I am the Development Manager for a small nonprofit that operates on a budget of around $500,000 a year. Something came up this year for the first time, and I’d like your opinion.
The ticket price to our annual benefit is $100, and we routinely send acknowledgements to guests that $50 of their $100 ticket is deductible. This is a fairly accurate estimate of the value of the food, drink and entertainment cost, and according to our business manager and auditor, standard best practices (as well as the way benefit tickets have been handled at every nonprofit for which I have ever worked, during the past 20+ years).
This year, we got an RSVP from one guest with a note saying, check to follow. When the check arrived, it was from a donor advised fund with a letter stating that endorsement of the check would confirm that the full amount was tax-deductible and that no goods or services had been received in exchange. My Executive Director and I felt that to treat this differently from all other benefit ticket purchasers would be inappropriate, and compromise the integrity of our nonprofit. I contacted the donor advised fund representative, and explained the situation. I made it clear that the woman would be welcome at our event, but that we would not deposit the check without further instruction from him.
At the benefit, the woman handed me a check for $50. She was very kind, but basically said, these things are done all the time, there’s a fine line, you are on the wrong side of it, but “you’ll learn.” She also told me that the board member who invited her will be speaking with me about this.
I realize this is a relatively small amount, but it’s a larger principle. One of the reasons I value my job at this particular nonprofit is that there is a strong commitment to integrity, consistency and transparency here. My ED and I both feel that we made the right call; but this is very likely not the end of it, as we haven’t heard yet from the board member.
What do you think?
Sincerely, Just Following The Rules
It’s not a matter of what the Nonprofiteer thinks; it’s what she knows, and you know and your Executive Director knows. There’s nothing at all “fine” about the line between deductible and non-deductible payments: the IRS permits deduction of the amount that goes to the charity, and not of the amount that goes into a guest’s belly. It’s what any lawyer would refer to as “a bright-line rule.” So maybe the banquet guest just got her lines mixed up.
Seriously, this isn’t even a close call. What this person has asked you to do is to lie to the IRS on her behalf. Let’s leave aside ethics, integrity, all those mushy things. Lying to the IRS is a really bad idea–just ask Al Capone.
Now, is your agency likely to be audited for breaking the rules (also known as “the law”)? No. Nor is the guest likely to be audited for misreporting her charitable contributions. But that’s not a reason for you (or her) to pretend that she received no value for the money she handed over. You were wise not to endorse the donor-advised fund’s check embodying such a pretense, and you will continue to be wise by not issuing a tax-deductibility receipt for the $50 personal check she ultimately forked over.
If and when the Board member comes at you, you will reiterate what we all know to be true: that the IRS does not permit you to certify the food, drink and entertainment costs as tax-deductible contributions, and that you’re sure she wouldn’t want an agency she governs to participate in such a dangerous and false maneuver. If she presses, observe that the guest may make any use she pleases of her cancelled $50 check.
If the Board member continues to press, turn the matter over to the Board president. It’s her/his responsibility to make sure no one member of the Board in any way tarnishes the reputation of the whole group. If s/he resists addressing the issue, try using the words “tax evasion,” and if s/he continues to resist, try using the word “fraud.”
You don’t have to be in the business of judging or disparaging the guest (though she richly deserves it. Wealthy enough to have a donor-advised fund and wailing about $50?). But you likewise don’t have to be in the business of abetting her dishonesty. And if anyone argues, “Well, it’s only $50,” make sure to agree. “Our agency’s good name isn’t for sale,” you’ll say. “But if it were, it would cost a hell of a lot more than $50.”
Keep on abiding by the law, and may the Force be with you.