Friday, January 2, 2009

Chronicle of Philanthropy Reports on Recent Reports by State AGs on Professional Fundraising by Nonprofits

Since December 29, 2008, the Chronicle of Philanthropy has reported on the states of California, Massachusetts and New York.  The AGs in each of these states have issued reports that look at how much money is being raised and what portion of that money reaches nonprofit causes.  The issue of the costs for fundraising versus the actual dollars that are directed to nonprofit causes is a hot issue for nonprofits.  I think this will be increasingly so in the months and years to come because of the difficult economic times we are in.  Donors will be more demanding, and steer clear of those nonprofits were fundraising costs are disproportionate to the actual dollars that reach nonprofit programs.  From a legal perspective, this issue raises the question of whether the "no private inurement rule" (one of several requirements for acquiring and maintaining tax-exempt status) has been violated when funds are paid out to the professional fundraiser.  Courts have yet to provide a clear standard in this area.  The best guidance is to stay within the average spending ranges for fundraising costs on similar campaigns of similarly situated nonprofits.  This point is made in one of the articles linked in the December 29 posting. 

Below are links to the various stories, which provide links to the stories as reported around the country.  For the Chronicle of Philanthropy report of December 29, 2008, please click here (California and Massachusetts).  For the Chronicle of Philanthropy report of today, January 2, 2009, please click here (New York).


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Two comments: first, I'll bet you that it will be impossible to ascertain any difference between donations to groups that have high fundraising costs and donations to groups with low fundraising costs. I am quite skeptical about donors becoming, in general, "more demanding" and "steer[ing] clear of those nonprofits" with higher costs.
Second, I think it's pretty clear that payments to an "outside" professional fundraiser can never amount to inurement, because that doctrine, unlike the private-benefit doctrine, applies only to insiders. That was what Judge Posner held in the United Cancer Council case.
Happy New Year.

Posted by: Harvey P. Dale | Jan 3, 2009 7:22:50 AM

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