Can My Nonprofit Give Thank-You Gifts in Return for Crowdfunding Donations?

Tax law meets practical reality when it comes to crowdfunding sites' refusal to allow thank-you gifts.

Question

I work at a new-ish nonprofit, and we’re thinking of setting up a crowdfunding campaign to help us buy a van. I have been looking at a lot of crowdfunding sites, and think it’s especially fun when the givers get something back, based on different gift levels, such as an entry ticket to the documentary being funded.

But that example is from an independent, for-profit filmmaker. I can’t find many examples of nonprofit organizations that do these thank-you gifts.

In fact, one site I contacted said its terms of use forbid this, for tax reasons. I don’t understand! Nonprofit thank-you gifts to donors are quite traditional—why would it be legally different in the crowdfunding context?

Answer

There’s certainly no law that says you can’t offer thank-you gifts in return for donations made during a crowdfunding campaign. However, there are IRS requirements a nonprofit always needs to meet when offering thank you gifts—and it’s likely that the administrative hassle of dealing with this is the reason the crowdfunding site in question won’t allow you to wade into these waters.

The basic federal tax law governing charitable thank-you gifts says that a nonprofit must disclose to donors the market value of any non-token goods or services they receive as a “quid pro quo.”

So, if the thank-you gifts are “token,” you wouldn’t need to tell the donor their market value at all.

If they’re not token, you would simply need to advise the donor, in your receipt or thank-you/acknowledgment letter, how much the fair market value is, and that when claiming a tax deduction for the donation, the donor must reduce it by that amount. (See  What Constitutes a Quid Pro Quo or Token Gift for Charitable Contributions?  for details; the definition of “token” is partly monetary, and the IRS adjusts the applicable amount annually.)

But here’s the key practical matter at issue: Many crowdfunding websites handle the process of sending donors tax receipts on the nonprofit’s behalf. If they had to collect detailed information from you about whether each offered thank-you gift is “token” or not, and how much the fair market value of those non-token gifts is, that end of the process would become a lot harder. (And the crowdfunding platform would probably even charge higher fees as a result.) That's very likely why the crowdfunding platform you're interacting with has chosen to avoid this possibility altogether.

Therefore, if offering thank-you gifts is important to your organization, some extra research may be in order. Look for a crowdfunding site that leaves the process of sending a tax receipt or acknowledgment letter to the nonprofit—but that hopefully provides you with lots of other useful administrative support!

 

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