Can a tax-exempt organization sell coupon books to raise money?
Summary:
Selling coupon books is not an exempt activity (regardless of how the funds are used) unless the books are somehow related to the organization's exempt purposes.
Answer:
Someone asked in soc.org.nonprofit:
When "free" coupon books are given to donors who make a minimum donation
to my organization, can't the full donation be deducted?
John H. Taylor replied:
The above is a totally false and misleading statement. I suggest you
review the applicable IRS regulations and publications, especially the
new IRS Publication 1771.
If a donor receives ANYTHING in exchange for a gift of $75 or more they
must be told what is the fair market value of the benefit they are
receiving and reduce their gift by a like amount to determine the net
charitable contribution.
Furthermore the IRS stipulates that by setting a minimum "donation"
amount at which point your coupon book would be given, you have, in
fact, established the FMV of the item and, therefore would disallow any
charitable deduction except for amount paid over and above this minimum
amount. This remains true even if the donor does not use all of the
coupons.
If you want further clarification on this I urge you to review paragraph
2004 of "Charitable Giving and Solicitation.
Roger McCrummen added:
[Any] statement that the income is non-taxable as long as it is
applied to the work of the organization is incorrect. The IRS test for
unrelated business income (which is taxed to the corporation) is not how
the funds are used, but whether the activity that generated the funds is
part of the organization's exempt (charitable) purposes or not.
Selling coupon books is not an exempt activity (regardless of how the
funds are used) unless the books are somehow related to the
organization's exempt purposes (e.g. if it is a theatre organization
with not for profit purposes to promote community productions, etc. and
the coupons are for discounts to local productions, etc.).
In addition, if the organization is liable for unrelated business income
tax (UBIT), it may deduct (as would any business) the expenses involved
in generating the income.
