Why Americans Support International Charities
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New and updated for 2015. Most American individuals, foundations & companies will only support charitable organizations outside the USA by making gifts and grants to a US non-profit known as a 501(c)(3). Setting up a 501(c)(3) is not a painful process but it is subject to a number of corporate and tax laws and regulations. We will be asking whether American fundraising is right for your organization whilst covering all the tax & legal issues involved through the setting up process. Note: This information was not intended to be legal advice. It is advised that you consult your own legal expert in regard to your specific situation.
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Why Americans Support International Charities
- 2. Why does an American support a Charity outside the USA? ● Americans have lived in your country and supported you. ● You are a school or university and your alumni live in America. ● Americans who live outside the USA want to support charities where they live with US taxed income & get a tax deduction. ● Your charity does work that particularly interests them. ● Your charity does work that isn’t done by a US non-profit. ● Some existing supporters of your charity have moved to the USA and want to support your charity from US taxed income. ●Y our charity tours or exhibits in the USA and attracts American donors.
- 3. In 2013 the total giving in the USA was $316 billion. 6% from Corporations. 7% from Bequests. 15% from Foundations 72% from Individuals
- 4. £316 billion by type of recipient organization: TOP 3 #3 #2 #1 Human Services Education Religion (That’s $101.2 Billion!!!)
- 5. Annually on average each person in the USA gives $694 per year.
- 6. what is a 501(c)(3)? 501(c)(3) is a section of the US Internal Revenue Code. It means that an organization is exempt from taxation on its income and donations to it are tax- deductible to the individual or corporate donor. It also meets the legal needs of foundations as a grantee.
- 7. TAX DEDUCTION FOR EVERY DONATION
- 8. ILLUSTRATION OF US TAX DEDUCTION Itemized deduction: Mary earns $400,000 and she makes a donation of $10,000 to a local non-profit. This reduces her taxable income to $390,000. If she pays tax at 35% this will save her paying $3,500 tax which means the donation only costs her $6,500.
- 9. Without a tax deduction, a charity stands little chance of receiving anything other than the smallest of gifts.
- 10. Decision time
- 11. Option #1: Work with an Existing Public Charity www.americanfund.info
- 12. www.chapel-york.com Option #2: Set up a US Non-profit Organization
- 13. don’t fall at the first hurdle…Before forming a non-profit, the key is to find out if organizations (non-profit, for-profit, or government) are already doing the same or similar work in your community. It will be harder to get support if you are just duplicating existing services, versus improving or adding to them.
- 15. Before applying to the IRS for tax-exempt status, most organizations first become incorporated. First, a non-profit company is registered in one of the 50 states. The initial information required to form the company includes the name of the 501(c)(3), names and addresses of the members of the Board of Directors (at least three, a majority being US citizens with US addresses), Prepare and file your "articles of incorporation“, create bylaws that will dictate how the corporation is run and state information about the proposed activities and fund-raising plans.
- 16. A mission statement is not just for internal use or to submit to the IRS for tax-exempt status. It is a beacon that will attract new people and more resources to your cause. Make your mission statement compelling as well as clear. It will be your best public relations tool. The IRS will be looking at your mission statement to see if your organization matches its requirements for that type of entity. Know what you are applying for and draft your mission to match the requirements.
- 17. Build an Effective Board The state in which you incorporate your non-profit will set the guidelines for the minimum number of board members that should be on your board. A minimum of three is typical.
- 18. Every company incorporated in the USA is required by law to have a Registered Agent.
- 20. Next, the new company applies for 501(c)(3) status from the Internal Revenue Service. This is done through a Form 1023, Application for Tax-Exempt Status which is sent to the Internal Revenue Service with a package of related forms and information about the proposed 501(c)(3). Negotiation with the Internal Revenue Service may be required before approval is finally granted. This is not an instant process and can take many months. 501(c)(3) status, when granted, is 'good' for all 50 states + DC. It is the 501(c)(3) status which confers exemption from tax on the organization and which means that donations to the organization will be tax-deductible.
- 21. While the IRS rejects slightly less than 10 percent of Form 1023 applications filed, nearly half are abandoned by the filer.
