• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

A 501 (c)3 Non-profit question

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

marcusman

Junior Member
What is the name of your state?What is the name of your state? ---Massachusetts


I have a bit of a complex situation to describe but I'll do my best.

I have a large for-profit summer camp for kids and we also have a non-profit 501(c)3 component. The non-profit component raises money for children who cannot afford the tuition of the camp. My question surrounds a method of fundraising that I came up with and would like to use.

We are trying to build a fundraising program whereby we have a list of imprinted items (frisbees, yo-yos, water bottles, etc.) that a sponsoring company can purchase through us and we will co-brand the items with their logo and our logo. A portion of the price would go to the cost of the item and the rest of the price is a direct donation to the fund. For example, if a company ordered 100 frisbees for $300, $150 would go towards the item purchase and the other $150 would go towards the fund. We would then distribute these items to all of the kids and the parents of the camp.

The grey area is that the way it is typically done is that a company would purchase an item, give it to the non-profit and then the non-profit would sell the item and make funds that way. Instead, I am suggesting that a company purchase the item for a price that includes a donation amount and that we simply hand out the item.

My questions are:

1. Can the sponsoring company write the check to our non-profit for the entire amount and write it off as a charitable deduction or would we need to break up the price into two amounts: one to the imprinting company for the items and one to our fund?

2. If the they have to break up their payment, could they purchase the items through us so that there is no sale tax, or would they have to purchase it outside of our program since it could be considered advertising and not a charitable deduction?

Even my accountant can't figure this one out, so I'm hoping someone out there on the web can give me a clear direction.

Thanks!

Marcus
 


LdiJ

Senior Member
marcusman said:
What is the name of your state?What is the name of your state? ---Massachusetts


I have a bit of a complex situation to describe but I'll do my best.

I have a large for-profit summer camp for kids and we also have a non-profit 501(c)3 component. The non-profit component raises money for children who cannot afford the tuition of the camp. My question surrounds a method of fundraising that I came up with and would like to use.

We are trying to build a fundraising program whereby we have a list of imprinted items (frisbees, yo-yos, water bottles, etc.) that a sponsoring company can purchase through us and we will co-brand the items with their logo and our logo. A portion of the price would go to the cost of the item and the rest of the price is a direct donation to the fund. For example, if a company ordered 100 frisbees for $300, $150 would go towards the item purchase and the other $150 would go towards the fund. We would then distribute these items to all of the kids and the parents of the camp.

The grey area is that the way it is typically done is that a company would purchase an item, give it to the non-profit and then the non-profit would sell the item and make funds that way. Instead, I am suggesting that a company purchase the item for a price that includes a donation amount and that we simply hand out the item.

My questions are:

1. Can the sponsoring company write the check to our non-profit for the entire amount and write it off as a charitable deduction or would we need to break up the price into two amounts: one to the imprinting company for the items and one to our fund?

2. If the they have to break up their payment, could they purchase the items through us so that there is no sale tax, or would they have to purchase it outside of our program since it could be considered advertising and not a charitable deduction?

Even my accountant can't figure this one out, so I'm hoping someone out there on the web can give me a clear direction.

Thanks!

Marcus
That is a very interesting question....and challenging. Lets try breaking it down.

A not for profit organization may produce and sell products to someone. Its very typical for an organization to purchase and then sell products with their logo. The tax treatment for the end purchaser is that the portion of their payment that comprises the fair market value of the product purchased is not a charitable deduction...the portion in excess of the fair market value of the product is a charitable deduction. The entire purchase price becomes income to the organization which in turn has "cost of goods sold".

Its also common to place sponsor's logos on items supplied by a non-profit organization to others. The tax treatment of that is as an advertising expense for the sponsor.

It is also common for a non-profit organization to give items to those who are supposed to benefit from their charity....and to give items partially or wholly paid for by sponsors.

Where I see a potential problem is that it appears that you intend to give these products to ALL of the children who attend your camp...whether they are there as "for profit" campers or not. In giving them to "for profit" campers you change the picture. It them becomes a "for profit" activity.

However if you were to encourage the parents of the "for profit" campers to purchase these items for their children (for even a nominal fee), and the purchase price went to the charitable organization to provide more spots for underpriveledged campers...then it might work.


Therefore here is how I would see it working. Your not-for profit organization produces goods for sale as a way to raise money for the organization. You solicit "sponsors" whose logos would go on those goods. You would encourage the sponsors to treat it as an advertising expense. You would in turn SELL, those goods to "for profit" campers therefore raising additional funds for the organization. You can give the products away to the "not for profit" campers.

Of course that is just my own opinion of the best way to handle it. Perhaps someone else will have another idea.
 

marcusman

Junior Member
Wow...that was a great, educated response! I FINALLY feel as though I will receive some accurate information. :)

The reason that I would prefer to give the items away rather than sell them is because it will be a major project for the camp to allocate its resources to open a camp store at this time. Secondly, a sponsor will be more inclined to do this program knowing that their 100 imprinted items are going home with 100 kids/parents versus having to depend on us to sell each and every one. I KNOW that there is a creative solution to this, however I would like to do it without crossing into dangerous territory. After reading your response, Ldij, I have a solution but I will need someone to tell me if this is a legitimate way to go about it.

What I would propose is that a sponsor purchase the items in the way that I suggested, except that the for-profit camp would purchase the items from the non-profit, thereby fulfilling the requirment of selling the items. So once again, if the 100 frisbees were purchased by the sponsor for $300, $150 would go to the purchase of the item, $150 would go to the fund, and the for-profit camp would pay say $1.00 per frisbee which would add another $100 to the fund.

Would that work???

Thanks again for the fantastic response...I greatly appreciate it. :D
 

LdiJ

Senior Member
marcusman said:
Wow...that was a great, educated response! I FINALLY feel as though I will receive some accurate information. :)

The reason that I would prefer to give the items away rather than sell them is because it will be a major project for the camp to allocate its resources to open a camp store at this time. Secondly, a sponsor will be more inclined to do this program knowing that their 100 imprinted items are going home with 100 kids/parents versus having to depend on us to sell each and every one. I KNOW that there is a creative solution to this, however I would like to do it without crossing into dangerous territory. After reading your response, Ldij, I have a solution but I will need someone to tell me if this is a legitimate way to go about it.

What I would propose is that a sponsor purchase the items in the way that I suggested, except that the for-profit camp would purchase the items from the non-profit, thereby fulfilling the requirment of selling the items. So once again, if the 100 frisbees were purchased by the sponsor for $300, $150 would go to the purchase of the item, $150 would go to the fund, and the for-profit camp would pay say $1.00 per frisbee which would add another $100 to the fund.

Would that work???

Thanks again for the fantastic response...I greatly appreciate it. :D
Yep, that would work. However it would probably work even better if those fees were specifically added somehow to the bills for the "for profit" kids...as some sort of specific "fee"....which would then be remitted to the not for profit organization.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top