Tax Issues for Fundraising Platforms, Donors and Donees
“Charitable fundraising platforms” are websites, mobile apps, or other internet-based technology platforms that facilitate or enable charitable solicitation or charitable giving.
There are many types of charitable fundraising platforms – both for-profit and nonprofit. Among the many types are those focused on: peer-to-peer fundraising, giving while shopping, donating as part of everyday online activities, gamified fundraising, event-based fundraising, and workplace giving.
There are also many charitable fundraising platform participants, including: the platform operator, the beneficiary charity, the donor, the user, the audience, the campaign organizer, the influencers, the e-commerce and business participants, and the for-profit company employer or sponsor.
Charitable Registration and Reporting
States may have charity regulations and reporting requirements for charitable organizations, professional fundraisers, fundraising counsel, commercial co-venturers, and charitable fundraising platforms (CA).
California AB 488 – Charitable organizations: charitable fundraising platforms and platform charities (in effect January 1, 2023)
“Charitable fundraising platform” means any person, corporation, unincorporated association or other legal entity that uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur, which includes the following and any similar activity:Cal. Gov. Code Sec. 12599.9(a)(1)
(A) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by donors who use the platform.
(B) Permits persons who use the platform to solicit donations for or recommend donations to be granted to one or more recipient charitable organizations through peer-to-peer charitable fundraising.
(C) Permits persons who use the platform to select one or more recipient charitable organizations to receive donations or grants of recommended donations made by a platform, platform charity, or other third party person, based on purchases made or other activity performed by persons who use the platform.
(D) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform.
(E) Provides to charitable organizations a customizable internet-based website, software as a service, or other platform that allows charitable organizations to solicit or receive donations on or through the platform, including through peer-to-peer charitable fundraising. The customizable platform provided by the charitable fundraising platform does not include the charitable organization’s own platform, but may integrate with the charitable organization’s platform.
A charitable fundraising platform specifically does not include a charitable organization’s own platform that solicits donations only for itself; a vendor that solely provides technical or supportive services to a charitable fundraising platform so that the charitable fundraising platform can function and operate, including vendors used for hosting or domain services, security certificates, internet access, internet application development, or digital payment processing; or, generally, a sponsoring organization of donor-advised funds (DAFs) if it does not list or reference by name one or more recipient charitable organizations for solicitation purposes on its platform for persons who do not have advisory privileges with respect to the DAF.
“Platform charity” means a trustee as defined in Section 12582 [generally, any person or entity holding assets in charitable trust] or a charitable corporation as defined in Section 12582.1 that facilitates acts of solicitation on a charitable fundraising platform, which includes either of the following and any similar activity:Cal. Gov. Code Sec. 12599.9(a)(5)
(A) Solicits donations through a charitable fundraising platform for itself from donors who use the charitable fundraising platform with the implied or express representation that the platform charity may grant donations to recipient charitable organizations.
(B) Grants funds to recipient charitable organizations based on purchases made or other activity performed by persons who use a charitable fundraising platform.
A platform charity generally does not include a sponsoring organization of DAFs if it does not list or reference by name one or more recipient charitable organizations for solicitation purposes on its platform for persons who do not have advisory privileges with respect to the DAF.
There are new registration and reporting requirements and public disclosures for charitable fundraising platforms. In addition, the law will restrict a charitable fundraising platform or platform charity to soliciting, permitting, or otherwise enabling solicitations, or receiving, controlling, or distributing funds from donations for recipient or other charitable organizations in good standing.
501(c)(3) Issues and Charitable Fundraising Platforms
- Private benefit and private inurement. See also Private Benefit Rules – Part I: Private Benefit Doctrine; Part II: Private Inurement Doctrine.
- Commerciality doctrine. See, e.g., Commerciality Doctrine: Denial of Exemption; IRS and Courts Reject Hippie Redemption For-Profit Businesses as Public Charities (Nonprofit Quarterly).
- Private foundation self-dealing.
- Donor deductions. Generally, a donation may qualify for a charitable contribution deduction if it’s to a domestic 501(c)(3) organization. A contemporaneous written acknowledgment may be required by the donor for gifts of $250 or more. A written disclosure may be required of the recipient charitable organization if it’s a quid pro quo contribution in excess of $75. See Substantiating Charitable Contributions.
- Unrelated business income tax. There may be UBIT implications where the fundraising platform is not only soliciting charitable contributions, but also selling the nonprofit’s products and/or services.
- Donor advised fund classification.
- See, e.g., PLR 200230005.
- Contract should show that recipient charitable organization has legal control over its donations, including over any grantees.
- DAF agreement provisions should be included, if applicable.
- Any platform fees or amounts “retained” by the charitable organization before making grants should be clearly specified.
- Requirements regarding transparency for, and disclosures to, donors about the amounts that will be retained by the platform must comply with applicable state laws.
- Other provisions required by state law should be included and complied with.