- 23. Here is some basic information and tips about fundraising registration. Be aware, however, that you'll need to do your homework on this issue and/or get legal advice for your particular non-profit. - Register in your home state--this is called your state of domicile. - Register before you start fundraising. - Register in every state where you solicit funds. If you receive less than $250 in donations than $250 in donations from a particular state, don't register and do not send postal mail send postal mail or email to that state. It's too expensive to register where you receive where you receive little value. Several donation processing programs allow you to screen you to screen out states. - Follow the rules of each state for registration, reporting, documentation, etc. etc. - 38 states do accept the Unified Registration Form, but they often differ in the in the documentation that they require. So you can't just submit one registration to all of registration to all of those states and forget it. You'll need to customize each registration each registration with the required documents. - In most states that require registration, you also have to renew annually. Each state's annually. Each state's requirements are different and deadlines for renewal vary. Fees for renewal vary. Fees for registration differ state to state.
- 24. Even if you only raise funds online, there is still no escape from state registration.
- 25. New Tax Return Makes Nonprofit Fundraising Registration Unavoidable
- 26. If you do not register properly in other states before you fundraise, your organization risks penalties and even felony charges.
- 27. A helping hand… Because the rules for state registration are not uniform, and in fact are in flux, and the paperwork and staff time to keep up is so onerous, many charities contract with third parties to take care of the chore for them.
- 28. BE CLEAR & STAND OUT BUILD AN EFFECTIVE BOARD APPOINT A REGISTERED AGENT FORM 1023 NOT AN INSTANT PROCESS 501(c)(3) STATUS, WHEN GRANTED IS GOOD FOR ALL 50 STATES + DC. FOLLOW THE RULES FOR EACH STATE RENEW ANNUALLY ONLINE DONATIONS – STILL REGISTER ESPECIALLY IN FLORIDA AND NEW YORK.
Editor's Notes
- Title Slide
- Why America? USA is a huge philanthropy opportunity, fantastic tradition of philanthropy, among the highest percentage of givers and highest levels of giving in the world. Americans inside & outside the USA expect to be asked to donate to charity. Grant making Foundations expect to be asked for money and the larger foundations fund huge projects throughout the world. Americans are amazing fundraisers, will form a committee and put on an event and set very high targets for their fundraising if they really believe in your organization. Why does an American support a charity outside the USA? Some major reasons: ● Americans have lived in your country and supported you. ●You are a school or university and your alumni live in America. ●Americans who live outside the USA want to support charities where they live with US taxed income & get a tax deduction. ●Your charity does work that particularly interests them. ●Your charity does work that isn’t done by a US nonprofit. ●Some existing supporters of your charity have moved to the USA and want to support your charity from US taxed income. ●Your charity tours or exhibits in the USA and attracts American donors.
- USA CHARITABLE GIVING – Who Gives the most to what? In 2013 the total giving in the USA was $316 billion 6% from Corporations. 7% from Bequests. 15% from Foundations. 72% from Individuals.
- £316 billion by type of recipient organization: Individuals received 1%, Animals & Environment 3%, Arts / Culture / Humanities 5%, International Affairs 6%, Public Society Benefit 7%, Health 9% and Foundations 10%. Top 3, in reverse order, are... #3 Human Services 13% #2 Education 13% #1 With a massive 32%......can you guess what it is???...........its Religion – that works out at just over $100 Billion!!
- The US is #1 in the world in terms of participation in giving, and also has the highest value of individual giving. Annually on average each person in the USA gives $694 per year. However… Most American individuals, foundations & companies will only support charitable organizations outside the USA by making gifts and grants to a US non-profit known as a 501(c)(3).
- What is a 501(c)(3)? 501(c)(3) is a section of the US Internal Revenue Code. It means that an organization is exempt from taxation on its income and donations to it are tax-deductible to the individual or corporate donor. It also meets the legal needs of foundations as a grantee.
