The fundraising rules and regulations for nonprofits sit on three layers: keeping your federal tax-exempt status through annual filings, giving donors the paperwork the IRS requires, and registering with each state where you ask residents for money. Layered on top are special rules for property gifts, unrelated business income, professional fundraisers, and games of chance. Miss the wrong deadline and you can lose exempt status without a hearing.
Federal Tax-Exempt Status Comes First
Before your organization can accept tax-deductible donations, the IRS has to recognize it as a 501(c)(3). That designation confirms you operate exclusively for charitable, religious, educational, scientific, or similar purposes and that no earnings benefit a private individual.1Internal Revenue Service. Exemption Requirements for 501(c)(3) Organizations It also bars substantial lobbying and any political campaign activity.
Get an Employer Identification Number first. Then file Form 1023, or Form 1023-EZ if your organization qualifies for the streamlined version. The IRS user fee is $600 for Form 1023 and $275 for Form 1023-EZ.2Internal Revenue Service. Form 1023 and 1023-EZ Amount of User Fee You will submit articles of incorporation, bylaws, and a narrative of planned activities. The full Form 1023 routinely takes several months to process.
Donor Receipts and Quid Pro Quo Disclosures
Your organization owes every donor of $250 or more a written acknowledgment. Without it, the donor cannot claim the deduction, even with a canceled check. The letter must include your name, the cash amount or a description of any property received (without a stated value), and a statement about whether you gave anything in return. If you did, include a good-faith estimate of its value.3Internal Revenue Service. Charitable Contributions Written Acknowledgments
A separate rule covers quid pro quo contributions, where a donor pays more than $75 and receives something of value in return. Gala tickets and merchandise are the common examples. Your organization must give the donor a written disclosure statement estimating the fair market value of what you provided, so the donor knows only the excess is deductible.4Internal Revenue Service. Charitable Contributions Quid Pro Quo Contributions A penalty applies to charities that skip the disclosure.
Rules for Non-Cash Donations
Property gifts create paperwork on both sides. When a donor contributes non-cash items worth more than $500, they file Form 8283 with their tax return.5Internal Revenue Service. About Form 8283, Noncash Charitable Contributions If the property exceeds $5,000 (and is not publicly traded stock or cash), the donor needs a qualified independent appraisal, and your organization signs a section of Form 8283 acknowledging receipt.6Internal Revenue Service. Charitable Organizations Substantiating Noncash Contributions
Your own obligation is ongoing. If you sell, exchange, or otherwise dispose of donated property within three years of receiving it, you must file Form 8282 to report the disposition to the IRS and the original donor.7Internal Revenue Service. About Form 8282, Donee Information Return This is what catches organizations off guard when they accept a car donation and auction it a month later. Build the reporting into your intake process.
Registering to Solicit in Each State
Federal tax-exempt status does not authorize nationwide fundraising. Roughly 40 states have charitable solicitation laws that require separate registration before you ask their residents for money.8Internal Revenue Service. Charitable Solicitation – Initial State Registration You do not need a physical office in a state to trigger the requirement. An email campaign, a website donation button, or a social media appeal reaching residents can be enough.
Initial registration typically means submitting your IRS determination letter, bylaws, and financial statements with a filing fee. After that, most states require annual or biennial renewals, generally through the Attorney General’s office or Secretary of State.9Internal Revenue Service. Charitable Solicitation – State Requirements Falling out of compliance can bring fines, cease-and-desist orders, or loss of the right to solicit in that state. Organizations that expand online often underestimate how fast they cross into new jurisdictions.
Annual Form 990 Filings
Every tax-exempt organization must file an annual information return with the IRS unless a specific exception applies. Which version depends on your financial size: Form 990-N for organizations with gross receipts normally $50,000 or less; Form 990-EZ for those under $200,000 in gross receipts and $500,000 in assets; the full Form 990 above those thresholds; and Form 990-PF for all private foundations regardless of size.10Internal Revenue Service. Form 990 Series Which Forms Do Exempt Organizations File Filing Phase In
The Form 990 is more than a tax return. It reports on your governance, program activities, officer compensation, and how much you spent on programs versus fundraising and administration. Federal regulations require these returns to be available for public inspection for three years from the filing due date or the actual filing date, whichever is later.11eCFR. 26 CFR 301.6104(d)-1 – Public Inspection and Distribution of Applications for Tax Exemption and Annual Information Returns of Tax-Exempt Organizations Anyone can request a copy, and most sit in third-party online databases.
