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Part 4. Examining Process

Chapter 76. Exempt Organizations Examination Guidelines

Section 51. Fund-raising Activities

4.76.51  Fund-raising Activities

4.76.51.1  (04-01-2003)
Introduction

  1. This chapter provides specific examination guidelines for fund-raising activities of organizations recognized as tax exempt under IRC sections 501(c) and (d). It provides examination techniques effective in identifying and developing issues commonly encountered during the examination of fund-raising activities.

  2. These guidelines provide specific assistance for examination of the fund-raising activities of organizations recognized as tax exempt under IRC sections 501(c) and (d) and are not all-inclusive. The purpose is to supplement the guidelines contained in IRM 4.75.2 through 4.75.6. The intent is not to restrict the examiner in identifying issues or using examination techniques not included herein.

  3. For information regarding political organizations described in IRC section 527, such as political action committees and campaign committees, see IRM 4.76.30.

  4. The objectives of this chapter are to provide guidelines to ensure:

    1. Advertisements and solicitations for "Special Event" fund-raising activities are not erroneous or misleading, as to the deductibility of the payments made in connection with the event. Rev. Rul. 67-246, 1967-2, C.B. 104 (amplified by Rev. Proc. 90-12, 1990-1 C.B. 471),

    2. All fund-raising activities conducted by an IRC section 501(c) organization not eligible to receive tax-deductible contributions, are in compliance with the non-deductibility disclosure requirements of IRC section 6113 and Notice 88-120, 1988-2, C.B. 454,

    3. The organization complies with the disclosure requirements described in IRC section 6115, regarding Quid Pro Quo Contributions. In all fund-raising activities in which a donor makes payments which are in part a gift, and in part a payment for goods or services, the donee organization must disclose the amount of the payment, that is tax deductible to donors,

    4. The organization pays any unrelated business income tax under IRC section 511 arising from the fund-raising activities,

    5. The organization correctly completes Form 990 returns to accurately reflect fund-raising receipts and expenses, and

    6. The Organization eligible to receive tax deductible contributions, properly handle non-cash contributions received.

4.76.51.2  (04-01-2003)
Background

  1. Exempt organizations to which deductible contributions may be made may have advised potential contributors that the entire amount paid to attend events, purchase tickets to events or for other privileges or benefits in connection with charitable fund-raising activities is tax deductible, when a only a portion of the payment is deductible.

  2. Organizations conducting fund-raising activities are required to comply with specific fund-raising disclosure requirements.

4.76.51.3  (04-01-2003)
Erroneous or Misleading Advertisements of Charitable Fund-raising Activities

  1. Revenue Ruling 67-246, 1967-2 C.B. 104, as amplified by Revenue Procedure 90-12, 1990-1 C.B. 471, describes rules on the deductibility of payments to charities for fund-raising events and gives examples illustrating how the rules apply. To avoid misleading donors, any charitable organization conducting this type of fund-raising is required to:

    1. Determine the portion of the payment attributable to the purchase of admission or other privilege and the portion solicited as a gift,

    2. Provide separate amounts in the solicitation, and

    3. Clearly designate these separate amounts on any ticket, receipt or other evidence of payment furnished to the contributor.

  2. Exempt organizations to which charitable contributions may be made have advised potential contributors the entire amount paid to attend events, purchase tickets to events or for other privileges or benefits in connection with charitable fund-raising activities is tax deductible, when a only a portion of the payment is deductible.

4.76.51.3.1  (04-01-2003)
Examination Guidelines-Erroneous or Misleading Advertisements of Charitable Fund-raising Activities

  1. Determine if any fund-raising activities conducted were designed to solicit payments intended in part as a gift and in part as the purchase price paid for tickets or other participation in an event. Examples of these types of fund-raising events are:

    • Charity balls

    • Bazaars

    • Banquets

    • Shows

    • Athletic events

  2. When examining an organization that conducts fund-raising activities, review the following to gain a more thorough understanding of those disclosure requirements:

    • IRC section 6113

    • Notice 88-120, 1988-2 C.B. 454

    • Rev. Proc. 90-12, 1990-1 C.B. 471, which amplifies Rev. Rul. 67-246, and

    • IRC section 6115, regarding Quid Pro Quo Contributions

  3. Review the organization’s fund-raising solicitation materials and activities to determine if the organization clearly designated the amount of the payment attributable to the purchase of admission or other privilege and the portion deductible as a charitable contribution.

