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Must fundraiser make a “profit”?

Your Legal Questions Answered

Must fundraiser make a “profit”?

Is there any legal or regulatory requirement for a charity's fundraising event(s) to turn a "profit" for the organization? Obviously there's a practical reason but is there is a regulatory one?

No. Charitable solicitation is constitutionally protected speech and the U.S. Supreme Court has made clear that there can be no arbitrary limits on fundraising expenses. Most of the charity “watch dog” agencies expect fundraising expenses to be less than a certain percentage of the amount raised, but those limits are arbitrary and may be significantly skewed in favor of the charity by a single large bequest (that may have taken years of expensive cultivation to obtain) or against the charity by an expensive new direct mail campaign.
Charities are notoriously bad at accounting for their fundraising events, at least in their reporting on the Form 990. It is not at all unusual for an event to cost more than the participants pay for the actual value of what they receive, but the contribution portion of the payment above the value they receive and the “sponsorships” from supporters who don’t get anything often make the event highly “profitable.” (See Ready Reference Page: “Charities Must Set Value on 'Quid Pro Quo' Gifts.”) If those contributed amounts are not accurately reported (on line 9 of the old Form 990 and on line 8 of Part VIII and Schedule G of the new Form 990), it may look like a “loss” instead of the “profit” that the event really generates. 
Of course, there may be strategic reasons why a charity will intentionally conduct an unprofitable event, but you are correct that the charity doesn’t want to do too many of them.
Monday, March 9, 2009

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