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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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There is a business a bar for profit organization that is solciting

Resolved Question:

There is a business a bar for profit organization that is solciting donations for hurricane sandy victims via paypal on their website. They dont have 501 c status and dont list the chairty it will be donted too. Is it illegal to solicit donations even if they do which we can't know donate the money to charity? Im assuming donaters cant use the donation as a writeoff, but im afraid the business will donate the money in their name and try and write off the donation? what is the law and or ethics of this? it is nj?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
The federal law doesn't prohibit soliciting donations, but if the entity is not qualified as 501c5 organization - all proceeds are treated as gross business income - and generally is subject of income tax.
However - most states require all non-profit organizations to register with state's authorities. In particular - in NJ registration is required with the New Jersey Division of Consumer Affairs, Charities Registration Section, prior to soliciting funds in the state.

LEV :

Thus accepting donations without registration from NJ donors is against the NJ state law.
Also because that is not a qualified as 501c3 organization - donations are may not be deducted on the federal tax return - that means - if audited - such deductions will likely be disallowed by the IRS agent.

Customer:

so thisincome is business income because they arent 501c? or if the can prove they donated it to a 501c then it wouldnt be business income correct? lets say they do donate to a 501c all money si this legal?

LEV :

So this income is business income because they aren’t 501c?
That is correct - from the point of view of the IRS - that is a regular business income.
Or if the can prove they donated it to a 501c then it wouldn’t be business income correct?
If funds were donated to a qualified organization - that person or entity may be eligible to deduct such donation - but that is a separate issue - and will not affect the tax treatment of the income.
Let’s say they do donate to a 501c all money is this legal?
That is correct - because soliciting donations without registration is a violation of NJ laws - that will be illegal income.


Customer:

ok so my understanding is this..this for porfit business accepting paypal donations online claiming to donate to charity not listing the charity or any details does donates evry dollar to a qualified 501c charity in nj. becuase not 501c all money donated that the for profit recieves is treated as taxable income subject to income tax, the people donating can't right off the dedutcion, then the buiness after paying income tax on this money can donate to a 501c and right off the money they donated? so they cant bypass paying icnome tax by showing they have donated to a 501c? lastly tehy are in violation of solciting laws in nj because not registered is there an exemption to this soliciation rusmall dollar amount?

LEV :

If that is not 501c3 organization - all proceed are taxable for that organization and not deductible for donors - REGARDLESS how funds are used. So your understanding is correct.
If funds are later donated to charity - they might be deducted - but that is not related to the above statement - so tax liability might be reduced - but may not be eliminated.
In additional as you pointed - soliciting donations from NJ residents without registration is a violation of NJ laws.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22776
Experience: Taxes, Immigration, Labor Relations
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