If a for-profit business collects donations on behalf of a charity, are the contributions tax deductible for the donors? If the business is acting as an agent for the charity, the donations may be tax deductible. The agent can also provide contemporaneous written documentation to donors to substantiate their income tax deductions. The agent should comply with guidelines to establish that it’s a true agency relationship.

Examples of Agent-charity Relationships

One illustration of an entity acting as an agent of a charity is a company soliciting voluntary donations from its employees through payroll deductions and passing the donations on. Another instance is that of a utility company allowing customers to pay additional amounts on their utility bills to be forwarded on to the charity.

IRS Guidelines to Agency Relationship

In a ruling involving a vehicle donation program, the IRS clarified characteristics that support a valid agency relationship:
•    The written agreement clearly established an agency relationship
•    The company was to act on the charity’s behalf and be subject to the charity’s control for certain activities, such as soliciting donations and accepting the donated property
•    The charity remained the equitable owner of the donated property until it was sold
•    The charity bore the risk of loss or damage to the donated property until it was sold
•    The charity had the right to inspect the agent’s financial statements for the donation program
•    The company agreed to provide accounting reports to the charity
The agent should determine if it’s considered a professional fundraiser under the applicable state law. The laws defining a professional fundraiser vary by state. Depending on the state, there may be additional registration and filing requirements for entities that are professional fundraisers.

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The general information provided in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation.