As the brony herd grows, so does the money floating around inside it. That means more money for vendors, more money for special projects, and more money that is given to charities. Unfortunatelty, it also is blood in the water, and will inevitably attract sharks.
One place where that could be especially problematic is for charity causes. Part of the problem is that the average person doesn't understand the various types of charities that exist, and the tax and legal implications that go along with them. That's something I'd like to address briefly here today.
First off, some caveats: I am not a lawyer, nor a tax accountant. The Fund *does* have a lawyer who advises us on our Federal tax status, but you should assume that nothing written here represents his opinions or thoughts in any way. If you have questions regarding personal finance or setting up a charity, please consult a professional.
Secondly, I want to make it clear that as far as I know, the existing Brony charities out there, regardless of their official status, are being run under good intentions and by honest people.
What I'd like to do today is break down the various types of charitable causes, and how they operate. It's really important to understand the differences between them, especially since PayPal, KickStarter, IndieGoGo and the like have made it extremely easy to run widespread fundraising. One important factor that probably isn't a issue for most bronies is tax-deductability, since in my experience most bronies don't make a lot of money, and thus don't file a Federal Schedule A, which is where you write off donations against your taxes.
- Personal Appeals: A personal appeal is when someone starts a fund for a sick kid, or to fund an art project, or anything else where the proceeds benefit a single individual or small group. Personal appeals are never tax-deductible (it's written right into the Federal tax laws.) The person(s) receiving the funds have to declare the money received as personal income, and pay taxes on it. That means that if you give $100, $10-20 of that money may end up going to the Federal and state governments instead. Personal appeals are also the easiest to run as scams, because all you have is the word of the person receiving the money that they are actually putting it toward the cause they advertised, and history is rife with examples of it going for vacations and such instead. On the other hand, it may be the only way that the family of a sick child can avoid bankrupcy.
- "Checkbook Charities": A checkbook charity is where someone collects money for a valid, tax-exempt charity, and then makes a large donation. This allows a large combined donation to be made in the name of "The Bronies", for example, rather than a lot of small personal donations. There are a few problems with them, however. Firstly, the money donated is going directly to the person collecting the funds, so it is not tax deductible, and the person *should* declare it as personal income, although many don't. If they collect through PayPal, they can get into hot water pretty quickly, especially if they collect a lot of money. PayPal is now issuing 1099-MISC statements (which forces you to declare the money as income) to anyone collecting more than $20,000 in more than 200 separate transactions, and requiring mucho paperwork from anyone claiming to be non-profit. Also, just as with a personal appeal, you only have the word of the person running the appeal that they are actually giving the money to whom they say they are.
- Non-Profit Corporation: A non-profit has gone to the trouble of registering in a state as a non-profit, created a board of directors, and is responsible for filing certain financial disclosures, although the nature and frequency of them varies from state to state. Nothing about being a non-profit requires a corporation to donate money to charity; museums and social organizations are usually non-profits, for example. It also does not make them tax-deductible or tax-exempt, they may end up having to pay taxes to either the state or federal government. They are also free, as is any corporation, to pay salaries and reimburse expenses to the people who work for them.
- 501(c)(3): This is the big Kahuna, the magic designation that lets an organization avoid paying Federal (and usually state) taxes on money they take in, and offer tax-deductibility to donors. It is a major process to receive your 501(c)(3) status, involving an application fee of between $400-850, a 23 page application form with supporting documents, and usually the aid of a lawyer. It also can take between 4 and 12 months to receive, once you apply. A 501(c)(3) is required to fill out a yearly form 990, which details exactly how much money it took in, and where it went, and that information is available to anyone online. It still doesn't make an organization a charity, however. There are lots of clubs, cultural societies, and the like, that have received a 501(c)(3) status. For example, the New England Science Fiction Association has had 501(c)(3) for decades.
- 501(c)(3) organized for charity: This is what most people think of when they think of charities. A 501(c)(3) organized for charity has as it's main purpose collecting funds and distributing them for charitable purposes. There are significant restrictions on who they may give out funds to, and they are required to maintain a conflict-of-interest policy to make sure that no one working for the charity is benefiting from the distribution of funds.
At the moment, the Brony Thank You Fund is a registered NH non-profit corporation, and we have applied for our 501(c)(3) designation. We hope to get our initial determination from the IRS around September.
Regardless of which form of charity you give to, the important thing is to make sure the money is going where you think it is. That is why we encourage all Brony charities to maintain a policy of full transparency. For our part, we regularly publish our balance sheet and profit vs loss statement. We hope that other fundraising efforts do the same. We also strongly recommend that Bronies donating funds do the basic research to understand whom they are donating to, and what safeguards exist to prevent fradulent use of the funds.
The Herd has made huge strides in helping small and large charitable efforts to succeed. As we continue to grow, we need to make sure that the amazing generousity of Bronies isn't abused.