Every year there are stories in the press about running events and questionable practices when it comes to charity partners and charitable donations. This is unfortunate for the sport, as there is a false perception by the general public that events must donate to charities.
At the core, the purpose of a race is to be just that – a race. A race is designed to empower all people to participate in the sport of running in pursuit of enjoyment, health, well-being and competition. Over time the sport of running has grown into an amazing fundraising and marketing network for charities. However, donating a portion of race registration fees to a local charity it is not required by tax laws. That noted, a permit may outline that a race host must be a nonprofit organization or that a portion of race proceeds must support a local charity in return for using a community’s public assets (roads).
To better understand managing charity relations, event organizers and runners must first understand that there are two different business structures an event may be organized under: nonprofit or for-profit.
The designation of a race as a nonprofit has nothing to do with the contributions made to local charities by the race. Learn more about the business organization for nonprofit events >>
Events organized by nonprofits are entitled to retain net profits, compensate staff, engage volunteers, and hire contractors, to ensure a safe and enjoyable event for all. However, all nonprofit events share a commonality: they have an independent, volunteer board of directors that does not profit personally from the event.
Runners should understand that events organized by a nonprofit entity can simply keep the proceeds of a race as net assets to help with next year’s race, to invest in their own running programs, or to provide scholarship or donations to other nonprofit organizations. However, if a nonprofit event outlines charity partners, it is reasonable to expect the event to be transparent about its giving practices.
Events without the official 501c3 designation are typically organized as for-profit LLCs or sole-proprietor entities. Learn more about the business organization of for-profit events >>
Individual seeking to put on a race and donate all of the proceeds to a charity are not a nonprofit organization. Giving money to charity does not make an event a nonprofit. These events usually are for-profit/sole-proprietor events, and their gross receipts may be subject to income tax regardless if they donate all net proceeds to charity.
Runners should understand that events organized by a for-profit entity can simply keep the proceeds of a race as income or as net assets to help with next year’s race. However, if the event management company outlines charity partners for a race, it is reasonable to expect the event to be transparent in its giving to charity partners.
Tips for Working with Charity Partners
- First ask, are you hosting an event on behalf of the charity, or are you selecting charities that will be beneficiaries from race proceeds?
- If you are hosting an event on behalf of a charity, closely review the Covered Activities Under General Liability Insurance to verify if you own the event or if the event must obtain its own insurance coverage.
- If you are selecting charities that will be beneficiaries from race proceeds, follow your organization’s giving policy. See Giving Policy recommendations.
- Go Fund Me efforts, where an individual is a beneficiary, should be very carefully examined before an event donates to that type of effort, especially when disaster relief is involved.
- Get pre-approval from charity partners before raising money in their name. Charity partners are usually happy to be a beneficiary from an event. However, organizers should NEVER capitalize on a charity partner’s name, trademark, or good will, without express written permission in advance of the event.
- Ask to see the financial statements or tax returns from charity partners before agreeing to work raise money on their behalf. Review the program to administrative cost ratio on the IRS 990 form to determine whether your charity partner has an administrative cost ratio within the acceptable limits (exceeding 35-40% is considered excessive by charity watchdog groups).
- Ask the charity how the funds you collect, or any race entries they sell on their behalf, will be spent by the charity. Will your contribution from race proceeds, or collected contributions from participants, be a restricted gift from the race, or will it be used to cover administrative expenses? Answers these questions before money changes hands, so all parties have clear expectations.
- If your event is donating a portion of your net profits to a charity, it is appropriate to restrict the use of your contribution to a specific program as opposed to allowing the charity to use the funds for administration expenses. You simply need to include a letter of instruction with the contribution restricting the gift for a specific program.
- Have a clear understanding of the expectations with your charity partner(s). Some event organizers (for-profit) find they get better treatment and support during the permitting process if they are partnered with a local charity.
