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William B. Esq.
William B. Esq., Attorney
Category: Business Law
Satisfied Customers: 2958
Experience:  I am a civil litigation attorney with experience representing and advising HOAs, businesses, and individuals.
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I work for a private, non-profit organization serving people

Resolved Question:

I work for a private, non-profit organization serving people with disabilities in Washington DC and Virginia. We are a tax-exempt, nonprofit.

A business has offered to become "affiliated" with us and support us (after we did work benefitting one of the owners' friends). The owners operate Thrift Stores that accept donations from the public and sell what is donated (similar to Goodwill). The business is NOT a non-profit.

It has offered to provide us with 10% of the sales proceeds as a donation to help my organization. In return, we would allow it to publicize that it "supports" my organization.

The business would also display information about my organization, and distribute informational brochures about services to people with disabilities, etc.

So there would be a benefit to my organization in that we would receive increased donations AND people would receive information about their rights AND would learn about my organization; which would lead to us being able to help more people, etc.

There would be a benefit to the Thrift Stores, I presume, from the "halo effect" of more people shopping there and buying more because they are affiliated with/support my organization.

I have two questions: (1) is there anything inherently wrong/illegal with this arrangement - i.e. any fraud in letting them say they "support" us and, I am assuming, they will then benefit from people who will then shop there and support them because they support us? and;

If not, then

(2) they have asked if people who donate material to them can then take a tax deduction since proceeds from the sale will "support" my nonprofit organization (remember, they are NOT a nonprofit). They feel this will lead people to donate more, which will increase their sales (benefitting them) and their support to us (benefitting us). Is this legal?
Submitted: 11 months ago.
Category: Business Law
Expert:  William B. Esq. replied 11 months ago.

William B. Esq. :

Dear Customer, thank you for choosing Just Answer. My name is XXXXX XXXXX X would like to assist you today.

William B. Esq. :

With regards XXXXX XXXXX 1, there is nothing fraudulent or wrong with having a business say that it "supports a non-profit". This is a true statement, not misleading, and so long as the non-profit gives its consent, it is perfectly permissible (many non-profits balk when the business wants to donate only a nominal amount, yet gain the "halo effect".

William B. Esq. :

For Question 2, the for profit business may not take a tax deduction for its sales. The donation is coming from the business, not the customers. (Customer buys $10 worth of merchandise, Store donates $1, the donation to your organization comes from the store, the store is the recipient of the tax benefit).

William B. Esq. :

The IRS keeps a list of charities (501(c)(3)) eligible to receive tax deductible donations. If the for-profit corporation is not on this list, it may not give out the tax deduction to its customers, regardless as to where they want their sales proceeds to go: http://www.irs.gov/Charities-&-Non-Profits/Organizations-Eligible-to-Receive-Tax-Deductible-Charitable-Contributions

William B. Esq. :

Tax consequences and benefits for charitable organizations can be a little complex, but the IRS has a series of publications that can assist you in determining the proper application of tax deductions for donations (of both cash and property) to assist you. You can find the main title here, with links to more specific questions and issues below: http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations

Customer:

Thank you for this information. So, to be clear, unless the Thrift Store is on the IRS' list of companies that can receive a donation AND say that the donation is tax deductible, it can't do that and would be violating the law if it did, right? I want to be able to give our supporters a correct answer and point out that I'm also protecting THEM as well as us.

William B. Esq. :

That is correct. But to clarify further - the Thrift store is still incorrect in that it is making a sale "with 10% of the proceeds going to charity" - which means that the customer is still paying 100% to purchase goods or services. The customer is not making a donation, and will not receive the tax benefit.


Also - if the money were to be deemed a donation, unless the store structured it so that the donation was specifically made to your organization (100% of every dollar goes directly to your organization), the donation would not be to your organization it would be to the Thrift Store's 501(c)(3) entity - which you say does not exist., that they could later pass on to you. In that case the Thrift store would be the one responsible for tracking tax information on the donations, and could similarly donate to whomever they felt like.

William B. Esq. :

(without knowing any of the individuals involved, I would add that it is likely there is nothing nefarious about this effort by the thrift store, an understanding of non-profit tax status, particularly with donations, is not commonplace, and it seems they do have an interest in helping your organization, at the same time taking a reasonable benefit from the advertising good will).

Customer:

Thanks, XXXXX XXXXX sorry, I don't understand the last part. If the Thrift Store was to make a donation to us in an amount equal to 10% of their sales, wouldn't that be OK?

William B. Esq. :

That is fine, but the Thrift Store is the one making the donation (not the customers). It is fine to advertise this way, they are simply saying that they are a "civic minded organization" and that the customer's purchase goes to support that. But the customer's purchase is not a direct donation, and is not tax deductible.

Customer:

in other words, couldn't the Thrift Store make a donation that way - we're giving you X dollars, which is an amount equal to 10% of our sales this month - without any tax implications for them? They could take the deduction for the donation, right? It's just like if I gave 100 to my favorite charity because its X% of what I earned that week; like a tithe. The fact that it has a relationship to what I earned is irrelevant, its the fact that I donated it that matters, right?

Customer:

Oh, I get it. You're saying that the customer's donation isn't tax deductible, but the store's donation to us is, right?

William B. Esq. :

Correct.

Customer:

great. Thanks. I get it. I really appreciate the quick answers. Will finalize now. Thanks again!

William B. Esq., Attorney
Category: Business Law
Satisfied Customers: 2958
Experience: I am a civil litigation attorney with experience representing and advising HOAs, businesses, and individuals.
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