The high percentage of charities filling IRS forms that report $0 in fundraising costs could make you believe that money is falling from trees. According to a recent Urban Institute study of tax returns for the years 1997 and 1998, nearly 35 percent of charities that receive between $500,000 to $1 million in private contributions reported no fundraising costs to the IRS. The study also showed that 28 percent of charities with contributions of $1 million to $5 million and 23 percent of charities with over $5 million in contributions reported spending nothing on fundraising. A study by The Chronicle of Philanthropy reported similar findings: Over 25 percent of the nearly 5,000 nonprofit organizations reporting private contributions of $500,000 or more reported no fundraising costs in their 1996 tax returns.
There are a few cases where a nonprofit legitimately could report no fundraising to the IRS. Examples include, if all fundraising was conducted by volunteers who did not receive reimbursement for out-of-pocket costs, or if an organization’s fundraising costs were reported separately by related entities on their own tax returns. Also, there would be no fundraising costs at charities where everyone gave contribution automatically without ever having to be asked, human nature being what it is we know how often this occurs.
Enlightened donors realize that charities who report zero fundraising costs are more likely to be advertising the poor quality of their financial reporting than their fundraising efficiency. AIP encourages donors to ask charities who report $0 fundraising costs to explain how they can raise money for free.