  4. Inspect tickets or receipts issued to the donor to determine if the organization has clearly designated the separate amounts.

4.76.51.4  (04-01-2003)
Disclosure of Nondeductible Contributions

  1. IRC section 6113 requires exempt organizations not eligible to receive deductible contributions to disclose in all of their fund-raising solicitations in a conspicuous and easily recognizable format that contributions or gifts to the organizations are not deductible as charitable contributions for federal income taxes. See also Notice 88-120, 1988-2, C.B. 454. The following organizations, among others, must comply with the requirements:

    • Social welfare organizations-IRC section 501(c)(4)

    • Labor unions-IRC section 501(c)(5)

    • Trade associations-IRC section 501(c)(6)

    • Social clubs-IRC section 501(c)(7)

    • Fraternal organizations-IRC sections 501(c)(8) and (10), unless described in IRC section 170(c)(4)

    • Political organizations-IRC section 527(e)

    • Any other tax-exempt organization not eligible to receive contributions that are tax deductible

    • Any organization that was subject to the disclosure requirement during the five-year period immediately preceding the fund-raising solicitation

    • Any organization that is a successor to an organization that was subject to the disclosure requirement during the five-year period preceding the solicitation

  2. Certain tax-exempt organizations, other than IRC section 501(c)(3) organizations, that pay or incur nondeductible lobbying expenditures are required by IRC section 6033(e)(1) to notify their members of a reasonable estimate of the portion of their dues allocable to those expenditures and, thus not deductible. For more information see Rev. Proc. 98-19, 1998-1 C.B. 547, which updates and supersedes Rev. Proc. 95-35, 1995-2 C.B. 391, as modified by Rev. Proc. 95-35A, 1995-2 C.B. 392.

  3. IRC section 6113 does not apply to fund-raising solicitations by organizations:

    1. Described in IRC section 170(c),

    2. That have annual gross receipts that do not exceed $100,000. (Treas. Regs. Section 1.6033-2(g)(4) and Rev. Proc. 83-23, 1983-1, C.B. 687 set forth rules for determining annual gross receipts),

    3. That solicit only tax exempt organizations, or

    4. That solicit no more than ten persons during the calendar year.

  4. IRC section 6113(b)(2)(B) permits the Service to treat a group of exempt organizations as one organization where appropriate. The purpose is to prevent the use of multiple organizations to circumvent the disclosure requirements by keeping annual gross receipts per entity below the $100,000 limitation.

  5. A fund-raising solicitation is any solicitation for a contribution or gift made in written or printed form, by television or radio, or by telephone.

  6. Examples of situations excluded from this disclosure requirement include billing:

    • Members and nonmembers for food and beverages at a social club

    • Attendees of a conference conducted by an organization

    • Individuals for insurance premiums where the organization sponsors or operates an insurance program

    • Members of a homeowners association for mandatory payments

    • Members of a voluntary employees' beneficiary association described in IRC section 501(c)(9)

  7. Notice 88-120 provides safe harbor guidelines as to acceptable formats for fund-raising solicitations for nondeductible contributions made in the print media, by telephone, television or radio. If an organization does not comply with the safe harbor guidelines, the examiner must use a facts and circumstances test to determine if the organization has complied with the requirements of IRC section 6113.

4.76.51.4.1  (04-01-2003)
Examination Guidelines-Disclosure of Nondeductible Contributions

  1. Determine if the organization is excluded from compliance under IRC section 6113.

  2. Identify all fund-raising solicitation activities conducted by organizations not excluded from the disclosure requirements.

