A Brony Guide to Fundraising (and Staying Out of Jail)

DISCLAIMER: I am not a lawyer, nor a tax specialist.  Please consult a professional for more specific advice.

Here's a little brainteaser to start (or end) your day:

Bob Brony is going to San Diego Ponycon (SDPC), a new pony convention.  He has heard about this awesome group in France, Geek Fromage, that is working to increase tolerance for the geek lifestyle, and he wants to raise some money for them.  He contacts the convention, and arranges to run an auction and a raffle to raise money for the charity.  Because the con is new and struggling, they ask to keep 15% of the auction proceeds.  The con goes off, and Bob raises $12,000 for the French group, which he sends to them.

Question: How many laws have Bob and the convention potentially broken?

Answer: Unfortunately, so very, very many...  

Let's start at the top.  What Bob is doing is called a charity solicitation.  Any form of fundraising on behalf of a charity, be it an auction, a bake sale, a raffle, or just collecting donations, is considered a solicitation.  In the State of California (and in almost all states), a charity must first register with the state before they can solicit for donations. This is usually done through the state Attorney General's office.  Geek Fromage has almost certainly not registered with California as a charity, and therefore soliciting donations for the charity is illegal.

California is especially complex, because if the charity is a non-profit corporation (which almost all charities in the US are), they must first register as a foreign corporation with the California Secretary of State, and then register with the Attorney General.  Both cost money, by the way, although not a lot. Luckily, you have up until 30 days after you first start collecting funds to get all the paperwork in.

In addition, because Bob's charity has not gotten an exemption from the California State Board of Equalization, they are required to collect sales tax.  If they don't, they have broken another law.  They also are running a raffle, which also requires paperwork in Calfornia (and in most states), because it is a form of gambling.

The convention (which is not a charity) is keeping some of the money from a charity fundraiser.  This means that they are acting as a professional charity solicitor, and must (yes, you guessed it) register with the state.  The charity must also notify the state that they are using the services of a professional charity solicitor.  Since Geek Fromage isn't even registered as a charity, they can't do that.

But Bob isn't out of trouble yet.  In the eyes of the Federal Government (that would be the IRS), Bob just received $12,000 in personal income.  Because foreign charities are not tax-deductible, he can't offset the income with his donation to Geek Fromage.  This means that Bob will need to treat the $12,000 as normal income, and pay taxes on it.

 What's a Brony to Do?

The incredible charity of the Brony community is one of it's best features, and the last thing I'd want to do is to dissuade bronies from fundraising for charities. But there are a few simple guidelines that will keep you out of trouble while doing it.

1. Only fundraise for charities registered with the IRS as 501(c)3 tax-exempt charities.  You can check to see if your charity is registered here.
2. Make sure that the charity you select is registered in the state that you will be fundraising.  Usually, you can find this out via the state Attorney General's office.
3. If you are planning to run a raffle, research the laws regarding them in your state.
4. Keep auctions and other fundraisers for charity separate from ones for other purposes, to avoid the professional solicitation trap (no, not that type of soliciting...)
5. Understand that fundraisers for individuals or foreign charities are almost never tax-deductible.
6. Notify the charity that you will be fundraising on their behalf.  At a minimum, they may be able to send you pamphets about their organization.  In a worst case, it can avoid an embarassing situation if it turns out that it isn't appropriate for you to fundraise on their behalf, for some reason.

There are plenty of charities that you can fundraise for right in your local area.  Hospitals, food banks, homeless shelters, afterschool programs, etc.  But, if you're looking for something with more a brony flavor to it...

A Brief Commercial Announcement

If you want to run some kind of fundraiser, and want to be sure of avoiding problems, consider working with us.  We are a 501(c)3 tax-exempt public charity, and are in the process of registering in CA, MD and NY.  We are already registered in NH, and would be happy to register in any state that has a brony community that wants to run a charity fundraiser.  By default, we put money received towards our scholarship program, but the board is quite happy to take suggestions about alternative charitable causes.