Our 501(c)(3) nonprofit is considering aligning with another charity to create a 1% program for donations added at the cash register in participating businesses. The businesses will write a monthly check for the donations collected. We plan to create a Limited Liability Company to receive the funds and divide them between the two organizations. If a customer asks for a tax receipt, we plan to offer a letter that says that the funds were divided equally between the two organizations. The letter will refer to the register receipts that the donor should have kept rather than us tracking each customer. Will the IRS accept this?
The key to the deductibility of contributions under this program will be the description on the cash register receipt of the purchaser/donor. As long as it is clear that the extra payment was a charitable contribution to a recognized charity, and the donor has the receipt to show the amount was actually paid, the IRS is likely to accept the evidence.
I don’t know how you would be able to state that a specific person made a gift to you under the program since I doubt that the businesses will identify the donors, especially those who paid for their goods in cash. Fortunately the donor needs a tax receipt from the charity only for contributions of $250 or more (See Ready Reference Page: “IRS Requires Substantiation of Contributions”), which is 1% of a purchase of $25,000. Unless you are getting car dealers to participate in your program, it doesn’t seem likely that you will have many purchaser/donors at that level.
I would caution about using a two member LLC as the recipient of the contributions. Although the IRS has ruled that a gift to a single member LLC owned by a charity is considered a charitable gift to the owning charity (See Nonprofit Issues, 7/16/12.), there is no such guidance for gifts to multiple charitable member LLCs. You could probably get exempt status for a two member LLC but that would be another step in your process. If you don’t want to take that step, you might route the contributions through one of the already-recognized charities.