  3. Determine if the particular activity is excluded from the disclosure requirement.

  4. Review all printed materials involving solicitation activities, which are not excluded and determine if they have met the disclosure requirements.

  5. Consider the applicability of penalties upon identification of areas of noncompliance.

4.76.51.4.1.1  (04-01-2003)
Penalty for Failure to Disclose Non-Deductibility of Contributions

  1. Organizations that fail to comply with IRC section 6113 are liable under IRC section 6710 for a penalty of $1,000 for each day on which such failure occurred not to exceed $10,000 for any calendar year.

  2. Organizations that intentionally disregard the disclosure requirement of IRC section 6113 are liable for a penalty of the greater of $1,000 or 50 percent of the aggregate cost of the solicitations that occurred on that day that did not include the required disclosure statement.

    Note:

    The $10,000 penalty limitation does not apply to intentional disregard of IRC section 6113.

  3. Do not assess penalties if the organization can demonstrate the failure is due to reasonable cause. See IRM 120.1.8 for reasonable cause criteria.

  4. Inform taxpayers:

    1. They are entitled to a post-assessment appeal in accordance with Treas. Reg. section 601.106(b)(3)(iii) and

    2. They may file an appeal prior to payment. See Rev. Proc. 78-1, 1978-1 C.B. 550.

4.76.51.5  (04-01-2003)
Disclosure of Quid Pro Quo Contributions

  1. A quid pro quo contribution is a payment made by a donor that is partly a contribution and partly for goods or services provided to the donor by the charity.

  2. Charities that receive a quid pro quo contribution in excess of $75, effective January 1, 1994 (IRC section 6115) are required to provide a written disclosure statement that:

    1. Informs the donor that the amount of the contribution deductible for federal income tax purposes is limited to the excess of the donor payment over the fair market value of the goods or services provided by the charity, and

    2. Provides the donor with agood faith estimate of the fair market value of the goods or services that the donor received.

  3. No disclosure statement is required if any of the following are true.

    1. Goods or services given to a donor have "insubstantial value " (defined below),

    2. There is no donative element involved in the transaction (for example, there is generally no donative element involved in a visitor’s purchase from a museum gift shop),

    3. The only benefit an exclusively religious organization provides is an intangible religious benefit generally not sold in a commercial transaction outside the donative context.

    Example:

    Intangible religious benefits are a religious ceremony where the organization accepts donations upon admittance, and de minimus benefits such as wine provided in connection with the ceremony.

  4. Payments made for tuition for an education leading to a recognized degree, travel services, or consumer goods are not considered intangible religious benefits.

  5. The following membership benefits provided by an organization described in IRC section 170(c) in exchange for an annual payment of $75 or less are disregarded for purposes of IRC section 6115:

    • Annual membership benefits consisting of rights or privileges (other than the right to purchase tickets for college athletic events) that members may exercise as often as they wish during the membership period. (e.g., free or discounted admissions, parking, or preferred access to goods and services), or

    • Admission to events for members only and the cost per person is within the limits for low-cost articles described in Rev. Proc. 90-12, 1990-1 C.B. 471 (as adjusted for inflation).

  6. The organization may use any reasonable methodology in estimating the value of goods and services, provided it applies the methodology in good faith. If the organization fails to apply the methodology in good faith, the organization is treated as not having met the requirements of section 6115. See Treas. Reg. sections 1.170A-1 and 1.6115-1 for more information.

4.76.51.5.1  (04-01-2003)
Examination Guidelines-Disclosure of Quid Pro Quo Contributions

  1. Review fund-raising solicitation materials and records to determine if the organization provided any benefits in return for contributions in excess of $75.

  2. Determine if the organization provided the disclosure notice with either the solicitation or the receipt of the quid pro quo contribution.

    Note:

    If the organization includes a disclosure statement with a particular solicitation, the organization is not required to include a statement with the associated receipt for the contribution.

  3. Do not aggregate separate payments of $75 or less made at different times of the year for separate fund-raising events.

