Category Archives: Taxes

New Donor Group Interested in Charitable Deductions: Same-Sex Married Couples

iStock_000000131834XSmallAs explained by Sandra Block in the December, 2013 issue of Kiplinger’s Personal Finance, this is the first year in which same sex couples who have entered into a marriage that’s legal where it occurred are also considered married for federal tax purposes.

(At last count, 16 U.S. states and the District of Columbia offer same-sex marriage.)

This has some important implications for such couples’ interest in tax matters. As with any married couple, says Block, dual-income same-sex couples “who earn about the same amount will likely end up paying a marriage penalty.”

But nonprofits should be happy to hear one of Block’s suggested ways to avoid or reduce the penalty:

Increase contributions to charity, and take a tax deduction.

If you’re with a nonprofit that promotes LGBT marriage and other rights, you’re particularly well-placed to remind potential donors about the importance of this deduction. But, as society is finally figuring out, gay and lesbian folks come from all walks of life, and may have multiple interests.

Therefore, any charity should be thinking about how to reach out to newly married donors (of the same or opposite sex, come to think of it) who are seeing, for the first time, some significant tax benefits to giving to their favorite cause.

Charity Scams on IRS “Top 10” List for 2013

stormAs a nonprofit organization, you really don’t want the word “charity” to become linked in people’s minds with the word “scam.” But that may be the path we’re on, thanks mostly to the scammers themselves, and also to announcements like that issued by the Internal Revenue Service with its “Dirty Dozen Tax Scams for 2013.” According to the IRS, natural disasters are prime time for the emergence of fake charities preying on the public’s urge to help.

The scammers modus operandi typically includes asking people for money via telephone or  email, or setting up a fake website. Some actually claim to be working for the IRS (a move which, if the IRS wasn’t already mad enough, surely would’ve raised its ire). These “phishers” contact victims pretending to offer help with filing loss claims in order to obtain tax refunds — but are really trying to get victims’ personal financial information or Social Security numbers.

Okay, so you’re not a scam organization, but you may have a role to play after a disaster. Even organizations whose primary mission is not disaster relief may be called upon for support.  Animal shelters, for example, have found their services needed to take in lost pets after major hurricanes.

What do you do to distinguish your real group from the bogus ones? Here are some suggestions:

  • Make the most of your good name. If you’ve already got name recognition, make sure to display it loudly, proudly, and in large font on your website and promotional materials. That’s not only to assure people that you’re okay, but so that their eyes will recognize that something is awry when they view a slightly altered name used by a fake organization.
  • After a disaster, communicate with other organizations also offering relief, and promote each other’s work on your website. You’ll gain credibility, and you’ll help isolate the fake groups from the pack.
  • Also on your group’s website, encourage prospective donors to check the IRS’s search feature, Exempt Organizations Select Check, to make sure they’re giving only to legitimate, qualified charities such as yours. (It’s a bit of a clunky search tool, however; giving people your group’s EIN will help make sure they don’t receive pages of results.)
  • Understand, when dealing with prospective donors, that they may be nervous about giving out personal financial information without assurances of who is calling or otherwise contacting them. Make sure your staff and volunteers offer them gentler options than “Your credit card number now, please,” such as asking them to go to your group’s website.

And if you notice a charity scam going on, report it, to:


When Organizations Stretch the Meaning of “Nonprofit”

A nonprofit is meant to carry out a charitable, educational, religious, literary, or scientific purpose  — and not to personally benefit its directors, contributors, or other participants — in return for which, the IRS and state tax authorities don’t require it to pay taxes on profits it makes from its activities.

But the issue of what activities are “charitable,” and what constitutes personal gain, make for unending investigations and opinions from the IRS. These can be looked at as either an object lesson in how not to go wrong — or as comfort for nonprofits trying to operate in an above-board fashion, given that some groups are obviously trying to get away with a tax exemption they don’t deserve!

beerRecent cases highlighted in Bruce Hopkins’ Nonprofit Counsel letter, for example, include revocations of tax exemption for:

  •    the parents of a cheerleading squad, who worked at concession stands and used their pay for “scholarships” for their cheerleading children, based directly on how much work they put in. That was too much “private inurement” for the IRS’s taste.
  •    a bar (that’s right, the kind serving alcoholic beverages), which claimed to have been promoting “fellowship among all living beings.” (What were they drinking when they came up with this idea?)
  • a group that, when questioned as to why it hadn’t been filing its annual information returns, claimed that it was the integrated auxiliary of a church — but the church itself had no idea of this supposed arrangement.

The lines aren’t always so brightly drawn, however. To make sure that your group continues to qualify for its tax exemption, see the Nonprofits section of Nolo’s website.

Motivations for Holiday Charitable Giving: It’s Not Just the Tax Deductions!

As someone who donates to charity at random times throughout the year, I had always assumed that the end-of-year flood from other donors was due to the need to rack up points with the IRS come next April. Wrong!

As the American Red Cross found in a survey last year, four out five Americans feel that “helping someone less fortunate is an important part of their holiday tradition.” (And we probably all know by now that upwards of a third of all charitable donations are made during the final weeks of the year, so this is more than just talk.)

Well, then. If your nonprofit wasn’t already ramped up for end-of-year appeals, you’ve got one more reason to get energized about it. Of course, you’ve got a lot of competition — every nonprofit in the universe is pumping out appeals of every form, in writing, through email, and via their social networks. But the statistics on end-of-year giving suggest something interesting — that these appeals will actually receive more focused attention from donors than usual.