- If donations to a charity partner are dependent on certain deliverables, such as volunteers recruited to staff the event, be clear that you are making a contribution to their organization and not paying the organization to staff you event.
- Selling an allotment of race entries to a charity, that they can then sell at a higher rate to their donors/supporters, is a not a donation to the charity. Giving an allotment of race entries has the value of the cost of those entries, from a donation standpoint.
- A donor agreement letter between a charity partner and the event can go a long way towards clarifying expectations for both parties. Be clear with charity partners that the event will retain a portion of its profits to ensure operating funds for the coming year.
- If you serve as a fiscal agent for a charity – directly collecting donations to be passed through to the charity – you will need to develop a procedure for transparent handling of these funds. Only nonprofit organizations should operate as a fiscal agent for another nonprofit. The RRCA recommends instead of serving as a fiscal agent, you encourage people to give directly to the local charity by providing a link for online giving.
- If “contributions” are paid directly to the bank account of a for-profit event during registration, these “contributions” are NOT tax deductible for the donor, as they went to a for-profit entity. For-profit race directors that co-mingle “contributions” in their bank accounts are subject to income tax on those funds.
- For-profit events should work with their registration provider to properly set-up giving options for the registration page that do not have donations flowing through a for-profit organization’s bank accounts. For example, RunSignUp allows for charity partner donations collected via the registration page to go directly to the charity by mail or an EFT.
- If donations for a charity partner, above and beyond race registrations, are collected by a nonprofit event, but earmarked for the charity partner, at a minimum, a separate account code should be created in an accounting system for these contributions allowing for easy pass thru of the funds to charity partners post-race.
- Ensure 100% of the funds collected for a charity partner are donated to the charity partner. Donations collected on behalf of a charity partner from participants by the event should never be used to cover operating expenses for the event.
- Clearly outline with your charity partner who will acknowledge donations from participants in accordance with IRS requirements for gifts over $250. If the event is a nonprofit organization collecting the donations into their account before forwarding them to an charity, it the event organization that is responsible for acknowledging the gifts.
- If the event agrees that ALL net proceeds go XYZ local charity, then 100% of the net proceeds should go to the charity after all expenses are paid. Expenses may include an allocation to a reserve fund for next year’s race.
- You may elect to say a certain percentage of the net proceeds or race registration fees will go to the charity. It is more transparent to outline a dollar amount of race registration fees that will go to charity. For example, from a $50 registration fee, $25 may be earmarked as a donation to charity partners.
- For first-time events, clearly outline to your charity partner that the event may simply break even. Help set a realistic expectation that a first-time event should be viewed as an awareness raising opportunity rather than a big dollar fundraising event.
- All nonprofit organizations, even those receiving their status through the RRCA, should review their state requirements for filing as a charity in their state, especially if you are fundraising online and via email.
- Review state requirements for conducting an independent audit. Many states require copies of audited financial statements be filed with the appropriate state entity for organizations with gross revenues over a certain level.
- Any nonprofit organization that receives money from a local, state or federal government entity should conduct an annual independent audit and make that audit available upon requests, as required by the IRS (www.IRS.gov).
- Honestly promote your charity partner relationships to your event participants. Avoid a vague statement, such as “race proceeds will benefit local charities.” That statement is too ambiguous and may mislead donors/participants.
- It is important be transparent about charity partner relationships and giving plans in marketing messages to participants.
- If you do not believe your race will make a profit, it may be better to be silent on donation plans. Post-race donation information can be handled as part of a thank you message to participants.
- Be clear in your communications to participants how money will be collected and distributed to local charities. For example, outline to participants that their registration fee includes a $25 donation to charity partners and allow them to give more as desired (if that is your how to plan to raise/donate to charity partners).
- Be clear with participants if their race registration fee does not include a donation to a charity partner but outline how they can give directly to a charity partner or provide a donation option during the final payment process for registration.
- Outline if your charity partners have race entries that can be purchased with a donation to that organization.