My cousin just got diagnosed with terminal lung and brain cancer. We wanted to setup a fundraising program to accept donations and were not sure what type of legal and tax implications are involved. Do we have to establish a 501c3 organization to accept the donations without having to deal with capital gains? Whats the best route of action?
Thank you for your question. Be sure to go ahead and bookmark www.nateanswers.com for future questions.Yes. You would have to set up a California non-profit and then apply for 501(c)(3) status from the IRS. If you do not, the company will be subject to income taxes and corporate taxes. The instructions on how to apply for 501(c)(3) status can be found herehttp://www.irs.gov/charities/article/0,,id=96109,00.htmlIf you require more information, I will be happy to follow up with you. In the meantime, please remember to click Accept so that I get credit for my time assisting you. If my answer has been especially helpful, please also consider a suitable BONUS.And remember, I want you satisfied, so if I can help you further, please ask so that you can provide Positive Feedback once we've addressed your legal question to your satisfaction.Thanks!Nate
Another expert here with some more options. Sorry to hear of your cousin's illness.
Although an organization, such as a corporation, is not exempt from income tax and donations are not tax deductible unless 501(c)(3) status from the IRS is approved; that is not the only manner in which gifts can be gathered to help your family member.
It may be possible to gather gifts for those in need without creating a not for profit corporation. Check with local banks about possibly using a donation account for collecting nondeductible contributions. You may have seen or heard references to such accounts on local news reporting of individuals after a fire or other disaster. Although the bank will not give tax advice if done properly the gifts from such an account would not be taxable income to your cousin.
California does have laws regulating and restricting charitable solicitations in California. See, for example, http://www.lawforchange.org/NewsBot.asp?MODE=VIEW&ID=3514
The trustee of the bank donation account would likely need to register with the Attorney General. See http://ag.ca.gov/charities/forms/charitable/initialReg.pdf
For legal advice you will need to establish a client relationship with a local attorney. You should be able to get better information as to what is needed by interviewing attorneys as they offer services. A trust with your cousin as beneficiary may also be considered.
Check with local foundations or charities or even a church about possibly partnering with the non profit organization that may be able to receive funds designated for the individual. If such a partnership can be found then a tax deduction could be available to those who make donations.
There are good suggestions on some resources to consider other than forming a not for profit corporation and applying for tax exemption in the article at http://www.stepbystepfundraising.com/raising-money-for-individuals-with-health-conditions/
Hopefully, these ideas and links can help you decide the best option for helping your cousin.