We are a new IRS 501(c)(3) tax exempt corp., with no funds as yet. A
potential donor has offered to donate to our non profit corp a
percentage of its income derived from eBay auctions and sales. Can
states consider this procedure to be a solicitation of donations by us
and/or by the donor. We have no control over the donor or his sales,
but mention will be made that it is making these donations to our non
profit corp. Suppose the donations were mentioned, but not our name?
Thanks, js.

Howdy jsfl-ga,

A reminder of the "Important Disclaimer: Answers and comments provided on
Google Answers are general information, and are not intended to substitute
for informed professional medical, psychiatric, psychological, tax, legal,
investment, accounting, or other professional advice."

One problem might very well be that your donor might be considered a
"professional solicitor" by some states, thus bringing the donor and
yourself to possible exposure under "solicitation of donations"
regulations.

"Action Without Borders" has an article on that on their Idealist.org
site.
http://www.nonprofits.org/npofaq/16/21.html

"States are entitled to regulate the solicitation of donations within
their state, and soliciting online may be interpreted as conducting a
solicitation in every U.S. state. Therefore, legal compliance in this
situation would require both the nonprofit charity and the
professional solicitor to be appropriately registered in nearly every
state."

The larger problem might be from regulations concerning what is called
a "commercial co-venture," which appears to be a more accurate
description of your situation.

Copilevitz & Canter, LLC defines what composes a "commercial co-venture."
http://www.copilevitz-canter.com/index.php?section=13

"A commercial co-venture is an arrangement between a charitable or
nonprofit organization and a firm otherwise engaged in business, where a
product or service is promoted by the commercial business on the
representation that some part of the proceeds will benefit the charitable
organization.

The law involving commercial co-ventures is still emerging. A few states
require registration. In others, the contract between the organization
and the commercial co-venturer is required to contain a number of
provisions and, in some states, the contract has to be filed."

Copilevitz & Canter, LLC outlines some of the states that might require
some registration.
http://www.exempttaxlaw.com/CM/Articles/articles14.asp

"Q. IF A CHARITY ENTERS INTO A COMMERCIAL CO-VENTURE AGREEMENT WITH A
COMMERCIAL INTEREST, IS REGISTRATION REQUIRED?

A. The law involving commercial co-ventures is emerging and evolving.
Registrations must be filed in Alabama, Maine, Massachusetts and
Washington. The laws of Tennessee and Utah are broad enough to require
registration."

The Symphony of Services, Inc. adds Connecticut to the list.
http://www.symphonyofservices.com/pages/services-npo/fund-raising/fund_raising_regulations.html

"Connecticut requires only the filing of a formal contract between the
co-venturer and the nonprofit. Many states require that a contract be
executed, although no filing or registration is actually required."

As you can see from the above, these regulations are changing as time
goes on, so the only way to be somewhat up to date is to check the state
offices that regulate these types of things.  That is beyond the scope
of the answer, but here is where you can check each one out for this
information.

NASCO - National Association of State Charity Officials
http://www.nasconet.org/agencies/document_view

"US Charity Offices ... state offices that regulate charitable
organizations and charitable solicitations."

Another Idealist.org article appears on the WEBuilder.co.il web site,
and it goes into more detail on other potential problems of a commercial
co-venture.
http://www.webuilder.co.il/npo_faq.htm

"Commercial co-ventures may require the charity to pay UBIT on the
associated revenue, and may also have other serious implications for an
organization's tax-exempt status. It is probably wise to never enter into
a commercial co-venture without a review of the arrangement by your lawyer
or accountant."

I would strongly suggest that you read the above references in detail for
more information, as well as heed the advice of the above article to speak
to a lawyer and/or accountant before entering into any such venture.

There could be legal and/or tax imlications even if your organization is
not mentioned by name in conjunction with the proposed arrangment.

American Charities for Reasonable Fundraising Regulation (ACFRFR) is an
organization working to clear up some of these problems that nonprofit
organizations are facing.  You might be able to contact them for advice.
http://www.charity-reg.org/

"[American Charities for Reasonable Fundraising Regulation] is a coalition
of nonprofit organizations, their national associations and their supporters
formed for the purpose of combating excessive regulation of nonprofits and of
fundraising by means of litigation."

Here is their contact information:

American Charities for Reasonable Fundraising Regulation
9112 Tetterton Avenue
Vienna, VA 22182
703-938-1809 - Telephone
703-938-2207 - Fax

If you need any clarification, please feel free to ask.


Search strategy:

Google search on: nonprofit "solicitation of donations"
://www.google.com/search?q=nonprofit+%22solicitation+of+donations%22

Google search on: nonprofit "commercial co-venture"
://www.google.com/search?q=nonprofit+%22commercial+co-venture%22

Google search on: nonprofit "commercial co-ventures"
://www.google.com/search?q=nonprofit+%22commercial+co-ventures%22

Looking Forward, denco-ga - Google Answers Researcher

your excellent answer confirms all my fears. we have no funds at this
time. my next question will come with higher fee.

Denco-ga's answer makes it sound like solicitation is a very touchy
matter, and it will definitely burden the supportive company with
legal and accounting problems.

Considering that the tax-exempt corporation is a new one, whose name
will probably have little drawing power, and considering that eBay
serves a very price conscious market, I would expect that a co-venture
would not enhance sales or donations.

Furthermore, if the company will be donating a percentage of its
income from eBay sales (income per item sold? or net income from all
eBay activity for a calendar period?) this will vary, making any
statement about the company's donation policy rather vague.

I am wondering if a co-venture company that says 5 cents or x% of
sales will be donated can always claim the donation itself as a
tax-free item?  (If I were a tax collector, I would want to claim that
it was a pass-through donation from the buyer.)

Returning to my first remark, I would do everything possible to avoid
burdening the company with any potential problems.  Just the effort of
registering in a couple of states could sour the whole proposition.

Good luck, Myoarin

Thanks for the kind comment, 5 star rating and most generous tip, jsfl-ga.

Sorry to have been the bearer of bad news.

Looking Forward, denco-ga - Google Answers Researcher