Pollinate: Money and NPOs

Before getting into the "hows" of raising money for charity, it's important to cover the legal side of things.  Depending on the charity you are raising money for, there may be restrictions with how funds are raised, and how to account for those funds.  Figure out the charity you are interested in working with and contact them before moving forward with any planning.


To avoid the risk of misinterpretation, here's the wiki definition of "Charitable Organization"


Please peruse the legal definitions below, feel free to contact with any additional information, as the fund raising legaleze may vary from state to state.

"In the United States, a charitable organization is an organization that is organized and operated for purposes that are beneficial to the public interest,^[15] however a distinction is made between types of charitable organizations.

Every U.S. and foreign charity that qualifies as tax-exempt under Section 501(c)(3) of the Internal Revenue Code is considered a "private foundation" unless it demonstrates to theIRS that it falls into another category. In a general sense, any organization that is not a private foundation (i.e. it qualifies as something else) is usually a public charity as described in Section 509(a) of the Internal Revenue Code.^[16]

In addition, a private foundation usually derives its principal fund from an individual, family, corporation, or some other single source and is more often than not a grantmaker and does not solicit funds from the public. In contrast, a foundation or public charity generally receives grants from individuals, government, and private foundations and although some public charities engage in grantmaking activities, most conduct direct service or other tax-exempt activities.

This leads to another distinction: Foundations that are generally grantmakers (i.e. they use their endowment to make grants to other organizations, which in turn carry out the goals of the foundation indirectly) are usually referred to as "grantmaker" or "non-operating" foundations. These of course tend to be private foundations. Some private foundations however, (and most public charities) use their received funds to directly engage in service activities themselves and achieve their goals "personally," so-to-speak.

Examples of a non-operating private foundation would be the Rockefeller Foundation and the Bill & Melinda Gates Foundation.

Examples of operating foundations or public charities include the Elizabeth Glaser Pediatric AIDS Foundation, American Cancer Society, Inc., and the World Wildlife Fund.

The requirements and procedures for forming charitable organizations vary from state to state, as do the registration and filing requirements for charitable organizations that conduct charitable activities or solicit charitable contributions.^[17] So effectively in practice the detailed definition of charitable organization is determined by the requirements of state law of the state in which the charitable organization operates, and the requirements for federal tax relief set by the IRS.

[edit]Federal tax relief

Federal tax law provides tax benefits to non profit organizations recognized as exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code (IRC). The benefits of 501(c)(3) status include exemption from federal income tax as well as eligibility to receive tax deductible charitable contributions. To qualify for 501(c)(3) status most organizations must apply to the Internal Revenue Service (IRS) for such status.^[18]

There are several requirements that must be met for a charitable organization to obtain 501(c)(3) status. These include the organization being organized as a corporation, trust, or unincorporated association, and the organization’s organizing document (such as the articles of incorporation, trust documents, or articles of association) must limit its purposes to being charitable, and permanently dedicate its assets to charitable purposes. The organization must refrain from undertaking a number of other activities such as participating in the political campaigns of candidates for local, state or federal office, and must ensure that its earnings do not benefit any individual.^[15] Most tax exempt organizations are required to file annual financial reports (IRS Form 990) at the state and federal level. A tax exempt organization's 990 and some other forms are required to be made available to public scrutiny.

The types of charitable organization that are considered by the IRS to be organized for the public benefit include those that are organized for:

1. Relief of the poor, the distressed, or the underprivileged,
2. Advancement of religion,
3. Advancement of education or science,
4. Erection or maintenance of public buildings, monuments, or works,
5. Lessening the burdens of government,
6. Lessening of neighborhood tensions,
7. Elimination of prejudice and discrimination,
8. Defense of human and civil rights secured by law, and
9. Combating community deterioration and juvenile delinquency.

A number of other organizations, including those organized for religious, scientific, literary and educational purposes, as well as those for testing for public safety and for fostering national or international amateur sports competition, and for the prevention of cruelty to children or animals, may also qualify for exempt status.

