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Is there a cap on what charities may pay a grant writer? Our shelter would like to pay 20% across the board for all grants obtained, regardless of the amount, but we need to make sure that is legal.

Generally, there is no legal limit on the amount that a charity can pay a fundraiser.  Governmental agencies and a few grant makers may prohibit any payment based on receipt of the grant, but they usually say so up front and require a certification that no one has been paid in connection with the application.

If the fundraiser has been sufficiently successful to exercise significant influence over the organization and is considered a “disqualified person” for excess benefit tax considerations, you have to be sure that the compensation is reasonable to avoid an excess benefit tax.  But there is no general tax prohibition on payment on commission.

The Association of Fundraising Professionals and other professional fundraising organizations, however, say that it is unethical for fundraisers to work on commission.  Most of the members of those organizations probably won’t work on commission.

May 5, 2009