If you’re not sure of the definition of the term “professional fundraisers,” you’re not alone. Several members of PBUSA have asked us this question. A Google search may make things more confusing, so let us help out.
A “professional fundraiser” is an outside individual or entity who organizes, runs, and/or manages fundraising for an organization. A professional fundraiser is not an event, although it may sound like it. In particular, we keep the term “professional fundraiser” for the individual or entity described above per IRS definition.
Let us take you through the basics of what professional fundraisers are, what they should and shouldn’t do, and how to document them when filing your taxes.
Some Notes on Names
“Professional fundraiser” is one of a few terms associated with this profession. Oftentimes, these jobs are associated with fundraising firms and can go by different names. These names can include individual solicitor, professional solicitor, fundraising counsel, and commercial co-venture. In addition, these names often include a specific service which we have designated below (via Harbor Compliance - Hiring a Professional Fundraiser):
- Professional fundraiser. The blanket term for individuals or entities (e.g. firms).
- Individual solicitor. These are individuals paid to raise funds on behalf of client charities. They may be regulated differently depending on the state.
- Professional solicitor. An individual or firm that raises funds for their clients, asks for donations directly, and often has custody/possession of the money prior to it being received by the nonprofit.
- Fundraising counsel. An individual or firm that works on methods, tactics, or events for raising funds. They work behind the scenes and often do not ask for donations directly.
- Commercial co-venture. A joint venture between a charitable organization and a for-profit business offering financial benefits to both organizations. Typically, the business announces to the general public that a portion of the purchase price of a product or service it sells or provides will, during a stated period, be paid to the charitable organization (via Public Counsel Law Center - Fundraising: Commercial Co-Ventures).
What should a professional fundraiser do?
First, some states require registration while others do not. A booster group should check a fundraiser’s credentials before hiring them. Nasconet.org gives a list of registered charity officials by state.
Professional fundraisers should have some good ideas about raising funds. Specifically, they should follow your nonprofit mission. Thus, they can make reaching your financial goals for the year attainable. Some will use software to research donors, while others work for a firm that guides them. Like our description above, some firms work differently than others. Whether contacting donors directly or holding fundraising money until later dates, find someone that fits your organization.
Importantly, they should charge a reasonable fee. A good professional fundraiser will be upfront about how much they charge. We discuss later some payment issues you can run into and things to avoid with regards to nonprofit fundraisers.
Finally, all of this should be done on paper with a signed agreement. Your nonprofit can draft one. Alternatively, if you are working with a firm, they may have one ready for their clients.
Approved Activities and Supporting Events
Fundraising activities a professional fundraiser can do are outlined by the IRS in their Audit Technique Guide:
- dinners and dances
- sports events
- similar events not regularly carried on conducted for the primary purpose of raising funds
Activities to support these events by a professional fundraiser can include (also from the IRS Audit Technique Guide):
- publicizing an event
- maintaining donor mailing lists
- preparing and distributing fundraising manuals, instructions, and other materials
- conducting other activities involved with soliciting contributions from individuals
What should a professional fundraiser not do?
Taking commissions or requiring a finder’s fee falls outside of nonprofit territory. Likewise, this should not be a part of hiring professional fundraisers. Although most registered professional fundraisers already know this information, this is a red flag if someone communicates something different about payment. Some firms, especially professional solicitors, take a percentage of the contributed funds as part of their normal agreements within their firm’s contracts. Make sure you’re aware of their common practice.
Additionally, obvious communication issues can make holding events difficult. In most professions, if someone is hard to get in touch with before or after events, before or after your agreements, treat it with discretion. Thus, the person or people you work with should be able to get in touch with you easily.
Not signing an agreement is a quick way to get into some legal pitfalls. For this reason, you should make sure your professional fundraiser agrees to your terms. This can vary for different practices. Ultimately, this will help protect both your booster and the people with which you are working.
Also, be aware of holding certain types of events listed by the IRS Audit Technique Guide that are not approved:
- the conduct of a trade or business that is regularly carried on
- activities substantially related to the accomplishment of the organization’s exempt purposes (other than by raising funds)
- solicitation campaigns that generate only contributions, which may involve goods or services from the organization of market value
- sweepstakes, lotteries, or raffles in which the names of contributors or other respondents are entered in a drawing for prizes of market value
How to Document
Booster groups need to file a 1099-MISC for their independent contractors. Luckily, it works the same as hiring any contractors for your booster. This will be a part of whatever 990-series tax document you end up filing.
Many of our member organizations qualify for exemptions or reduced requirements on their annual charity/fundraising registrations. This could be due to bringing in funds below a certain threshold, or being associated with a public school. In particular, it is important to note that some states do not allow exemptions for organizations utilizing professional fundraisers. Let Parent Booster USA know if you hired a professional fundraiser so we can keep your registrations current and in compliance with your local statutes.
Clarification and Summary
As we received this question from some of you, we realized the initial confusion with the term “fundraiser,” which sounds both like an event and a profession. We hope after reading this that we have provided sufficient clarification should you need to correctly document for tax purposes.
Should you have any additional questions, feel free to contact us!
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.