Instead of acting like I usually do (ripping open the appeal envelope, start tossing bits toward the recycle bin, noticing a catchy line, reading a bit, and then perhaps, miracle of miracles, deciding to make a donation), holiday-season donors are actually starting out with the intention of making a donation. It’s just a matter of to which organizations, and what share of their intended amount will go to each. They may actually set aside time to review all the possibilities. Some families I know actually sit down with the kids, let each person make a case for their favorite causes, and make a joint decision as to which groups they’ll donate to.

How to create the most effective appeals given this unique opportunity? For a helpful rundown of ideas from around the Web, read Ashley Halligan’s article on the Software Advice blog: How Your Nonprofit Can Capture December’s Giving Trend

Has Your Nonprofit Re-Registered in States Where It Solicits Funds?

It’s a problem that lawyers serving nonprofit organizations serving nonprofits see all too often: The nonprofit gets as far as figuring out which states it has been or will be soliciting charitable contributions in, takes the appropriate steps to register in those states, and then forgets that it’s in compliance only for the next 364 days. (For background on the basic requirements, see attorney Stephen Fishman’s article, “Fundraising Registration: Does Your Nonprofit Need to Register?“)

A nonprofit has to remember to re-register in every state where it will be fundraising. (It also, of course, needs to keep an eye on whether it has started raising money in states where it has never registered in the first place). All too often, however, the people who took care of registrations the first time around have left, or institutional memory otherwise fails — and the problem goes unnoticed until the nonprofit receives a “cease and desist” letter from the state in question.

This isn’t necessarily an end-of-year problem — the clock starts ticking whenever you first registered, which may have happened at different times for different states. Nevertheless, with mere months until you have to submit your next Form 990 to the IRS (in which you’ll probably need to name the states where you must register and have indeed registered, depending on which version of the form you fill out), be smart and doublecheck now on your group’s re-registration obligations.

Nolo’s book “Nonprofit Fundraising Registration: The 50-State Guide” can help with this process.

Or, you might want to consult an experienced nonprofit attorney with questions.

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.

Tax Time, and Your Donors Are Wishing They’d Given You More

Maybe. I’ve been working on my taxes this week, and was noticing, as I scanned the list of donors, that each name elicited a different emotional reaction. They ran the gamut, such as:

  • “Has it really been that long since I gave them anything?”
  • “Grr, I think they used up my whole contribution sending me multi-page, glossy follow-up appeals.”
  • “Why didn’t they list my donation amount in their thank-you letter?”
  • “Who on earth are they?”
  • “Aww, what a nice group.”

Most of those are not reactions you’d want people to have to your group. Rather than me trying to describe what’s behind my various reactions, I encourage you to try the same game as you do your taxes. (Alright, so you’re not such as a latenik as I — as you review your completed return, then.)

Think about what the various groups that you have given to did right — and wrong — and how your own nonprofit can mimic or depart from their model.


Fundraising Oops: Thank-You Letter With Backwards Tax Info

A nonprofit thank you letter for a donation serves two purposes: It furthers the dialogue between the organization and the donor (hopefully making the donor feel good about the great uses to which the gift will be put), and it gives the donor something to tuck away in those tax files, to be brought out next April 14th. (Oh, do other people start their taxes earlier than that?)

So I didn’t know whether to laugh or cry when I recently received a thank you letter for a $50 donation that I’d made, where the last line read, “Estimated value of benefits received in consideration of this donation is $47. The portion of the contribution exceeding the fair market value of  benefits received is tax deductible as allowed by law.”

What’s so laughable/cryable about that? Hold on, you need a little more information: The “benefit” that I received for my $50 was a canvas tote bag, pretty clearly hand silk-screened. And there are two very large problems with that:

  • There’s no way the FMV of the tote bag is $47.  And if it was, I wish they had not bothered to send me such a gift, because that would leave me with a mere $3 tax deduction. More likely they got it backwards — they’re estimating the FMV of the tote bag at $3, which should have been the amount stated in the first sentence.
  • I suspect that the tote bag is of “token” value — that is, an item that bears the organization’s logo (which it did), cost it no more than $9.50 to produce (which it must have), and was given in return for a donation of $48.50 or above. A nonprofit doesn’t even need to mention the fair market value of token items in its thank you letters.

For more information on requirements for a thank-you letter, and related tax issues, see The Volunteer’s Guide to Fundraising.

The Charitable Deduction: Will It Be Reduced By the Jobs Bill?

We may soon find out exactly how much the tax deduction for charitable giving prompts people to donate to nonprofits, if President Obama’s proposed jobs bill goes through. As explained in Lisa Chiu’s September 12 article in the Chronicle of Philanthropy, the charitable deduction is just one of the many itemized deductions that would be limited to a 28% writeoff in the higher-income brackets.

For an impassioned (to put it mildly) discussion of the pros and cons of limiting this deduction, see the “Tax the Rich More? Or Less?” article by Jan Masaoka in Blue Avocado and the comments that follow. The crux of the debate seems to be between those who believe that tax deductions either aren’t or shouldn’t be a major motivation for giving among the wealthy, and those who think that it is — and that, with all the struggles nonprofits are already going through, picking on this deduction could just make matters worse.

I put myself in the latter camp, largely because of the following statistic, as covered in my December 2010 blog post: More than 20% of all charitable giving for the ENTIRE YEAR occurs on December 30th and 31st.

Maybe the tax deduction isn’t the main motivation for giving, but the deadline clearly gives potential donors a major nudge. Without that deadline, I’m betting (as a seasoned procrastinator) that all those good intentions will be put off month by month by month.