  4. Consider the impact on the deductibility of the contribution to the donor. Refer taxpayers deducting large non-deductible payments for examination or make a discrepancy adjustment. Send referrals to:
    IRS- EO Classification
    4910 DAL
    1100 Commerce Street
    Dallas, TX 75242

  5. Evaluate the appropriateness of penalties upon identification of areas of noncompliance.

4.76.51.5.1.1  (04-01-2003)
Insubstantial Value

  1. Treas. Reg. section 1.6115-1(b) provides that disclosure of a quid pro quo contribution is not required when the goods or services provided have an insubstantial value.

  2. Items have an insubstantial fair market value if the payment occurs in the context of a fund-raising campaign in which the organization informs donors how much of the payment is a deductible contribution, and one of the following conditions is met. See Rev. Proc. 90-12, 1990-1 C.B. 471, amplified by Rev. Proc. 92-49, 1992-26 C.B. 987.

    1. The fair market value of all benefits received by the donor is not more than the lesser of two percent of the payment or $50 whichever is less,

    2. The donor payment is at least $25 and the only benefits the organization provides the donor in connection with the payment are token items (bookmarks, calendars, key chains, mugs, posters, tee shirts, etc.) bearing the organization’s name or logo. The cost, not fair market value, of all items received by the donor cannot exceed the $5 limit for "low cost articles" under IRC section 513(h)(2), or

    3. The organization mails or distributes free unordered items, without the patron’s request or express consent, along with a request for a charitable contribution and a statement that the patron may retain the item whether or not the patron makes a contribution. The cost of all items provided to a single patron during a calendar year must remain within the limits of a low cost item as described in IRC section 512(h)(2).

  3. See Rev. Proc. 90-12, 1990-1 C.B. 471, amplified by Rev. Proc. 92-49, 1992-1 C.B. 987.

  4. The $50, $25, and $5 limits listed in IRC section 513(h)(2) and above are adjusted each year for inflation. The adjusted amounts applicable for a calendar year are published in a revenue procedure that is usually issued in November or December of the preceding year. The adjusted amounts for 1995 to 2002 are:

    • 1995: $66, $33, and $6.60 (Rev. Proc. 94-72, 1994-2 C.B. 811)

    • 1996: $67, $33.50, and $6.70 (Rev. Proc. 95-53, 1995-2 C.B. 445)

    • 1997: $69, $34.50, and $6.90 (Rev. Proc. 96-59, 1996-2 C.B. 392)

    • 1998: $71, $35.50, and $7.10 (Rev. Proc. 97-57, 1997-2 C.B. 584)

    • 1999: $72, $36, and $7.20 (Rev. Proc. 98-61, 1998-2 C.B. 811)

    • 2000: $74, $37, and $7.40 (Rev. Proc. 99-42, 1999-2 C.B. 568)

    • 2001: $76, $38, and $7.60 (Rev. Proc. 2001-13, 2001-3 I.R.B. 337)

    • 2002: $80, $40, and $8.00 (Rev. Proc. 2002-70, 2002-46 IRB 845)

4.76.51.5.1.2  (04-01-2003)
Penalty for Failure to Meet Disclosure Requirements Applicable to Quid Pro Quo Contributions

  1. Public Law 103-66 added IRC section 6714 and is effective for quid pro quo contributions made after December 31, 1993. The section provides for a penalty against organizations that do not disclose quid pro quo contributions in excess of $75 as required under IRC section 6115(a).

  2. The penalty is $10 for each failure to provide the required written statement to the payor (donor). The maximum penalty per fund-raising event or mailing is $5,000.

  3. Do not assess the penalty if the organization can establish the failure to provide the written statement was due to reasonable cause.

    Note:

    When asserting the penalty use Non-Master File (NMF) procedures. See IRM 120.1 CH 1.3 and Exhibit 120.1.8-3 for a discussion of penalty relief and procedures regarding assessment of penalties on NMF.

