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Are we obligated to divulge what portion of a proceed will be directed to a nonprofit?

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Are we obligated to divulge what portion of a proceed will be directed to a nonprofit?

When hosting an event or fundraiser and we use the phrase: "a portion of the proceeds to benefit..." are we legally obligated to state what portion is directed to the non-profit, if asked?

I am not aware of any requirement to state what portion of the proceeds are to benefit charity, but you should be aware that you may be required to register for charitable solicitation in the state(s) in which you are soliciting and that the charitable beneficiaries may also have to be registered. Most states have anti-fraud laws (either included in the charitable solicitation registration act or passed separately) that could be violated if your advertising is false or misleading or if you give false or misleading statements in answer to specific questions.
 
Thanks to Eric Vieland of Epstein Becker & Green, P.C. in New York for this valuable expansion of this issue.
 
Commercial retailers and other similar parties engaging in these types of promotions are regulated under the charitable solicitation acts of several states. Most of the acts refer to such parties as "commercial co-venturers." Some of the solicitation acts require that a copy of the contract between the charity and the retailer be on file with the Attorney General, that the contract states the precise formula for calculating the retailer's contribution to the charity, and that the retailer use that same formula in all representations to the public about exactly what they mean when they say "a portion of the proceeds will benefit _________." 
 
People should check local law before entering any type of promotional arrangement between a charity and a retailer. Perhaps counter-intuitively, it's the charity rather than the retailer that often bears most of the duty.
 
In a subsequent case, the Fifth Circuit Court of Appeals prohibited the State of Texas from requiring a for-profit collector of used clothing and household goods to advise the public of the amount or percentage of sales revenues a charity would receive from the sale of stuff collected in roadside or parking lot bins.  (See Nonprofit Issues, 9/1/11.)
DWK   4/18.
Friday, April 13, 2007

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