- What is a Tax-Deduction? The tax deduction reduces the tax paid by the donor. The donor’s taxable income is reduced by the amount of the donation and then the tax rate applied against the lower amount. Tax effective giving (the tax deduction) is a powerful part of US giving. It is very much seen as an important savings and part of the charitable giving of the donor. The donor can give cash, shares, property, personal property and other items – all qualify for a tax deduction. US taxpayers are used to getting a tax deduction for every donation they make and they expect it. The benefit is to the donor: the opposite of Gift Aid! $250 and over must be substantiated by a receipt from the non-profit.
- ILLUSTRATION OF US TAX DEDUCTION Itemized deduction: Mary earns $400,000 and she makes a donation of $10,000 to a local non-profit. This reduces her taxable income to $390,000. If she pays tax at 35% this will save her paying $3,500 tax which means the donation only costs her $6,500.
- Without a tax deduction, a charity stands little chance of receiving anything other than the smallest of gifts.
- Thus, If you want to attract donations from American taxpayers for your organization you must either…
- A non-US entity which wants to fundraise from the US may ask an existing 501(c)(3) organization to accept donations for it. Advantages of using an Intermediary organization - Cost. Using an Intermediary organization is often seen ideal for start up charities with a small operating budget unable to afford a 501(c)(3) of their own. - Time. A charity can be evaluated far quicker than it takes to receive tax-exempt status. - The donor will still receive a tax-deduction for his, her or its donation. Disadvantages of using an Intermediary organization No name recognition. Giving to an intermediary may not resonate with US donors who do not associate it strongly enough with the charity it is supporting. The intermediary may retain a larger than desired portion of donations towards its running costs. The donor may only suggest to the 501(c)(3) that it support the non-US entity. It's up to the Board of the 501(c)(3) organization to decides whether or not to follow the donor's suggestion of the non-US charitable entity to support. Chapel & York manage one such Intermediary Organization – The American Fund for Charities. The American Fund Charities is a US 501(c)(3) organization that supports charitable organizations throughout the world and works with them to raise funds from the United States. It has worked with 1000 smaller charities and their supporters worldwide to raise over $20 million for their work. For more detailed information and Application Forms please visit The American Fund for Charities website www.americanfund.info
- SET UP A PUBLIC CHARITY TO SUPPORT YOUR ORGANIZATION You are setting up an entirely independent organization in the USA. You can refer to it as a (brother or) sister organization, but should avoid getting into the habit of calling it “our ....” Advantages of establishing a 501(c)(3) Establishing an organization in the US which will be a sister organization to your own entity can have a number of benefits: The US entity can have a similar name to reflect the similarity of interests. Americans can support your interests by making tax-deductible donations to an organization which shares those interests. The organization will establish itself in the US as a US entity with US rules and regulations, US requirements and benefits. Enthusiasts for your cause will be able to become involved with the new US entity. No retained amounts on donations. Chapel & York does everything you need to establish a 501(c)(3) charity, from initial discussions and setting up as well as ongoing maintenance and additional support services. Please see our website for further details.