4.76.51.6  (04-01-2003)
Unrelated Business Income Tax

  1. The fund-raising activity is not a taxable unrelated trade or business if it meets any of the following exceptions:

    • Not regularly carried on, IRC section 512(a)(1)

    • Sale of merchandise, "substantially all" of which was donated, IRC section 513(a)(3)

    • "Substantially all" of the work is done by uncompensated workers, IRC section 513(a)(1)

    • Items sold are "low cost articles," IRC section 513(h)(2)

    • Payments received are "qualified sponsorship payments," IRC section 513(i)

4.76.51.6.1  (04-01-2003)
Examination Guidelines-Unrelated Business Income Tax

  1. Analyze fund-raising activities to determine whether such income is subject to unrelated business income tax.

  2. Income from conducting Bingo and other gambling activities open to the general public may be subject to the unrelated business income tax imposed by IRC section 511(a). Determine if the income generated from gambling activities is unrelated business income by reviewing IRC section 513(f), Announcement 89-138,1989-45 I.R.B. 41, and Charitable Gaming Guidelines IRM 4.76.50.

  3. Determine whether the organization received any donated real property subject to debt financing. Review the unrelated debt-finance rules in IRC section 514 and determine applicability.

4.76.51.7  (04-01-2003)
Non-Cash Charitable Contributions

  1. Treas. Reg. Section 1.170A-13(c) and (f) provide that non-cash contributions larger than $5,000, made to an organization eligible to receive tax deductible contributions, are tax deductible if:

    1. The donee organization supplied the donor with a contemporaneous written acknowledgement of the contribution, IRC section 170(f)(8)(A),

    2. The donor obtained a qualified written appraisal of the property, and

    3. The donee organization signed the appraisal summary acknowledging receipt of the property and awareness of the subsequent filing requirement, in the event they dispose of the asset within 2 years.

  2. No penalties are imposed on the organization for failure to provide the acknowledgement. However, the donor is penalized, by losing the tax charitable deduction if the donor does not obtain the statement. A donor that loses a deduction may be deterred from making future contributions to that organization. Therefore, charities generally have procedures in place to issue a statement for non-cash contributions.

  3. The organization should sign the appraisal summary located on the Form 8283, Non-Cash Charitable Contributions, to acknowledge that they received the non-cash contribution on the specified date. The organization is not agreeing or concurring with the donor’s appraised value by signing the acknowledgement, however, they are acknowledging the information reporting requirements on dispositions on donated property.

  4. In certain situations, an organization that knowingly prepares an inaccurate substantiation statement and signs the qualified appraisal summary could be subject to the penalties for aiding and abetting an understatement of tax liability. See IRC section 6701.

  5. In accordance with IRC section 6050L(a) if a charitable organization sells, exchanges, or otherwise disposes of charitable deduction property within 2 years after its receipt, the organization must file an information return Form 8282, Donee Information Return which contains the following information:

    • The name, address, and Taxpayer Identification Number (TIN) of the donor

    • A description of the property

    • The date of the contribution

    • The amount received on the disposition

    • The date of such disposition

  6. In accordance with IRC section 6050L(c), the organization must provide a copy of Form 8282, Donee Information Return to the donor.

  7. An organization that fails to file Form 8282 when required, may be subject to the IRC section 6721 penalties, regarding failure to file a correct information return.

4.76.51.7.1  (04-01-2003)
Examination Guidelines-Non-Cash Charitable Contributions

  1. An exempt organization is required to determine and report the amount of its support on Form 990 and file Form 8282, when applicable. During the initial interview ask the following questions, regarding the treatment of non-cash charitable gifts:

    • Does the organization have a formal policy regarding non-cash contributions?

    • How does the organization value non-cash donated property?

    • Do they secure an independent appraisal?

    • Does the organization assign a value on the receipt provided to the donor?

    • What procedures are in place if the organization determines the value of the property is less than the value claimed by the donor?

    • Does the organization maintain copies of appraisal summaries (Form 8283) for non-cash contributions?

