“Nicky” (not her real name) is a television reporter in the Southern San Joaquin Valley with a heart of gold. Brilliant at her craft as a journalist, you just stay glued to her news stories as she finds that human touch few others in TV seem to capture.
Her mother’s death of cancer left Nicky with a sense of duty. “As mom taught high school for over 35 years, I felt an obligation of using my position as someone known in the community to raise money for high school girls living in poverty,” she explained during a phone call.
“So, Dennis, I am collecting money for this project, which I have named after my mother. The funds will buy clothing, school supplies, help pay for bus fare, things like that. Can you give me $100?”
As a group, lawyers are pretty generous, so it wasn’t the money that stopped me, but since I knew Nicky–and the consequences to her reputation of illegal fund raising–I asked a question, and it’s an important one that you need answered if someone out of the blue solicits a donation.
Tempe Arizona-based Ellis McGehee Carter of the Caritas Law Group outlines the important legal issues–and questions--anyone wanting to fund raise must understand and be able to answer.
She exclusively represents nonprofit, tax-exempt and mission-based businesses with corporate, tax and regulatory matters, as well as donors with respect to major gifts.
Starting a non-profit is more complicated than most people ever imagined.
“One of the great things about our country is this amazing spirit of generosity, of wanting to support all kinds of charitable causes. But most people do not realize that starting your own non-profit or charity is far more complicated than they could ever imagine.
“You are running a business, which, to prevent fraud on the public, must satisfy several legal and regulatory conditions required by each state and the Federal Government. In general, operating a not-for-profit is far more complicated than running a private, for-profit business, and the headaches can be greater.
“Dennis, I’ll bet you asked if Nicky’s charity was an IRS approved 501(c) (3) charitable organization and was registered with the State of California, which your state, like most, requires.”
That was exactly what I asked, and when hearing that she had done none of this, I told her:
“Please listen to me. It’s a noble idea, but you can’t run around asking people to give you money unless you have complied with the law. You are in the public eye and have something to lose! All it takes is for one jealous co-worker at your TV station to report you to the California Attorney General and you can kiss your career good-bye. Why haven’t you complied with the law?”
News people are rarely naive, but she was. “Oh, a friend heads a group that is a 501(c) (3) and does exactly what I am doing, helping poor high school girls. They have been working with me for a year to establish my 501(c) (3),” she replied.
For a year? Something’s wrong. It doesn’t take that long, and besides, why would a group that does the very same thing want to empower a competitor? Didn’t that seem strange to Nicky? And if they were a proper 501(c) (3) then they would have told her to not solicit money until she was legit!
She didn’t like hearing that, nor appreciated the fact that I was trying to help to steer her clear from legal trouble. As I felt she had honest intentions, I offered her the $100, but she refused and hung up.
No experience? Then work with a Fiscal Sponsor
“We often receive calls from people who have a charitable idea but lack any experience in the complicated world of non-profits. For them, we urge working with a Fiscal Sponsor–which is a fully registered, legally compliant non-profit--so they can test their idea before building an entire infrastructure,” Carter states.
“The Fiscal Sponsor will collect funds which may only be spent for your charitable purpose. The funds are tax deductible, so donors benefit. After a year or so, if it is clear there is support for the idea, which makes sense and fulfills a need, then they are in a better position to incorporate.
“Also, since they’ve legally raised money through the Fiscal Sponsor, funds will be available to get professional help to structure their charity properly.”
Be realistic about how difficult this is going to be
Concluding our chat, Carter offers these cautionary words to anyone looking to walk down the non-profit aisle. “Not everyone will share your passion, and fewer yet will contribute. Philanthropy is a tough business.”
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