- Avoiding these common nonprofit startup mistakes will get you off to a great beginning: Thinking It's Easier to Start a Nonprofit Than It Really Is: Not realizing how much time, effort and money it takes to start, and more importantly to sustain the organization. Lack of Financial Savvy Close behind lack of planning is unrealistic expectations about funding for a startup nonprofit. Many founders do not anticipate what it will cost to start their nonprofit, much less have any idea of where to get the funds. Any nonprofit startup needs a funding plan, must decide if services provided will be available for a fee or be free, and should institute a good financial records system. A nonprofit that has weak funding at the beginning is unlikely to be able to sustain itself long enough to get a vigorous fundraising program going. Lack of Research: Before forming a nonprofit, the key is to find out if organizations (nonprofit, for-profit, or government) are already doing the same or similar work in your community. It will be harder to get support if you are just duplicating existing services, versus improving or adding to them. After you determine that the work you will do will meet a real need in the community then you can begin the setting up process. Setting up a 501(c)(3) is not a painful process but it is subject to a number of corporate and tax laws and regulations. Starting a nonprofit generally also requires these three steps to formalize your organization…
- STEP #1 – STATE OF INCORPORATION Before applying to the IRS for tax-exempt status, most organizations first become incorporated. First, a non-profit company is registered in one of the 50 states. The initial information required to form the company includes the name of the 501(c)(3), names and addresses of the members of the Board of Directors (at least three, a majority being US citizens with US addresses), Prepare and file your "articles of incorporation“, create bylaws that will dictate how the corporation is run and state information about the proposed activities and fund-raising plans. The state of incorporation governs the basic operation of the company. Incorporation will protect board members and other individuals in your organization from being held personally liable in case of a lawsuit. Choosing a name Once you decide to organize a nonprofit, you'll have to figure out what to call your group. This process is a bit more involved than simply picking a name that sounds good. Of course, you'll want to come up with a name that describes your nonprofit's purpose or work, one that the public will understand and remember. But you'll also need to make sure that your name is not already being used by another business or group, either as a trademark or as a domain name. You'll also have to choose a name that complies with your state's legal requirements. What are Articles of Incorporation? When you incorporate as a nonprofit, the state in which you incorporate will require Articles of Incorporation. What is required may differ from state to state. It is important to contact the state office (usually the Secretary of State) responsible for incorporations to find out what the requirements are. Many state offices will provide a packet of information about how to incorporate as a nonprofit and even samples of articles of incorporation or fill-in-the-blank forms that you can use. The Articles of Incorporation do not go into the details of how the corporation will be run. That is spelled out in the corporation's bylaws
- An effective mission statement is more important than ever. Donors, supporters, volunteers look for them. Indeed, they should be right up front on your website, in your annual report, and in your fundraising materials. There is no one way to write a mission statement. Studying many examples will broaden your thinking about what is possible and what makes a good one. The best are highly readable and inspirational, but still answer the why, how, and for whom your charity exists. A mission statement is not just for internal use or to submit to the IRS for tax-exempt status. It is a beacon that will attract new people and more resources to your cause. Make your mission statement compelling as well as clear. It will be your best public relations tool. The IRS will be looking at your mission statement to see if your organization matches its requirements for that type of entity. Know what you are applying for and draft your mission to match the requirements.
- It cannot be overstated how important your board is to your nonprofit's success. It is legally responsible for keeping you on track with your mission, helps you to secure the funds you need to accomplish that mission, and provides much of the expertise that you will need. Find the right people, get them on board, and keep them interested. Why Does My Startup Nonprofit Need a Board? First, it is a legal requirement. A nonprofit is a corporation, and, just like their for-profit cousins, nonprofit corporations exist independently of the people who founded them. Nonprofit corporations must be governed legally and ethically by a board of directors. Even if your organization has very few, or even no, staff it must have a board. Who Should Be On My Nonprofit's First Board? Founding board members are very special. They usually know the founder/s of the organization and believe strongly in its cause. The board might be made up of those people who were interested in your mission early on, or it could be a group of people who came up with the idea for the organization and worked together to get it started. When looking for board members - start with your dedicated and active volunteers in your area. Ask board and staff members already in place for nominations or recommendations, Reach out to those beyond your nonprofit, like youth, or people in business or from other organizations. Use board or volunteer recruitment web sites. The founding board will guide the nonprofit through the process of organizing as a nonprofit corporation and applying to the IRS for tax-exempt status. Being on a founding board is hard work, so members need to be willing to devote considerable time and energy to the organization. How Many Board Members Are On a Startup Nonprofit's Board? The state in which you incorporate your nonprofit will set the guidelines for the minimum number of board members that should be on your board. A minimum of three is typical. The minimum number will be indicated on your state's incorporation documents. The size beyond the minimum really depends on the organization's needs. Make a list of the tasks that need to be done and match your board members to that. Tasks and board members should be well matched so that everyone has enough to do, but no one is overwhelmed.
- Every company incorporated in the USA is required by law to have a Registered Agent. This is either a person or company and isn’t an agent in the sense that it represents you in the US. The registered agent is required by the State of Incorporation as the place where official documents are sent. If your entity is not able to provide its own registered agent and office, some businesses, known as service companies, provide registered agent services for a fee. Your attorney or accountant may also offer this service.
