Can our group hold fundraisers?

Yes.  Really, you can do anything you want.  The question is, should you?

I had a parent of a scout-like troop ask if the group should become a nonprofit in order to hold fundraisers.  The answer depends upon who the group will benefit, what does the group want to offer donors, among other considerations.

  1. A nonprofit is a state-formed entity.  To gain tax-exempt status (group does not pay certain taxes such as federal income tax; donors can take a deduction for donation on their taxes), the nonprofit needs to file for exemption with the IRS.  The typical status you see is a 501(c)(3) charity.
  2. A tax-exempt nonprofit can only be formed to benefit the public (generally).  For example, such an organization can be formed to fight childhood cancer, but cannot be formed to fund just Timmy’s cancer treatments and medical bills, even if you give away any “leftover” funds.
  3. Anyone can fundraise (note that your state’s Attorney General will want to know if you fundraise, likely regardless of whether or not you are a nonprofit, or tax exempt).  The issue is what is offered to a donor.  “Donations are tax deductible” can be offered only if you have tax-exempt status.  You could hold a spaghetti dinner to benefit Timmy above, but if you are not tax exempt, you cannot say to donors that their donations are tax deductible.
  4. Becoming a tax exempt nonprofit is not something to consider unless you are ready to essentially run a business.  You must first incorporate with your state, then apply for tax exempt status with the IRS.  In Ohio, a nonprofit must have a minimum of 3 board of directors, must file articles of incorporation, should have organization bylaws, hold regular meetings and keep corporate minutes.  A nonprofit is a corporate entity (C-corp, LLC, etc.), and by applying for tax-exempt status with the IRS, you are asking the federal government to exempt your corporation from paying certain taxes.

For smaller groups who still want to become tax exempt, the IRS has shortened their application by introducing the form 1023EZ a couple of years ago, see http://www.irs.gov.  For information on forming nonprofit organizations in Ohio, see http://www.sos.state.oh.us/sos/upload/publications/busserv/Nonprofit.pdf.  Also, read what the Ohio Attorney General has to say about nonprofits:  http://www.ohioattorneygeneral.gov/Business/Services-for-Charities.