School fundraising comes with its share of joys and concerns. On one hand, we support booster groups and nonprofits by putting on events and asking for donations from a wide number of sources. On the other hand, we must be aware of the rules the IRS has in place, what is considered best practice, and what we need to avoid doing entirely. Thankfully, we don’t have to tiptoe around these issues because they are made clear by the IRS.
In this post, we walk you through our free download of Chapter 8 from School Fundraising: So Much More Than Cookie Dough by Sandra Pfau Englund, outlining the best practices for fundraisers. We start at the beginning with reasons to make sure your group is recognized by the IRS as tax-exempt, move on to the different types of fundraisers, and go all the way to writing receipts after donations have been made.
Fundraising in the beginning: common mistakes
We know it's not exciting to submit your booster for tax-exempt status. However, in order for donations to be tax-deductible for the donor, your organization must be recognized by the IRS as a 501(c)(3) charitable organization. If your group receives money without the proper IRS status, the donor can be penalized while doing their taxes.
Most states require that organizations submit a charity (or fundraising) registration prior to soliciting funds. For requirements in your state, see our state-by-state registration guidelines. Failure to complete this step may result in hefty fines for your organization.
Another potential mistake is not fully understanding the concept of voluntary donations. The only thing a donor should receive in return for their contribution is a receipt showing they are helping your organization. It may sound silly, but the IRS takes this seriously. If items or gifts are received in return for a donation, the organization must pay tax on those items and the contribution is considered only a partial donation. For example, if a donation comes with a t-shirt in return, this is considered a partial donation. The fair market value (the value of the t-shirt) must be subtracted from the overall donation while filing taxes with the IRS.
Similarly, if the donor is a business and they use a donation or sponsorship to advertise, there is a tax on advertising. Later, we explore this in our section about business sponsorship.
Another mistake groups make is not knowing the difference between a voluntary donation and a fee. A donation is money given voluntarily without an expectation of anything in return. A fee is money required to participate in an organization. A great example of a fee is money needed for a marching band trip. Some booster groups have made the mistake of calling this a “donation.” If participation requires money, it is a fee and is not tax-deductible.
Types of Fundraisers
Businesses are welcome to make donations to booster groups or sponsor them. Oftentimes, these donations make a substantial impact on a group’s funding. There are a few areas we need to touch on before we know what is best practice and what isn’t.
Acceptable, tax-deductible recognition is possible from a business sponsorship. The requirements by the IRS are as follows:
- Sponsor logos and slogans cannot describe or compare products, services, facilities, or company
- Sponsor location/address and telephone numbers are allowed
- Value-neutral descriptions, including displays or visual depictions of products or services are allowed
- Sponsor brand or trade names and product or service listings are allowed
The IRS frowns upon the following and will consider it advertising:
- Qualitative or comparative language (e.g., "best pancakes in town")
- Pricing information
- Endorsement from a business (e.g., shoes, uniforms, etc.)
- Inducement to purchase: a business can give the product away for free, but cannot say it is to have the person to buy otherwise
- Donations based on the number of attendees at an event or other factors indicating public exposure (advertising)
For these reasons, your booster has a responsibility to draw the line when a business sponsors your group. If the sponsorship seems to lean toward advertising, it is important that your group declares it. If a business requires their name be on any part of the group, your group should follow the acceptable, tax-deductible guidelines. A booster can say: “Our group appreciates your contribution and accepts half as tax-deductible and the other half may be deductible as a business expense for advertising.”
Auctions and Games of Chance
Auctions are an acceptable way for booster groups to fundraise. The IRS declares a business or service may donate an item to an auction. However, the person who pays for the auction item must understand if they wish to make a contribution for an item, they must pay more than the fair market value. Otherwise, it is considered a donation with something valuable in return. For example, if a theme park donates a $200 family package, the donor at an auction must donate more than $200 for the excess to be considered a tax-deductible contribution.
Games of chance, like bingo or a raffle, can be an acceptable option as well. It is important for booster groups to understand which games of chance are legal in their state, and the terms. The rules are different in each state. Ohio, for instance, requires 501(c)(3) groups to have been in existence for at least two years, and events must be held on the booster group’s property or that of a government leased agency.
In our post, Can Virtual Fundraising Save Your Spring Fundraiser?, we propose some options while adhering to social distancing guidelines. Here are some effective ways to hold fundraisers online:
- Walk/bike/run-a-thon - have participants pick their own path and use a live stream to fundraise
- Online auction - live stream an auction
- Fundraising raffle - raffle off items online (adhere to games of chance rules) while supporting small and local businesses
Avoiding individual fundraising accounts (IFAs) and utilizing fair share donation programs
From our press release, Parent Booster USA Revises IFA Policy, the following quote sums up the issue with giving individuals credit for fundraising events:
The IRS…has found that these types of cooperative fundraising programs violate IRS rules. Lois Lerner, Director of Exempt Organizations for the IRS, reportedly has said that any booster club that raises money to benefit an individual rather than the group as a whole is in violation of federal law and stands to lose its tax-exempt status.
There is often temptation to provide compensation to volunteers who work events or provide services individually. Booster groups understandably wish to avoid freeloaders from taking advantage of others' time. However, due to IRS rules, private benefit is not a tax-exempt activity. It may benefit boosters to try a one-time fair share donation program instead. In this way, the booster encourages all of its members annually to make a voluntary, one-time contribution.
The IRS requires donors provide written documentation in order to claim tax deductions. Donations over $250 require a receipt from the booster or nonprofit. Smaller donations can take the form of checks, bank records, or other documentation of the contributions.
On receipts, boosters typically provide:
- Name of the organization
- Amount of contribution
- Statement regarding whether goods or services were received in exchange for the contribution
- Good faith estimate of the value of any goods or services received in change for the donation (if any)
Receipts can be paper or electronic, and can be received one at a time or once a year by the donor. If you would like, you may use our sample donation receipt.
Fundraising for good
You now have the information needed to approach fundraisers with best practices. Your booster group members will thank you for taking the time to educate yourself on the IRS rules. If you have any questions, feel free to contact us at email@example.com. Happy fundraising!
The only organization of its kind in the US, Parent Booster USA is about helping school support organizations (parent teacher organizations, high school booster clubs and other school fundraising groups) handle the state and federal government paperwork required of fundraising groups.
Founded in 2004 by an attorney skilled in nonprofit and tax law, Parent Booster USA has more than 4,000 member organizations in 48 states with a 95% annual renewal rate. We provide peace of mind for parent volunteers, school administrators and school district leadership.