The information and opinions expressed in this blog are for educational purposes only. This information does not constitute legal advice and is not a substitute for legal advice. John Taylor is not an attorney nor does he play one on TV.
My previous article discussed how I have come to embrace crowdfunding as an enhancement to the fundraising activities of an organization. However, I also cautioned that implementation requires full integration with the advancement/development office. I listed a few reasons why I feel this is important.
One reason I omitted – because it deserves its own discussion – is that if you approach crowdfunding the wrong way, you could get into legal trouble.
If the advancement office is not involved in helping campaign groups understand these rules, not only can fines be levied, but you stand the chance of losing your tax-exempt status. I don’t mean to rain on anyone’s parade, but this is the reality.
Crowdfunding, just like direct mail, phonathons, and personal solicitations, needs to be implemented by the legal book.
While I’m not going to go into the various state regulations here, it’s important to note that some 3 dozen plus states have their own solicitation registration requirements you must follow before you ask for a penny from donors in those states. To check the applicable laws in your area, visit the National Association of State Charity Officials.
What I am going to cover are the three key legal considerations you should be aware of to crowdfund without consequence.
1. Don’t Give Away the Farm.
2. If You Do Give Away the Farm, Know the Hurdles.
3. What Happens in Vegas Should Happen in Vegas.
Consider these two important points before you attempt any kind of raffle strategy:
- Any payment that results in some form of drawing entry – regardless of the amount paid and the value of the prize – 100% negates the tax-deductibility of the payment.
- Even if you don’t care about tax-deductibility, every state has its own laws pertaining to “gaming.” Some do not allow it at all. Others have interstate gaming restrictions. Others have limits on the number of these activities an organization can conduct each year if not their primary business. And others could cause a nonprofit organization to lose its tax-exempt status.
Bottom line: leave gambling to the dice-throwers in Vegas.
The laws governing fundraising activities may seem intense, but as crowdfunders it is simply a matter of being informed. All the more reason to seek advice from your advancement office before you launch – just make sure those t’s are crossed and i’s are dotted!
Community Funded (www.communityfunded.com) provides powerful yet easy-to-use digital fundraising solutions including Crowdfunding and Day of Giving products and services that help higher education, healthcare, and nonprofit organizations exceed their fundraising goals.