Tax Implications: Setting Up Your Fundraising Program Correctly
From time to time we encounter tax questions regarding gift card fundraising programs (also known as scrip). Unfortunately, the tax rules applicable to non-profits are extremely complex and often confusing. A few published articles have added to the confusion by suggesting that gift card fundraising programs may create serious adverse tax consequences for participating non-profit organizations. On behalf of our non-profit organizations, we enlisted the help of one of the nation’s largest and most respected accounting and tax firms to ask the Internal Revenue Service for guidance. The result of those efforts is what is known as a private letter ruling, issued in July 2009. In 2014, we had our tax advisors review all the information published by the IRS since the 2009 ruling, and they again confirmed our understanding.
If properly managed, gift card fundraising does not violate any of the IRS tax code for non-profit organizations, nor does it expose participating families to additional income tax exposure. See the below resources that break this down to help you understand this further:
One of the particularly exciting aspects of gift card fundraising, compared to other forms of fundraising, is that sharing a portion of the money raised with the participating families is uniquely permitted. This is accomplished through the definition of the money raised as a rebate, and defining which portion of that rebate belongs to the family, not the organization. Once you have defined a portion of the rebate as belonging to the participant, they can choose to either assign that portion to fees they owe their organization (i.e., tuition, band camp fees, ice time, etc.), or they can choose to donate that rebate portion to the organization, and consider it a legitimate charitable contribution. Both strategies are proven to help coordinators maximize participation, and fundraising. See the sample agreement to use when sharing rebates with your participants.
After exploring this information, if you have additional questions, we encourage you to seek the counsel of your local tax professional. You can also submit questions to us via e-mail at email@example.com.