  2. If the organization maintains copies of Form 8283, review and determine whether:

    1. The donee organization completed and signed the donee acknowledgement, and

    2. An official authorized to sign tax or information returns on behalf of the organization signed Form 8283.

  3. Determine whether the organization sold, exchanged, transferred, consumed, or otherwise disposed of any non-cash donated property within two years of the date of receipt. Refer to Announcement 90-25, 1990-8 I.R.B. 25, and the instructions for Form 8282, Donee Information Return, to determine if the charity is required to file Form 8282. If so, Confirm the organization filed Form 8282, Donee Information Return (Sale, Exchange, or Other Disposition of Donated Property) within 125 days after the disposition and provided a copy to the donor.

  4. Review copies of Form 8282 which were filed and compare the amount received upon disposition to the appraised value on Form 8283, filed with the donor’s return, via RTVUE, or BRTVUE. Look for large, unusual or questionable variances.

  5. Large variances could indicate that the appraised value was excessive, thus the deduction taken by the donor was inaccurate. If the Form 8282 and Form 8283 reflect a significant discrepancy, consider making a discrepancy adjustment, or prepare a referral Form 5666 and submit it to EO Classification who will forward it to the appropriate operating division.

  6. Assess penalties under IRC section 6723 when the organization has failed to file Form 8282, as required.

4.76.51.8  (04-01-2003)
Internet Fund-raising

  1. The Internet presents many new opportunities for tax-exempt organizations to raise revenues to finance their operations. Generally, web site or E-mail solicitations should comply with the same rules, that apply to other solicitations.

4.76.51.8.1  (04-01-2003)
Examination Guidelines-Internet Fund-raising

  1. Treat E-mail solicitation in the same manner you would treat a direct mail solicitation.

  2. Visit the organization’s web site to identify any fund-raising activities the organization conducts on the Internet.

  3. Determine if the organization acknowledges its sponsors/donors on its web site by displaying names, logos, or products, or creating links to the sponsor's web site. This may be, sale of advertising, which may be taxable as unrelated business income.

  4. Determine the taxability of any merchandise sales on the Internet using the same principles that apply to the sale of merchandise in an organization’s gift shop or other location. Based on the facts and circumstances, the income could be unrelated business income regardless of where the organization sells the items.

  5. Verify that any organization subject to the requirements of IRC section 6113 includes one of the statements listed in Notice 88-120, 1988-2 C.B. 454, in any Web-based fund-raising solicitation. To ensure the viewer has an opportunity to see the statement before making a contribution, the statement must be:

    1. In the same type size as the primary message,

    2. Readily visible against the background of the page,

    3. On the same page as, and in close proximity to, the actual request for funds,

    4. Either the first sentence in a paragraph or the statement itself constitutes a paragraph,

    5. Presented without the viewer having to follow a link to see the statement, and

    6. In plain view before the viewer clicks on the "submit" , "transmit" or other button that transmits their donation information to the soliciting organization.

  6. The penalty provisions apply to Web page solicitations. IRC section 6710(d)(3) provides that written or printed solicitations (other than mail) shall be treated as occurring when the solicitation was distributed. Generally, the Service would consider a web page to be distributed when it is uploaded to a server and becomes available to the public.

4.76.51.9  (04-01-2003)
Proper Reporting of Fund-raising Activities on Form 990

  1. As of June 8, 1999, an exempt organization must provide copies of its Form 990, when requested in person or in writing. Forms 990, 990-EZ, 990-PF, 990-BL, 1023, 1024 and (in the case of section 501(d) organizations) 1065 are all available for public inspection under IRC section 6104(d).

    Note:

    Potential donors may inspect Form 990 Returns and review the fund-raising and operations costs to identify organizations to support. Organizations reporting low fund-raising and operating costs could be perceived more favorably since these costs generally do not directly promote an organization's mission.