One protection: most 501(c)(3) organizations do not have to disclose donor names or addresses in the publicly available portion of the Form 990. Schedule B, which carries that contributor information to the IRS, is excluded from public disclosure. Private foundations and political organizations do not get that protection.12Internal Revenue Service. Public Disclosure and Availability of Exempt Organizations Returns and Applications – Contributors Identities Not Subject to Disclosure
Three Missed Years Ends Your Exempt Status
This is where small organizations get into serious trouble. If your nonprofit fails to file its required Form 990 (or Form 990-N) for three consecutive years, the IRS automatically revokes your tax-exempt status. No hearing, no appeal. Revocation takes effect on the filing due date of that third missed return.13Internal Revenue Service. Automatic Revocation of Exemption The IRS sends a warning after two missed years, but organizations that have moved or lost track of their filing obligations often never see it.14Office of the Law Revision Counsel. 26 USC 6033 – Returns by Exempt Organizations
Reinstatement means filing a new application and paying the fee again, regardless of whether your organization originally had to apply. If you can show reasonable cause for the missed filings, the IRS has discretion to reinstate retroactively, but that is far from guaranteed. Calendar the filing deadline and treat it like rent.
Keeping Public Charity Status
Earning 501(c)(3) status is not the end of the classification question. Within that category, the IRS separates public charities from private foundations, and the distinction matters. Private foundations face stricter rules on self-dealing, minimum distributions, and investment income taxes. Most organizations want public charity status, which generally requires receiving at least one-third of total support from the general public, government grants, or a combination.15Internal Revenue Service. Form 990, Schedules A and B Public Charity Support Test
Organizations below the one-third threshold may still qualify under a facts-and-circumstances test if at least 10% of support comes from public sources and they can show a broad fundraising program. Failing both tests can lead the IRS to reclassify you as a private foundation, which triggers an entirely different compliance regime. You report the public support calculation on Schedule A of the Form 990.
When Nonprofit Revenue Is Still Taxable
Tax-exempt status does not mean every dollar of revenue escapes tax. Income your organization regularly earns from a trade or business unrelated to its exempt purpose is subject to unrelated business income tax. The classic example is a charity that runs a commercial parking lot or a retail operation unconnected to its mission.
Federal law provides a specific deduction of $1,000 against unrelated business taxable income.16Office of the Law Revision Counsel. 26 USC 512 – Unrelated Business Taxable Income Once gross income from unrelated business activity reaches $1,000, you must file Form 990-T to report and pay any tax owed.17Internal Revenue Service. About Form 990-T, Exempt Organization Business Income Tax Return Skipping this filing does more than create back taxes and penalties. Persistent failures give the IRS grounds to question whether your organization truly operates for exempt purposes.
Hiring a Professional Fundraiser
Bringing in a third-party fundraiser adds a separate layer of regulation. Most states require a written contract between the charity and the fundraiser laying out services, compensation, and the financial terms for both sides. Many states require that contract to be filed with the state regulator before solicitation begins.
The Federal Trade Commission recommends the contract cover the compensation structure (flat fee, percentage, or both), require the fundraiser to use only materials your organization has approved, specify reporting obligations throughout the campaign, and include cancellation terms for both sides.18Federal Trade Commission. Raising Funds? What You Should Know About Hiring a Professional Professional fundraisers themselves generally must register separately in each state where they solicit and often post a surety bond.
State laws commonly require paid solicitors to tell potential donors that a paid professional is doing the asking and to identify the charity on whose behalf they call. Some states go further and require disclosure of the percentage of each donation kept as compensation.
Raffles, Bingo, and Other Gaming
Raffles, bingo nights, casino events, and similar games of chance are among the most heavily regulated fundraising activities. State and local governments treat these as gaming, which means your organization typically needs a special license or permit beyond any charitable solicitation registration you already hold. Permits come with restrictions on prize values, how often you can hold events, and who can participate or operate the games. Rules vary widely. Check with your state before printing raffle tickets.
At the federal level, income from regular gaming can trigger unrelated business income tax unless a specific exception applies. The most common exception covers games conducted entirely by unpaid volunteers. If your bingo night is volunteer-staffed and does not compete with commercial operations, the proceeds may be exempt from UBIT.
Prize Reporting and Withholding
Prize winners create tax-reporting duties for your organization. For 2026, the reporting threshold on Form W-2G is $2,000 due to inflation adjustments, up from $600 in prior years.19Internal Revenue Service. Instructions for Forms W-2G and 5754 (Rev. January 2026) When prizes exceed $5,000 (minus the wager amount), your organization must withhold federal income tax at 24%.20Internal Revenue Service. Instructions for Forms W-2G and 5754
One point that trips up both donors and nonprofits: buying a raffle ticket is not a tax-deductible charitable contribution. Because the buyer receives a chance to win a prize in exchange for payment, the IRS treats the transaction as a purchase rather than a gift.21Internal Revenue Service. Revenue Ruling 67-246 Say so in your promotional materials, so donors do not assume every dollar spent at a fundraising event qualifies for a deduction.