Re: Client fundraising and the IRS

[Heather Higgins]

Wow, Peggy, that is an eye opener. As you suggest, I need a little time to wrap my head around this. 

I'm copying the SDVBoard email account so this shows up in our SDVBoard google group for easy access.

HH

Heather Higgins

513 E Main St #2135, Charlottesville, VA 22902-2135

hea...@heatherhiggins.com | www.heatherhiggins.com 

434.760.3330

On Tue, Dec 17, 2013 at 3:49 PM, Peggy Law <pegg...@servicedogsva.org> wrote:

All,

Shannon and I met with the accountant today to discuss the regulations around client fund raising and tax deductibility. I think it may impact how we wish to proceed with our current plan. I am considering scrapping it and we will certainly have to revise it at the very least.

I need you to think about this before responding and perhaps tabling your thoughts til we meet in January.

In addition, please factor in that to be an organization in good standing with Assistance Dogs International, we cannot require fundraising.

OK, lets see if I can summarize- (Shannon, please pipe in if you think I have erred or omitted anything important).

• If someone donates on behalf of a specific client with the expectation that that person will be getting a dog because of their (and others) donations, it is not tax deductible to them. In other words, if Sally is getting a dog and her friend Molly donates $1,000, Molly cannot take a tax deduction.
• It goes without saying that Sally cannot take a tax deduction
• If Sally gets donations and fails to complete training, we are opening ourselves up for a lawsuit if we keep her money UNLESS our information is crystal clear that it is non-refundable. This would also apply to Molly who thinks she is helping Sally. She too could demand her money back, UNLESS its crystal clear that the donation is not conditional on Sally getting a dog. However, if Sally has the fundraiser so she can get her dog, then we are in a messy spot with Molly, Sally and the IRS. Should we be audited, it is hard to say what would happen.
• We can simply charge a fee, state its a fee, refund it if the person doesn’t complete their training, minus anything we might charge for time spent with them.
• We can’t require fundraising and pretend its not a fee. We need absolute transparency and black/white information going out to donors and clients.
• If we are going to give scholarships, they should be given based on an objective criteria that is independent of fundraising or we are saying that different people qualify for scholarships based on their fund raising abilities and not their objective needs.
• If a client has a fund raiser, they should have a form where donors can say if they want the money to go for just that person and not get a deduction or into the general pool and get a deduction. If there is any expectation on the part of the donor that the person is getting a dog then its not deductible.
  

As I see it, we have the following options-

1. Call the whole thing off, try to get clients buy in to fund raising like we have done for the last 13 years.
2. Charge a fee.
3. Other???
4. Have a sliding scale based on income and other criteria that is objective and transparent. This would be like someone applying to a school AND requesting financial aid. They are accepted independently and then they are given financial aid based on income and other criteria that is set out ahead of time. If someone gives them a gift to help them pay their part, its not relevant to how much aid they receive.
   

It will be embarrassing but I am willing to send a note to all clients and tell them we screwed up. Or we can let it be and just get back to people who are willing to fund raise and explain that we were not in compliance and have to make several changes. I am not sure its ethical to let the people drop who have not gotten back to us but we can discuss it.

Peggy


         

[Jessica McCoy]

I am not sure that we have to scrap anything, but here are my initial thoughts.

1. We are not requiring fundraising. We are essentially charging a mandatory fee, and giving people the option to fundraise.  It's optional, and therefore voluntary.  We could emphasize the voluntary nature of it a bit more strongly, but we already said it was voluntary to fundraise. 

2. Yes, we could charge a flat fee, or do a sliding scale. 

3. The scholarship process is definitely something that we'd have to get much clearer on, but we already knew that.

4. Since the tax implications are problematic because someone is receiving goods and services, whatever volunteer/client fundraising program we do has to be explicitly raising funds for Service Dogs of Virginia, not something that is tied to the goods/services that SDV provides.

5. I'm not sure how all of the other charities that do peer-to-peer fundraising with various goods/incentives/marathon programs get around this, because I know that if I had made a $1,000 gift towards my fundraising goal in order to meet my fundraising minimum, I would have gotten a tax receipt for $1,000 and I still would have been able to participate in the event (with coaching, race registration, travel, victory party, and hotel paid for).  Maybe the distinction is that those goods and services are budgeted for as a fundraising expense for the organization, while a service dog and training is actually the product that SDV provides as its mission.  Maybe the analogy would be that the Leukemia & Lymphoma Society doesn't offer client services in exchange for fundraising.  

That said, there are a lot of current and former clients of LLS that are very involved with fundraising for Team in Training and other LLS peer-to-peer fundraising programs like Light The Night and Man/Woman of The Year, and they must have some sort of waiver that keeps things clean.

6. If we decide to scrap client fundraising in association with the fee for a dog, we should not scrap the peer-to-peer fundraising model entirely. We should just ask clients and friends of SDV to do peer-to-peer fundraising. Maybe call it the SDV Ambassador's Club, or something like that.  We need to have a way to expand our reach beyond Charlottesville, and we need the peer-to-peer model to do that. 

Jessica 

Jessica McCoy

136 Goodman St., Apt. A

Charlottesville, VA  22902

+1 202 657 4307 or jessicamccoy - Skype In number/SkypeID
+1 434 906 6079 - mobile

+1 434 282 2762 - home

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