- Nonprofit organizations that have obtained a designation as a 501(c)(3) tax-exempt organization from the Internal Revenue Service must follow certain rules listed in the IRS Code when raising money from individual donors. One of the incentives for American taxpayers to make charitable donations is that they can claim a deduction on their federal income tax for donations that support tax-exempt organizations. The organization has to acknowledge each donation of more than $250 according to Section 170(f)(81) of the IRS tax code. The acknowledgment must be in writing. During January, nonprofit organizations send their donors a 1099 form that gives the total of all of their gifts for the past calendar year. If a donation includes any "quid pro quo," the acknowledgment letter from the nonprofit organization must include a statement of the fair market value of any goods or services received, deducting that amount from the tax-deductible portion of the gift according to Section 6115 of the IRS tax code. If a donor stipulates how a gift is to be used, the nonprofit organization is legally obligated to honor that request if it chooses to accept the donation.
- Philanthropic grant-making foundations are also tax-exempt 501(c)(3) organizations. In return for their commitment to donate 5 percent of their annual assets to nonprofit charitable organizations, the government gives them some tax shelters. The grant-making organizations must list the amount of each grant awarded and its recipient on an IRS Form 990, which they must file annually. Otherwise, the grant-maker sets the rules according to which they fund grants. These rules often stipulate a deadline, preferred first approach and submission format for grant requests. Government grants and tax credits work in the same way. Each program or agency sets its own rules for requesting, receiving and following up on a grant. Usually these government programs have more detailed application and reporting requirements than private, corporate or family philanthropic grant-making organizations. A funded grant is like a contract between the grant-maker and the nonprofit recipient. Any monies not used in the specified ways must be returned to the funder.
- Fundraising events usually involve large efforts facilitated by nonprofit organizations to raise money as well as to acquaint the general public with the organization's mission and services. The same rules that govern individual donations and grants apply to nonprofit fundraising events. If the event is, for example, a formal dinner followed by a dance, a golf tournament or another event where the admission fee charged includes the cost of the meal, golf course fees or concert, that portion of the donation does not count towards the donor's tax deduction.
