Crowdfunding

I’ll be on Nonprofit Radio speaking with host Tony Martignetti this Friday at 10:30 am PT / 1:30 pm ET about charitable crowdfunding. You can tune in to the live feed on Talking Alternative or catch up later on iTunes.

We’ll be talking about:

  • The difference between an individual and a charity crowdfunding for a charitable purpose
  • Whether a crowdfunding site operator is subject to charity regulations, like those for commercial fundraisers
  • The risks involved with crowdfunding from the charity’s and the donor’s perspective

10 Takeaways:

  1. An individual who is not acting as an authorized agent of a charity may need to register with a state charity official (typically, the Attorney General) before soliciting for charitable purposes, particularly if the individual compensates herself or himself with part of the proceeds for such activities.
  2. A donor to a crowdfunding solicitation by an individual (as opposed to a charity) for charitable purposes will generally not be eligible to take a charitable contribution deduction for the donation; accordingly, most donors would be well-advised to make charitable contributions to a recognized charity.
  3. A donor to a crowdfunding solicitation by an individual for charitable purposes may never be able to check whether the individual is actually using the donations as represented; accordingly, most donors would be well-advised to make charitable contributions to a recognized charity.
  4. State consumer protection laws may to some extent protect against fraud perpetrated by an individual raising funds for charitable purposes on a crowdfunding site, including by misusing the funds for personal gain.
  5. Crowdfunding site operators may or may not be regulated as commercial or professional fundraisers, fundraising counsel, or commercial co-venturers (if they are, they may need to register with a state charity official).
  6. Charities raising funds on a crowdfunding site, including through an authorized representative, have a responsibility to ensure that the site and any authorized representatives are not misrepresenting the charity or the nature of the solicitation in any way.
  7. Charities raising funds on a crowdfunding site must be careful to abide by any representation made on the site that may cause such funds to be restricted for the specified uses (e.g., to fund a particular project).
  8. Charities raising funds on a crowdfunding site should be careful of issuing appropriate donation receipts required by their donors to take a charitable contribution deduction, including written disclosure statements for quid pro quo contributions where the donors received something of value in partial return for their payments.
  9. Charities raising funds on a crowdfunding site cannot provide that the donor’s contributions are eligible for a charitable contribution deduction if the charity acts merely as a conduit for funds to go to a specific individual or to a taxable or foreign entity.
  10. Charities raising funds on a crowdfunding site that uses a donor advised fund to accept and regrant contributions to the charity should recognize that the funds are legally being raised for the sponsoring organization that operates the donor advised fund and that the sponsoring organization may choose not to regrant such funds to the charity if, for example, the charity has violated the requirements of IRC Section 501(c)(3) or other applicable laws.

Resources:

Nonprofit Crowdfunding Risks

A Moving Target: The regulation of online fundraising platforms | The Nonprofit Times

Every Little Bit Counts: Crowdfunding for Nonprofits | The Law Project

Internet and Social Media Solicitations: Wise Giving Tips | NASCO