Charitable Crowdfunding Accounting Considerations

Charitable Crowdfunding Accounting Considerations

We have all heard about charitable crowdfunding and know it is not a new concept. The process of raising small amounts of money from a large population has been around since the radio was invented.
The new considerations are the mediums in which crowdfunding campaigns are taking place. Mediums such as Indiegogo, GoFundMe, Fundly and many others are available to enable not-for-profits to raise funds. The massive traffic on the internet and on-going Google search capabilities have increased organizations’ visibility over the past 20 years while also providing the necessary tools to run a successful campaign. But with all good things come compliance measures; and organizations need to consider the legal, tax and accounting considerations when crowdfunding as a public charity.

Fundraising activities are regulated by state law. If the not-for-profit is engaged in fundraising activities, it is likely that it will need to file a registration form with any state where it is directly soliciting donations, subject to each state’s individual filing thresholds. An important piece of this process involves organizations giving consideration toward where they need to register and file. In traditional fundraising, an email, phone conversation or a piece of mail is sent to an individual soliciting a donation. These scenarios are easy to identify where the solicitation is being made. But what happens when you have a “donate now” button on your website? Outlined below are some tips to help navigate your state accountability relative to online donations.

What steps should I take prior to launching my charitable crowdfunding campaign?

Below are a few items to consider in the creation of your crowdfunding campaign:

  • The fundraising initiative should align with your organization’s mission and the solicitation is a representation of your organization.
  • Beware of the hidden restriction – solicitations which imply a restriction could ultimately lead to one even if the donor does not explicitly say so.
  • Make sure to have a mechanism in place to track each contribution’s source and restriction – this can usually be accomplished from the crowdfunding site and cost center/account coding in your general ledger.
  • State registration:
    • Generally, your place of physical domicile triggers registration in a particular state.
    • If you are making a “direct request for funds” to individuals from a particular state, you will most likely trigger registration requirements, subject to thresholds.
    • Receiving contributions on a recurring basis in significant volume from a location – this is where social media sharing could come into play.
    • Generally, fees are small for state registrations; penalties can be more significant.
    • Check registration requirements prior to consummating the activity.

How do I know if I need to file a state registration form?

There are a few resources to consider:

  • The Charleston Principles: A set of standards to follow when using the internet for charitable solicitations. It’s a short, 18-page read.
  • IRS website: Charitable Solicitation State Requirements
  • National Association of State Charity Officials (NASCO): Listing of U.S. charity offices and websites for charities registration
  • National Council of Nonprofits: Tips to keep top of mind for charitable solicitation campaigns and additional resources

The above resources are beneficial reference points to identify whether you are/are not required to file a charitable registration in a particular state. If you have questions or specific facts and circumstances for consideration, please email your Withum representative.

To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.