Skip to content
Home » The 501(c)(3) Fundraising Rules You Need to Know

The 501(c)(3) Fundraising Rules You Need to Know

Nonprofits use fundraising as a way to generate additional revenue and increase their visibility. It’s important to understand the 501(c)(3) rules and regulations in order to ensure that you are following all the proper steps for your fundraising efforts. In this guide, we will look at the basics of 501(c)(3) fundraising rules, including what funds nonprofits can solicit and how it must be reported.

Charitable Solicitation Disclosure Requirements.

Many states require you to include certain specific wording along with all written solicitations such as direct mail and online solicitation. These charity disclosure statements need to accompany any request for contributions. The states are very particular about the wording and fonts of these disclosure statements so make sure you use the right wording and that it is up to date as state change their disclosure requirements regularly. We have a page that you can go to view the current charity disclosure statement requirements. You can even get a copy of the disclosure requirement in HTML format which you can then post on your website.

The disclosure statements also commit you to disclosing certain information such as your IRS Form 990 or other financial reports. In addition, they inform donors and potential donors that they may view your nonprofits charitable solicitation filings.

Understand Tax-Deductability of Donor Deductions.

501(c)(3) organizations can receive donations from individuals, corporations, and foundations and these donations are often tax-deductible for the donor. You should let donors know that their contributions may be tax deductible, but you should advise them to speak with their accountant as opposed to trying to give the donor tax guidance. The reason that you should let them know that their contribution may be deductible is that it may encourage additional giving and is one of the disclosure statements you must know.

Avoid Self-Dealing Transactions And Abide By 501(c)(3) Fundraising Rules.

Self-dealing transactions are strictly prohibited and this is one of the most important 501(c)(3) fundraising rules. This means a nonprofit cannot enter into a transaction in which one of its disqualified persons has a financial interest in order to enrich that individual. While you can use a fundraiser or another vendor with ties to your officers or board members, it needs to be above board and you will will likely need to disclose this relationship in regulatory filings. It is best to avoid the appearance of self-dealing and just use fundraisers and other vendors that to not have ties to your board members or officers. Transactions that could be considered self-dealing can lead to serious penalties or even cause a nonprofit to lose its 501(c)(3) tax exemption status.

File Charitable Solicitation Registrations

States want to protect donors from unscrupulous nonprofits and have created laws to protect donors. Most state laws include a provision that requires nonprofits to file with the state government if they fundraise from residents of a state. These charitable solicitation registrations are important and most nonprofits will need to file in many or all states. A failure to file these state registrations can lead to large fines and legal action. These are complex filings and are due annually so it can be tough getting registered and remaining complaint moving forward.

If you need help with your charitable solicitation registrations, we can help. Completely Compliant is the leader in charity state registrations and can help your organization get registered and can file your annual renewal filings. Contact us for a free quote today.

Create a Consistent Reputation for Your Organization.

As you work to raise funds for your organization, you want donors to believe that their investments are going towards a legitimately-operated nonprofit. Developing and maintaining a consistent reputation can create trust among donors and help keep your organization in good standing with the Internal Revenue Service. Clear guidelines around transparency and financial accountability will ensure that supporters feel confident about contributing to and investing in your organization’s mission.

Also make sure to do what you say. When you are fundraising, you must be truthful and not just tell donors what they want to hear. If money raised is going to a specific use, do not tell something different to donors. Avoid false or misleading statements in all advertisement and avoid any fraudulent activities.

Monitor Contributions for IRS Compliance.

It’s important to make sure that your organization is in compliance with the IRS regulations for fundraising. Make sure to accurately track donations and categorize them correctly. Additionally, be sure to track restricted and unrestricted contributions separately to easily identify which must go towards a specific purpose or program. Make sure that all reporting of donations, such as on the IRS Form 990 Schedule B are correct. Just as states have rules about nonprofit fundraising, the IRS also has 501(c)(3) fundraising rules. Make sure that you abide by these.