- STEP #2 – APPLICATION FOR TAX-EXEMPT STATUS Next, the new company applies for 501(c)(3) status from the Internal Revenue Service. This is done through a Form 1023, Application for Tax-Exempt Status which is sent to the Internal Revenue Service with a package of related forms and information about the proposed 501(c)(3). Negotiation with the Internal Revenue Service may be required before approval is finally granted. This is not an instant process and can take many months. 501(c)(3) status, when granted, is 'good' for all 50 states + DC. It is the 501(c)(3) status which confers exemption from tax on the organization and which means that donations to the organization will be tax-deductible.
- Form 1023 is a 26-page, comprehensive look at an organization’s structure and programs. Given the number of additional schedules, attachments and exhibits that may be required most Form 1023 filings range between 50-100 pages of information. In order to receive a tax-exemption dating from the date of your incorporation, you need to file IRS Form 1023 within 27 months of your incorporation. Three groups are not required to file Form 1023: churches, public charities that do not have gross receipts of more than $5000 in each year, and subordinate organizations exempt under a group exemption letter. FAQ: Does a Form 1023 need to be notarized? Form 1023 does not need to be notarized, but it must be signed, under penalty of perjury, by an officer or director. FAQ: Can anyone complete Form 1023? Technically, anyone can complete Form 1023. However, the IRS estimates it takes an average person more than four hours to learn about the form, and another eight hours to fill it in and return it to the IRS. From a practical standpoint, it is usually advisable to enlist the help of a professional who specializes in the process, such as Chapel & York. While the IRS rejects slightly less than 10% of applications filed, nearly half are abandoned by the filer...usually out of frustration or inability to answer tough, IRS follow-up questions. Out of approximately 80,000 applications filed annually, only half make it through the process.
- STEP #3 – STATE REGISTRATION Here is some basic information and tips about fundraising registration. Be aware, however, that you'll need to do your homework on this issue and/or get legal advice for your particular non-profit. - Register before you start fundraising. - Register in your home state--this is called your state of domicile. - Register in every state where you solicit funds. If you receive less than $250 in donations from a particular state, don't register and do not send postal mail or email to that state. It's too expensive to register where you receive little value. Several donation processing programs allow you to screen out states. - Follow the rules of each state for registration, reporting, documentation, etc. - 38 states do accept the Unified Registration Form, but they often differ in the documentation that they require. So you can't just submit one registration to all of those states and forget it. You'll need to customize each registration with the required documents. - In most states that require registration, you also have to renew annually. Each state's requirements are different and deadlines for renewal vary. Fees for registration differ state to state. - If you do not register properly in other states before you fundraise, your organization risks penalties and even felony charges. Some donations have had to be given back as a result of not registering or registering too late. New Tax Return Makes Nonprofit Fundraising Registration Unavoidable The new IRS Form 990 has now made neglect of fundraising registration rules impossible, at least for nonprofits with incomes of more than $25,000 per year. Those nonprofits have to file a 990 or a 990-EZ, and the new forms require information about where organizations are registered to fundraise.
- Your shiny new website is up and running. And, like most tax-exempt nonprofit organizations, your website prominently displays a “donate here” button. What better way to solicit charitable donations from American philanthropists! The problem is, your organization may now be “soliciting” donations from the residents of every state in the United States. You’ve probably heard or have a vague notion about charitable solicitation registration laws, and the question is: do you need to register your charity in every state in the Union? The charitable solicitation laws of almost all states require any nonprofit that has a website that includes a donate button to register with the state even if it has no actual physical presence within that state, makes no direct fundraising efforts there, and even if they receive no contributions from state residents. If the law was applied in this way, even small nonprofits would have to register with every state charity office simply because it has a website that asks for a contribution. This would work an enormous burden for nonprofits. Fortunately, most state nonprofit regulators realize that it is impractical to literally apply their solicitation laws to all Internet fundraising. Thus, most states do not require a nonprofit to register in a state simply because it has a website that can be viewed there. Unfortunately, determining when a website requires a registration can be complex. Each state has a separate body of case law interpreting whether a “donate here” button or online campaign is enough of a “nexus” or “presence” within a particular state to trigger that state’s registration requirements. If you accept online donations, do register in Florida New York, Pennyslvania and New Jersey state, even if you don't solicit there. Those states require registration for simply accepting a donation from the state. When it comes to Social networks…if, for example, your nonprofit's Facebook page contains a "donate now" button, you would be soliciting contributions through the page and the Facebook page is then classed as an ‘interactive website’ and you would need to register.
