or whether the fees violate the rules against private benefit or private inurement.
- Quid pro quo contributions. If an organization provides something of value in exchange for a donation, then the organization must consider whether this arrangement violates the rules against private benefit or private inurement. The organization must also comply with any substantiation and disclosure requirements for quid pro quo contributions.
- Disclosing fundraising information. An organization that is applying for recognition of Section 501(c)(3) status must describe its actual and planned fundraising activities and its fundraising expenses on its application for exemption (Form 1023). Expenses relating to fundraising incurred by an organization must be reported on the organization’s annual information return (Form 990, Form 990-EZ or Form 990PF).