Thousands of Nonprofits Fail to Report Fundraising Expenses on Form 990

I’m regularly amazed, when talking to nonprofit fundraisers, about some of the common misperceptions held about their obligations to the IRS in order to keep the group’s 501(c)(3) tax-exempt status. Things like, “You mean the donor’s entire ticket isn’t tax deductible if we feed them dinner?” and “Volunteers can’t deduct the value of their services?” (No and no.)

Those are understandable errors (though a little reading would correct them — everyone involved in nonprofit fundraising needs to get their hands on Stephen Fishman’s book, Every Nonprofit’s Tax Guide.)

Less understandable is the recent news that many nonprofits — over 15,000 of them according to a Scripps Howard News Service study — get to Question 16b on their annual Form 990, where it clearly asks about¬† “Total fundraising expenses,” and write “Zero.” Huh? How is it possible to spend absolutely nothing on fundraising? In a report on this issue by Thomas Hargrove (“Many nonprofits incorrectly claim no expense for fund-raising“), Robert Ottenhoff, president and CEO of GuideStar, is quoted as having laughed and said:

“It is ridiculous to think an organization could raise significant amounts of money without spending money to do it. . . . I must be doing something wrong. I’ve never seen it growing on trees.”

The question is, what are these groups thinking? Or are they just fudging the numbers, perhaps feeling the public pressure to keep fundraising expenses low?¬† That was the suggestion on this I-Team video, which pointed out that when organizations like GuideStar rate charities, they give heavy weight to the nonprofit’s reported ability to keep fundraising costs low. The only “compelling defense” reported in the article is when groups do all their fundraising with volunteers.

If you know of a better one, I’d love to hear about it.