The IRS, except in rare circumstances, refers to all organizations qualifying for exemption under 501(c)(3) as charities.^[19]"

Section 509(a) Internal Revenue Code

 Sec. 509. Private foundation defined

    (a) General rule

      For purposes of this title, the term ''private foundation'' means

    a domestic or foreign organization described in section 501(c)(3)

    other than -

        (1) an organization described in section 170(b)(1)(A) (other

      than in clauses (vii) and (viii));

        (2) an organization which -

          (A) normally receives more than one-third of its support in

        each taxable year from any combination of -

            (i) gifts, grants, contributions, or membership fees, and

            (ii) gross receipts from admissions, sales of merchandise,

          performance of services, or furnishing of facilities, in an

          activity which is not an unrelated trade or business (within

          the meaning of section 513), not including such receipts from

          any person, or from any bureau or similar agency of a

          governmental unit (as described in section 170(c)(1)), in any

          taxable year to the extent such receipts exceed the greater

          of $5,000 or 1 percent of the organization's support in such

          taxable year,

        from persons other than disqualified persons (as defined in

        section 4946) with respect to the organization, from

        governmental units described in section 170(c)(1), or from

        organizations described in section 170(b)(1)(A) (other than in

        clauses (vii) and (viii)), and

          (B) normally receives not more than one-third of its support

        in each taxable year from the sum of -

            (i) gross investment income (as defined in subsection (e))

          and

            (ii) the excess (if any) of the amount of the unrelated

          business taxable income (as defined in section 512) over the

          amount of the tax imposed by section 511;

        (3) an organization which -

          (A) is organized, and at all times thereafter is operated,

        exclusively for the benefit of, to perform the functions of, or

        to carry out the purposes of one or more specified

        organizations described in paragraph (1) or (2),

          (B) is--

                          (i) operated, supervised, or controlled by 

                      one or more organizations described in paragraph 

                      (1) or (2),

                          (ii) supervised or controlled in connection 

                      with one or more such organizations, or

                          (iii) operated in connection with one or 

                      more such organizations, and

          (C) is not controlled directly or indirectly by one or more

        disqualified persons (as defined in section 4946) other than

        foundation managers and other than one or more organizations

        described in paragraph (1) or (2); and

        (4) an organization which is organized and operated exclusively

      for testing for public safety.

    For purposes of paragraph (3), an organization described in

    paragraph (2) shall be deemed to include an organization described

    in section 501(c)(4), (5), or (6) which would be described in

    paragraph (2) if it were an organization described in section

    501(c)(3).

    (b) Continuation of private foundation status

      For purposes of this title, if an organization is a private

    foundation (within the meaning of subsection (a)) on October 9,

    1969, or becomes a private foundation on any subsequent date, such

    organization shall be treated as a private foundation for all

    periods after October 9, 1969, or after such subsequent date,

    unless its status as such is terminated under section 507.

    (c) Status of organization after termination of private foundation

        status

      For purposes of this part, an organization the status of which as

    a private foundation is terminated under section 507 shall (except

    as provided in section 507(b)(2)) be treated as an organization

    created on the day after the date of such termination.

    (d) Definition of support

      For purposes of this part and chapter 42, the term ''support''

    includes (but is not limited to) -

        (1) gifts, grants, contributions, or membership fees,

        (2) gross receipts from admissions, sales of merchandise,

      performance of services, or furnishing of facilities in any

      activity which is not an unrelated trade or business (within the

      meaning of section 513),

        (3) net income from unrelated business activities, whether or

      not such activities are carried on regularly as a trade or

      business,

        (4) gross investment income (as defined in subsection (e)),

        (5) tax revenues levied for the benefit of an organization and

      either paid to or expended on behalf of such organization, and

        (6) the value of services or facilities (exclusive of services

      or facilities generally furnished to the public without charge)

      furnished by a governmental unit referred to in section 170(c)(1)

      to an organization without charge.