  2. For purposes of Form 990 expense reporting, "fund-raising " activities relate to soliciting and receiving contributions. Special events and activities conducted primarily to solicit and receive contributions and not to sell goods or services at retail are "special fund-raising activities" , regardless of whether a profit is made. Examples of "Special fund-raising activities" that may produce both contributions and special activity revenue are:

    • Dinners

    • Door-to-door sales

    • Bake sales

    • Carnivals

  3. Tax-exempt organizations recognized as publicly supported, as described in IRC sections 509(a)(1) or 509(a)(2), are required to correctly allocate the gross receipts from "special events" into revenue and contributions from the public on the Form 990. This distinction is important in determining the private foundation status of an IRC section 501(c)(3) organization.

  4. When an organization receives more than retail value from the sale of goods and services, as in a Quid Pro Quo contribution, the organization should report both a contribution and revenue from the activity. The organization should report the retail value of the item as revenue from the activity and the additional amount received as a contribution (Public Support).

  5. Likewise, the organization should determine the costs that directly relate to the sale (Quid Pro Quo) and report them as direct expenses of the special activity. The organization should report the remaining expense as "fund-raising" expenses.

  6. The organization should report the revenue generated from items which have insubstantial value and are not subject to the Quid Pro Quo disclosure requirements, as a contribution and all related costs as fund-raising expenses.

4.76.51.9.1  (04-01-2003)
Examination Guidelines-Proper Reporting of Fund-raising Activities on Form 990

  1. Review the Statement of Functional Expenses (Form 990) and verify that the organization has properly allocated expenses between program service, fund-raising, and management /general.

  2. Determine whether the organization engaged in any special fund-raising activities and, if so, properly reported income and expenses on Form 990. The organization must report the revenue portion and related direct expenses together on the Form 990 as "Special Events and Activities. " Omitting material information on a Form 990 may subject the organization to the penalties imposed by IRC section 6652(c)(1)(A)(ii).

  3. Review fund-raising programs to determine if the organization provides any benefits to contributors that would affect the deductibility of the contribution.

  4. Identify the officials responsible for soliciting and accounting for gifts. Obtain a description of their duties and responsibilities.

  5. Interview the employees, who plan, administer, perform, etc. the organization’s fund-raising activities.

  6. Review minutes of the governing board as well as the fund-raising committees (budget and finance, or development) to identify any conditional contributions that may have questionable terms, since some organizations require that the governing board formally accept large contributions, especially conditional or earmarked contributions.

    Example:

    A gift to construct a building conditioned on the use of a certain architect or hiring a specific construction firm could suggest a private benefit that could jeopardize the IRC section 170 deduction and the organization’s exempt status if the donor and beneficiary of the condition have less than an arms-length relationship.

  7. Review internal reports related to gifts (Alphabetical lists of contributors, lists of donors, lists of restricted gifts, lists of in-kind gifts, etc.) to determine any contributions which may not be at arm’s length.

  8. Review correspondence files relating to fund solicitations and any agreements concerning gifts received to identify restricted, earmarked, or conditional contributions. Analyze the terms or conditions of the contributions to identify private benefit, inurement, or indications of non-exempt activities.

  9. If indications of fraud are discovered during the examination refer to fraud procedures.

  10. If the examiner determines that another IRC section 501(c)(3) organization conducts the fund-raising activities the examiner should inspect the fund-raising organization’s Form 990 and determine if an examination is warranted.

  11. The organization should separately identify all amounts paid to outside professional fund-raisers on the Form 990. Gross contributions raised by outside professional fund-raisers are reported on the Form 990 as Contributions (Public Support), and the fund-raisers' fees and expenses as fund-raising expenses. Schedule A Part II may also apply.

    Note:

    Any solicitations made on behalf of the organization by an outside professional fund-raiser must meet the same requirements that a solicitation conducted directly by the organization would. In addition, organizations must keep samples of fund-raising materials used by any outside professional fund-raiser who raises funds on their behalf.

  12. Review contracts and agreements with professional fund-raisers to identify fees charged as a percentage of funds raised or for excessive fees. These could be indications of private benefit or inurement.


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