Donations to Not-for-Profits and the Gift Tax

In today’s world, many not-for-profits work together in a web of different connected organizations to help achieve overarching objectives. Typically, these efforts may be serviced by a 501(c)(3) organization for education and training, a 501(c)(4) organization for social welfare/issue advocacy and a 527 organization for political activity. Many not-for-profit organizations develop a name as a brand to help gain attention for their message and enthusiasm for their efforts. The brand helps attract support (i.e., raise money). But a brand name may also unintentionally create confusion for potential donors. Hypothetically speaking, a group that aims to “Build a Better World” may set up various connected not-for-profit organizations, beneficially labeled with the brand they share: a To Build a Better World Education and Training Fund (a (c)(3)), a To Build a Better World Action Fund (a (c)(4)) and a To Build a Better World Political Action Committee (a 527). Confusion is a leading cause of inadvertent non-compliance. As the IRS begins to enforce the gift tax for donations to certain not-for-profit groups, donors will want to be sure of the implications of their donations. Donors need to be aware that, in contrast with donations to (c)(3) charitable organizations and 527 political organizations, donations to (c)(4) social welfare organizations may result in gift tax liability. Thus, while branding may be a useful tool for carrying forward the organization’s message, clear distinctions should be drawn for potential donors. After all, it’s hard to build a better world, if unwelcome surprises from the IRS are sapping the enthusiasm of your strongest supporters.