[AffiliateWarrior]

I have a friend and former client that has launched a website for a non profit group. He'd like to see shoppers and members upport his organization through affiliate shopping. His non profit status application recently was kicked back at him because they said the affiliate revenue constituted a "co op" in their mind.

Are there currently non profits who do fundraising through affiliate shopping that can share how they handled the legalities of their non profit status application with an affiliate marketing fund-raising model?

[chrischen]

I started my nonprofit site ShopWisely.org a while back. I haven't applied for federal 501(c)(3) status yet but I have lawyers working on the application right now.

Was your friend rejected from 501(c)(3) status? If so that's gonna be a problem for me too.

It seems to me you should be able to treat the affiliate revenue as a donation to your nonprofit organization. I know sites like iGive.com allow you to get a tax-deduction for the "donations" you generate.

[AffiliateWarrior]

I would think so as well. Maybe the issue is that you are encouraging commercial activity.

[chrischen]

Would the tax-deduction for donating offset the taxes incurred as income?

[bibby]

I'm not sure if this is correct but I would think you were rejected because you are sponsoring commercial activity through your affiliate links. Your customers are not donating directly to you but are going to a for profit site that pays you a commission (None of taht activity would be considered a donation but regular income).
That's my take.

[Haiko de Poel, Jr.]

I started my nonprofit site ShopWisely.org a while back. I haven't applied for federal 501(c)(3) status yet but I have lawyers working on the application right now.


But on the site it specifically says you are a 501(c)(3) ... talk about starting off right.

[chrischen]

Yea, I called the IRS. They said I can claim that, but I cannot say "registered." What I have there implies that I fit the guidelines for a 501(c)(3). Of course I'm just finding out now that this may be a problem. I'll be talking to my lawyers this Friday and I'll let you know how this works out.

[La_Valette]

I'd be curious to see what your lawyers tell you. Keep us posted. It seems to me that 501c3s should be allowed to post affiliate ads on their websites, especially if these ads are clearly identified as generating commissions which will go towards helping the nonprofit organization in question. Why would that be different than just donating money to the nonprofit directly?

[La_Valette]

His non profit status application recently was kicked back at him

Do you mean the IRS? Did they reject a 501c3 application just because of posting affiliate ads on the non-profit website?

[chrischen]

I talked to them today and they they need to do more research. However they told me that a nonprofit who's primary purpose is to receive and distribute money to other nonprofits would qualify.

[Mr_C]

Up here in Canada, which usually has laws similar to US laws, non-profits can earn profits through things like online stores. Non-profits are usually corporations and corporations are answerable to a board and have similar reporting requirements to regular corporations such as requiring a yearly independent financial audit, etc.

Tax reporting requirements are more stringent than for ordinary companies or corporations. The slightest infraction, like being late with your annual return, means an automatic suspension of your status.

The profits made by nonprofits must go towards providing services in line with the stated mission of the organization, which is part of your articles of incorporation. I think the rule is 75% of the profits must be used for this purpose. I wouldn't be surprised if this were also true for US nonprofits. There are a heckuva lot of rules about how you can use the money, especially if you do any political activism.

There are also rules about how much employees can earn. I think you can't really be an "owner" of a nonprofit - there must be an elected board, treasurer, etc.

Of course, I'm not a lawyer...that's just what I know off the top of my head.

[chrischen]

Yea that's pretty much it here in the US too. However I think the issue here might be, as AffiliateWarrior previously stated, that the nonprofit serves no other purpose than to promote commercial activity. But if I can be sure that I'll be rejected that would help me save a few hundred dollars in the application fee at least.