- In the past, non-profits may have been able to get by while letting these requirements slide, but the IRS and state governments are cracking down. The new IRS Form 990 has now made neglect of fundraising registration rules impossible, at least for nonprofits with incomes of more than $25,000 per year. Those nonprofits have to file a 990 or a 990-EZ, and the new forms require information about where organizations are registered to fundraise. Thus, non-profits need to pay attention to state registration requirements to properly complete their annual IRS information returns. If you don't, you risk unwanted attention and scrutiny from the IRS and states, and potential problems with donors.
- You don't just have the IRS to worry about. If you don't register in a state where you are required to, you are breaking that state's law. States may impose fines and other penalties on non-profits that fail to register. These fines can be substantial. For example, Pennsylvania imposes a minimum $1,000 fine for failing to register. Moreover, the state may order your non-profit to cease soliciting donations within the state until you register there. Some donations have had to be given back as a result of not registering or registering too late.
- Because the rules for state registration are not uniform, and in fact are in flux, and the paperwork and staff time to keep up is so onerous, many charities contract with third parties to take care of the chore for them.
- Setting up a US Non-profit Organization A Recap: Step #1 – State of Incorporation Be Clear & Stand Out. A mission statement is not just for internal use or to submit to the IRS for tax-exempt status. It is a beacon that will attract new people and more resources to your cause. Make your mission statement compelling as well as clear. It will be your best public relations tool. Build an Effective Board. It cannot be overstated how important your board is to your non-profit's success. A minimum of three is typical. The minimum number will be indicated on your state's incorporation documents. Ask board and staff members already in place for nominations or recommendations, Reach out to those beyond your nonprofit, like youth, or people in business or from other organizations. Use board or volunteer recruitment web sites. Appoint a Registered Agent. Every company incorporated in the USA is required by law to have a Registered Agent. The registered agent is required by the State of Incorporation as the place where official documents are sent. Step #2 – Application for Tax-Exempt Status Form 1023. Applying for 501(c)(3) status from the Internal Revenue Service is done through a Form 1023, Application for Tax-Exempt Status which is sent to the IRS with a package of related forms and information about the proposed 501(c)(3). From a practical standpoint, it is usually advisable to enlist the help of a professional who specializes in the process. Not an Instant Process. Lengthy processing delays, which has lead the IRS to announcing a new Form 1023-EZ. Most small organizations, including as many as 70 percent of all applicants, qualify to use the new streamlined form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible. Stick to our tips to shorten the application process. 501(c)(3) Status, when granted is good for all 50 States + DC. Step #3 – State Registration Register in your state of domicile. It’s a no-brainer. Register where your non- profit is formed and where your primary operations are. Follow the Rules for Each State. Register before you start fundraising & Register in every state where you solicit funds. 38 states do accept the Unified Registration Form, but they often differ in the documentation that they require. In most states that require registration, you also have to renew annually. Each state's requirements are different and deadlines for renewal vary. Fees for registration differ state to state. Online Donations. Register in or exclude New York, Florida & New Jersey, Pennsylvania too! Just having the “donate here” button risks regulation by those states. I would register in these states (because they have large populations). If you don’t want to register, refuse donations from those states and a disclaimer to try to insulate your organization from liability.
- We can help. Chapel & York does everything you need to establish a 501(c)(3) charity, from initial discussions and setting up as well as maintenance and additional support services– such as State Registration, Donation Processing, Bookkeeping & Account, Board Support, Communications Audit & Website Review Service. For more information & brochure downloads please visit: www.chapel-york.com/fundraisingusa Now time for the Q&A…..