fundraise without 501c3
Can I Fundraise Without 501c3 Status?
Starting a nonprofit can be a long and confusing process when all you want to do is help your community. Because of this, people often wonder if there is a way to collect donations without having tax-exempt 501(c)(3) status. This article can help clear up some confusing parts of fundraising without 501c3 status. Let’s start at the basics: what even is a 501c3? 501c3 is actually a specific tax code but often, the term is used interchangeably to refer to nonprofit organizations that are tax-exempt under that tax code. Nonprofits with 501c3 status can accept tax-deductible donations to conduct their charitable work. Applying for 501c3 tax-exempt status can be a lengthy and expensive process. But there’s good news! There are several other ways your organization can fundraise without 501c3 status and still serve the community. This article will address different ways that organizations can fundraise without 501c3 status to focus on what matters: a positive impact on the community.
Fundraise without 501c3: Work with a Fiscal Sponsor
A fiscal sponsorship is a legal relationship between an existing 501c3 nonprofit and a charitable organization or program. This relationship allows charitable organizations or programs to receive tax-deductible donations and apply for grants without having their own 501c3 tax-exempt status. There are many different models of fiscal sponsorship, each with its own pros and cons. In the last 30 years, this has been a growing option for those looking to fundraise without 501c3 status, whether it’s for a short-term event or a long term project. This option is also popular with people who are applying for 501c3 status, but haven’t heard back from the IRS yet.
The three most common fiscal sponsorship models are Model A, Model B, and Model C. The model of fiscal sponsorship will determine the details of the relationship between the fiscal sponsor and the sponsee. Let’s dive into a Model C fiscal sponsorship for the sake of example.
A small community farm wants to teach their community about environmental sustainability, how to grow a garden, and the health benefits of fresh produce. These services would be provided as educational workshops. The small farm wants to collect donations to provide these workshops for free to their community. Donations will help cover the costs of materials to promote the educational service, a farmer to teach the class, and seeds or supplies to give out at the end of the workshop. The small community farm works with a model C fiscal sponsor for the farm’s educational services. The fiscal sponsor made it possible for the small farm to raise tax-deductible donations and apply for grants without having to apply for its own 501c3 status. Now the farm can utilize donations to help facilitate the educational programming they are providing to the community.
Fiscal Sponsorship Allies (FSA) offers a model C fiscal sponsorship for charitable programs and projects across the country to start collecting tax-deductible donations and apply for grants. Fiscal Sponsorship Allies utilizes an online platform to facilitate fiscal sponsorship. Sponsees can use the platform to create giving campaigns to raise donations and view donor information. Sponsees can also create debit cards for charitable expenses, submit reimbursements, and submit bills for payment online. Looking for more information? Request an application online, no commitment required. Or check out our FAQ for quick information on how Fiscal Sponsorship Allies can support your charitable program.
Every fiscal sponsor is unique. Organizations offering fiscal sponsorship have different ways of facilitating, which can be seen in different fee structures and compliance standards. Typically, fiscal sponsors charge 5-10% of donations in order to pay for their expenses in running their fiscal sponsorship program. They will also often require information from you to determine that the work you’re doing is charitable. This protects their 501c3 status. Fiscal sponsors will often provide back office support as well, ranging from sending donation acknowledgements, all the way to full-service bookkeeping.
Fundraise without 501c3: Accept In-kind Donations
Maybe you have been thinking about starting a program to collect pet food and supplies to support individuals who need a little help caring for their animals. Or maybe a group of volunteers start collecting food, clothes, and blankets to give out weekly to support individuals experiencing homelessness. In-kind donations are tangible goods or services that are donated to a charitable cause. These donations can help stretch limited resources, allowing organizations to focus on delivering the care and support they are setting out to provide.
