The President and CEO of GuideStar laughed out loud when he heard about the recent Scripps Howard News Service statistics showing that tens of thousands of charities report that they spend $0 per year to each raise more than $1 million.
Every year nonprofits submit Forms 990 under penalties of perjury supposedly disclosing information regarding fundraising costs. But every year thousands of nonprofits fail to accurately report such sums.
This is probably because of outside pressure from donors who do not want to see their donations used for fundraising activities instead of the charitable activities of the organization. And because charities are required to make their returns easily accessible to the public, any reported expenses will definitely reach anyone who is interested.
The bottom line is that such practices are deceiving. We advise our clients to report their fundraising expenses accurately, especially because having no fundraising expenses may look suspicious to the IRS.
But it is unclear whether nonprofits that fail to report fundraising expenses will face any consequences. Fines on incomplete informational returns are rare and it is unlikely that the IRS would audit an organization based on this reason alone. So it is unlikely that bad reporting habits will change anytime soon.