    Such term does not include any gain from the sale or other

    disposition of property which would be considered as gain from the

    sale or exchange of a capital asset, or the value of exemption from

    any Federal, State, or local tax or any similar benefit.

    (e) Definition of gross investment income

      For purposes of subsection (d), the term ''gross investment

    income'' means the gross amount of income from interest, dividends,

    payments with respect to securities loans (as defined in section

    512(a)(5)), rents, and royalties, but not including any such income

    to the extent included in computing the tax imposed by section 511.

    (f) Requirements for Supporting Organizations.--

            (1) Type iii supporting organizations.--For purposes of 

        subsection (a)(3)(B)(iii), an organization shall not be 

        considered to be operated in connection with any organization 

        described in paragraph (1) or (2) of subsection (a) unless such 

        organization meets the following requirements:

                    (A) Responsiveness.--For each taxable year 

                beginning after the date of the enactment of this 

                subsection, the organization provides to each supported 

                organization such information as the Secretary may 

                require to ensure that such organization is responsive 

                to the needs or demands of the supported organization.

                    (B) Foreign supported organizations.--

                          (i) In general.--The organization is not 

                      operated in connection with any supported 

                      organization that is not organized in the United 

                      States.

                          (ii) Transition rule for existing 

                      organizations.--If the organization is operated in 

                      connection with an organization that is not 

                      organized in the United States on the date of the 

                      enactment of this subsection, clause (i) shall not 

                      apply until the first day of the third taxable 

                      year of the organization beginning after the date 

                      of the enactment of this subsection.

            (2) Organizations controlled by donors.--

                    (A) In general.--For purposes of subsection 

                (a)(3)(B), an organization shall not be considered to 

                be--

                          (i) operated, supervised, or controlled by 

                      any organization described in paragraph (1) or (2) 

                      of subsection (a), or

                          (ii) operated in connection with any 

                      organization described in paragraph (1) or (2) of 

                      subsection (a),

                if such organization accepts any gift or contribution 

                from any person described in subparagraph (B).

                    (B) Person described.--A person is described in 

                this subparagraph if, with respect to a supported 

                organization

                of an organization described in subparagraph (A), such 

                person is--

                          (i) a person (other than an organization 

                      described in paragraph (1), (2), or (4) of section 

                      509(a)) who directly or indirectly controls, 

                      either alone or together with persons described in 

                      clauses (ii) and (iii), the governing body of such 

                      supported organization,

                          (ii) a member of the family (determined 

                      under section 4958(f)(4)) of an individual 

                      described in clause (i), or

                          (iii) a 35-percent controlled entity (as 

                      defined in section 4958(f)(3) by substituting 

                      `persons described in clause (i) or (ii) of 

                      section 509(f)(2)(B)' for `persons described in 

                      subparagraph (A) or (B) of paragraph (1)' in 

                      subparagraph (A)(i) thereof).

            (3) Supported organization.--For purposes of this 

        subsection, the term `supported organization' means, with 

        respect to an organization described in subsection (a)(3), an 

        organization described in paragraph (1) or (2) of subsection 

        (a)--

                    (A) for whose benefit the organization described 

                in subsection (a)(3) is organized and operated, or

                    (B) with respect to which the organization 

                performs the functions of, or carries out the purposes 

                of.

501(c)(3) Exemption Requirements

Exemption Requirements - Section 501(c)(3) Organizations

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively forexempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates. Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170. The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction. Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct. For a detailed discussion, see Political and Lobbying Activities. For more information about lobbying activities by charities, see the article Lobbying Issues; for more information about political activities of charities, see the FY-2002 CPE topic Election Year Issues. Additional Information Application Process Step by Step:  Questions and answers that will help an organization determine if it is eligible to apply for recognition of exemption from federal income taxation under IRC section 501(a) and, if so, how to proceed.