While operating a program that is not a registered 501c3 tax-exempt nonprofit, there are some important considerations to keep in mind. Specifically, donors won’t get a tax deduction for giving you money or items to run your charitable program. This might be a barrier for some, but some people are still willing to give. Communicating the impact of a donor’s in-kind donations will help individuals and other groups understand and be eager to continue donating items or their time to support your initiative, despite the tax benefit. In-kind donations can help bring your vision of positively impacting your community to life. Just keep in mind: if you’re looking for in-kind donations from a company like a local restaurant or grocery store, they often will only give to organizations that have their own 501c3 status.
Fundraise without 501c3: Crowdfunding
Crowdfunding can be a good option to raise funds to help an individual, a small business, or even the local community. Crowdfunding is a way to raise money online, typically from a large number of people. This might be the first idea that comes to mind for someone who does not want to go through the long process of receiving a 501c3 and wants to raise funds quickly. The parameters around crowdfunding are important facts to consider before deciding to fundraise without 501c3 status using this method.
Starting in 2022, if someone, a business, or other receives more than $600 through crowdfunding, regardless of how many people donate or the number of transactions, the crowdfunding site or payment processor must send them a Form 1099-K. Receiving a 1099-K does not automatically mean that the money distributed is taxable. This depends on why the money was given. Monetary gifts are typically donations given out of generosity with no expectation of anything in return. In most cases, money received as a gift is generally not considered taxable, but there are exceptions. If you or our organization wants to use crowdfunding to raise money, it is a good idea to consult a tax professional. The last thing you want is to raise money via crowdfunding to get a surprise tax bill the following year.
Crowdfunding is a good option for people looking to fundraise without 501c3 status for a short-term project or a hyper-specific need. For example, a family looking to raise money to pay for the cancer treatment of their child might or a teacher looking to raise money for classroom supplies, are good candidates for crowdfunding. Relying on crowdfunding for ongoing work or long-term is often more difficult, both because of the tax implications and because of the lack of framework and support. Long-term projects are often better served by fiscal sponsorship or becoming their own 501c3 nonprofit.
Fundraise without 501c3: The 27-Month Rule
After submitting the tax-exempt 501c3 application, it can take between 2 to 9 months to hear back from the IRS, depending on which form you filed and the volume of inquiries. With an unknown timeline, is it okay to collect donations before you get your determination letter showing your 501c3 status?
There would be a few things to consider to help answer that question. First, consider the IRS 27-month rule. If you apply for tax-exempt status within 27 months of incorporating, your determination date will be retroactive to the date of incorporation. Basically, any funds raised during that time frame could be considered exempt donations once you receive your official status from the IRS. But it depends on your nonprofit’s situation; contributions collected prior to receiving 501c3 status could be considered personal income.
It is also important to note the Charitable Solicitation Registration (CSR) requirements. In basic English, CSR is registering to fundraise legally within your state. More than 40 states have some form of CSR required in order to start fundraising as a nonprofit. For most states, it’s a form requiring financial and missional information about your organization. Not following CSR rules in each state you fundraise in can lead to penalties and fines. Keep in mind: you’ll want to register in every state where you are asking for donations– including via email, phone, etc.
While you wait for your determination letter, inform your donors of pending tax-exempt status; some donors will be comfortable giving to nonprofits pending 501c3 tax-exempt status. Also, remember some grant-making organizations will not allow for nonprofits without confirmed tax-exempt status to apply for grants, but some will. Check in with your potential donors and grant providers to find out if they are open to donating before your 501c3 status is active. But understand that in some states, you’re not able to do your CSR filing before becoming a tax exempt nonprofit.
Reviewing Your Options
Now that you have more information about fundraising without 501c3 status, you can weigh your options. Think about what’s most important to you when raising funds. If you’re applying for grants, for example, check with your potential grant provider. Many are open to fiscal sponsorship. If you’re collecting small donations from friends and family for a temporary event or need, crowdfunding could be a good fit. Or if you’re in a state without CSR and you’ve already applied for 501c3 status, you’ll likely be able to accept donations ASAP. There’s no one-size-fits-all approach to fundraising without 501c3 status. But if you’re looking for a fiscal sponsor, request an application from FSA. We’re happy to help people doing charitable work fundraise without 501c3 status.
