The directors of our 501(c)(3) charitable organization feel that the cost of soliciting donations, in terms of actual cost and staff time, outweighs the benefits we have received. We can support our mission on the revenue we generate from services delivered to Medicare and Medicaid recipients and from contracts with government agencies. We don’t need to solicit donations. The question is: Can we maintain our 501(c)(3) status without soliciting donations from the public?
The simple answer is “yes.” A charity obtains and maintains its 501(c)(3) status on the basis of what it does, not where it gets its money. So long as you operate “exclusively” for charitable purposes, you should retain your 501(c)(3) status.
Sources of revenue are important in determining whether you are a public charity or a private foundation, but you should have no trouble being a public charity with a lot of Medicare and Medicaid patients and government grants.
The more important question is whether you should really give up on donations as a source of revenue. Like diversification in investments, diversification in sources of revenue can be very important. Organizations that are totally dependent on governmental funding are particularly vulnerable to governmental cutbacks. Even reliance on Medicare and Medicaid could create problems while the future of our national healthcare system is still unsettled. Unrestricted cash from contributions can create a cushion during cutbacks, and offer seed money for new initiatives.
At a conference on nonprofit sustainability sponsored by the Pennsylvania Association of Nonprofit Organizations last week, panelists emphasized the value of multiple sources of revenue and the danger of overconcentration of funding streams. A number of Pennsylvania nonprofits never recovered from the suspension of state funding during a long state budget impasse a few years ago. You may be putting your organization in a position of greater risk if you give up on donations. You will be a lot less able to control your own destiny.