I want to raise money for a cause; what do I need to worry about?

Summary:

Besides finding the money, you mean? Well, there are actually several things that need to be done to get ready to run a fundraising campaign.

Answer:

Because of a sorry history of abuses by people who are willing to prey on our charitable feelings, anyone who wants to raise money independently for a cause needs to prepare carefully to handle the details correctly and be able to respond to any questions that might arise.

Here is a list of some of the things you need to make sure you've got covered before you ask your friends, neighbors or total strangers to contribute to a cause.

Who is going to get the money you raise? How will it be used?

Many well-known charitable organizations have policies about fundraising in their name. If you plan to pass the money you raise along to a group like the Red Cross, the YWCA, or World Vision, you need to get in touch with them first and be sure you are meeting their requirements.

When you think about it, sad to say, it's no surprise that sleazy people have tried going door-to-door (or posting on the Internet) saying they're raising money for some familiar organization and then just keeping the money themselves. As a result, such organizations want to know who is raising money in their name and to be able to control the way the money is handled and what is said in the campaign to raise it.

They'll want to be sure that your campaign matches their needs and capacities. It would be embarrassing for you to have to go back to people and say "I wasn't able to pass your contribution along in the way I expected because they don't need help in that area." Better to be sure in advance that the goals of your campaign are aligned with the cause you are trying to help.

Are there any laws or regulations I need to be sure I follow?

That's a hard one. Many states have what are called 'charitable solicitations' laws, but each state is different. Some cities and counties have similar regulations and it's often hard to find out exactly how they might apply to your plans. This topic is covered in the Nonprofit FAQ items listed at http://www.idealist.org/en/faqcat/58-65.

(Some jurisdictions, for example, flatly forbid raising money for a charitable organization without an agreement signed in advance with the recipient organization.)

The state rules are summarized at http://www.multistatefiling.org. That website was created to help big organizations that ask for donations in lots of states, but the state-by-state index of regulations will give you a sense of whether you will need to talk with your local charity-oversight officials before starting your campaign.

Are there any taxes that I might have to pay?

You will want to be careful not to mix up the funds you raise in your campaign with your own money. You will need to keep careful records, You might want to open a separate bank account that will be used only for this campaign. Since you are raising the money to pass along to someone else, it should not be considered income that you earned, but you'll need to be able to document that you kept the funds completely separate if the IRS or your local tax department should ask.

Are the gifts people give to my campaign tax deductible?

That depends. First of all, it depends on the givers' own tax situation. Careful fundraisers never say "You can take a tax deduction." What they say (when it's true) is "You may be able to deduct this from your personal income taxes. Consult with your tax advisor or review the IRS regulations that apply to your situation to determine whether or not a deduction is allowed."

But tax deductions can only be taken for certain kinds of gifts. If you know your campaign isn't about raising money for a tax-deductible purpose, you need to be careful to tell people that right up front.

• The recipient organization has to be recognized by the IRS as a 501(c)(3) -- or be an established church. (Churches don't have to register with the government, but they do have to meet certain standards about how they operate. If you have any doubts, ask.)
  
• Gifts to individuals, no matter how urgent the need, are never tax deductible. This rule often comes as a surprise to people, but it's very well established. See the Nonprofit FAQ item http://www.nonprofits.org/npofaq/16/56.html for more discussion of this topic.
  
• One result of the rule that gifts to individuals are never deductible is that you must be sure you are raising money for a recognized charity before you ask for any donations; you can't ask people to give you donations that you'll decide later how to use (unless you want to go through the process of setting up a new nonprofit organization, with all the complications in that process, before you start your campaign).

Is there any simpler way?

That really depends on how much money you expect to raise, and how much preparation you want to make.

One straightforward solution to many of these issues is to ask your donors to make their checks out to the chosen charity itself. (Be sure that you have permission to ask in the first place if it's needed -- see the first note at the top of this page.)

More complicated, but still a way to avoid many of the pitfalls, is to make arrangements with a community foundation to set up a special fund that's dedicated to the cause you want to support. Then you can ask people to contribute to that fund, even make out their checks to it for you to pass along in bunches, and leave the administrative details to the foundation staff who have a lot of experience with this sort of thing. The Council on Foundations has a list of community foundations online at its website http://www.cof.org. (A community foundation will require that a small fee be paid for administering these gifts; you will want to explore that question carefully before proceeding.)

Also, of course, banks and churches sometimes set up accounts to receive donations for families who have suffered a big loss (like a house fire or a devastating disease). If helping out in that sort of situation is your goal, you can approach local institutions to see if they are willing to help.

Can I keep any of the money myself, to cover my time or expenses?

If you tell people you ask for money that you're going to do that, then it's probably ok. Some states' rules may require you to register as a "commercial fundraiser" if you keep any of the money yourself -- the website http://www.multistatefiling.org has information about this question as well.

What about enlisting other people to help with my campaign?

If you do that, you will need to have some sort of "internal controls" to be sure that everyone sticks to your standards about how the campaign is run and how the money is handled. The usual way of handling one part of this problem is to have receipt books that automatically make a duplicates that everyone can turn in with the money they have raised.

If you're going to start something that involves several other people, then you might think about setting up a little group to help you oversee the project, review progress, and join in publishing reports on your successes. That way the responsibility for making sure the campaign runs right will be shared, and you'll have help if anything appears to being going off the rails.

If your campaign is going to go on for a while and involve a group of other people but you don't want to set up a new nonprofit organization, then you might consider approaching an established nonprofit to act as your "fiscal sponsor" or "fiscal agent." Fiscal sponsorship means that the existing organization adopts your work as a "program" under its wing. The sponsor is ultimately responsible for the program, so you would have to follow its rules; usually the sponsor takes a small administrative fee. Donors to your project would be assured a tax-deduction, though, if all the requirements of the IRS are met. And you would not have to worry about administrative details like tax forms, bank deposit rules, and accounting packages. There's more about this topic in the Nonprofit FAQ at http://www.nonprofits.org/npofaq/18/50.html.

Last words

If you've come this far in this somewhat depressing list of issues, congratulations on your interest in helping out in the right way! Lots of people enjoy working independently to meet a need for resources when a disaster strikes or a community improvement needs a boost. It is, though, worth considering whether your effort would yield greater results if you worked through an organization that continuously serves the cause you care about. You might find such an organization by checking the listings at http://www.idealist.org or by contacting your local volunteer center; there's a list of volunteers centers on the Points of Light foundation website -- http://www.pointsoflight.org.

---

Prepared by Putnam Barber -- 1/28/05