Nonprofit & Government Times Q1 2020

are no distribution requirements for the DAF, some of these donors may be accumulating quite a large amount of money, which can benefit nonprofits. Once the donor establishes a relationship with the nonprofit, those gifts will likely continue into the future. Another great feature is that the donor can remain anonymous. Therefore, the organization won’t be required to disclose the donation to the government agencies on its Schedule B – Schedule of Contributors that is filed with Form 990. In short, as DAFs are becoming more popular, nonprof- it organizations should consider tapping into that pool of funds. Various fundraising events can also generate discretion- ary funds for an organization. These events do not necessarily have to be costly galas. Marathon charity runs and birthday fundraising events are becoming more prevalent, especially among the younger genera- tion. Funds are raised through volunteers or friends and followers of charities who host events to benefit the organization. They are more effective if the organization has a good online presence, as described above, and can easily be found and supported. FUNDRAISING EVENTS

tax-exempt entity that is outside of its mission. UBTI prevents or limits tax-exempt entities from engaging in businesses that are unrelated to their primary purposes, but sometimes it is worth accepting some tax liability to create additional income streams for the organization. This decision should be reviewed with tax advisors before commencing such activity. OTHER SOURCES There are also more traditional sources of additional income, such as renting the nonprofit’s excess space to others or investing excess cash. Although invest- ments are more common, they depend on the charity’s appetite for risk. Some nonprofits prefer only very safe investments, whereas others are willing to accept more risk to generate a little more income. Every charity should feel comfortable with whatever decision they make, without jeopardizing any potential assets. Again, it’s important not to lose sight of potential tax consequences of these types of income streams. CONCLUSION A healthy combination of the above approaches—or at least a consideration of them—can prove to be financially beneficial for nonprofit organizations in these financially challenging times. Although the organization may not need to raise funds today, it should think about generating donations and attracting Board members and other constituents for tomorrow.

UBTI

Most charities try to avoid Unrelated Business Taxable Income (UBTI), i.e., income regularly generated by a

1. IRS Notice 2017-73

Magdalena M. Czerniawski, CPA, MBA , Tax Partner in the firm’s Nonprofit, Government & Healthcare Group, provides tax services to a wide array of nonprofits, including charitable organizations, social welfare organizations, professional associations and private foundations. She specializes in matters related to ASC 740-10 (FIN 48), the reporting requirements that govern contributions, compensation, unrelated business taxable income, lobbying costs and public support testing. Magdalena can be reached via email at mczerniawski@markspaneth.com or at 212.324.7026.

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