To legally accept donations in the United States, you generally need to do three things: choose a legal structure for receiving the money, get recognized by the IRS if you want donors to claim a tax deduction, and register in each state where you plan to solicit. On top of that, federal and state rules require ongoing receipts, disclosures, and annual filings once the money starts coming in. Skipping any of these steps can cost you your tax-exempt status, trigger penalties against the organization and its leaders, or make donors unwilling to give.
Pick How You’ll Receive the Money
Your first decision is structural, and it drives almost everything that follows: whether donors can deduct their gifts, how much paperwork you’ll handle, and which regulators oversee your fundraising.
Fundraising as an Individual
You can ask for and receive money without forming any organization. The tradeoff is that donors cannot claim a tax deduction for giving to a person, which limits your reach with larger donors and grantmakers. The IRS generally treats personal crowdfunding contributions as nontaxable gifts to the recipient, provided the contributors gave out of generosity and did not receive anything in return.1Internal Revenue Service. IRS Reminds Taxpayers of Important Tax Guidelines Involving Contributions and Distributions From Online Crowdfunding If the platform issues a Form 1099-K, you still have to account for it on your return even if the money is not taxable. Keep records of what you received and how you spent it for at least three years.
Fiscal Sponsorship
Fiscal sponsorship lets a new project operate under the tax-exempt umbrella of an existing 501(c)(3). Donors give to the sponsor, contributions are tax-deductible, and the sponsor retains control over the funds and responsibility for their charitable use. This is a fast way to start accepting deductible gifts without waiting months for your own IRS determination. The sponsor typically charges an administrative fee and has final say over how the money is spent.
Forming Your Own 501(c)(3)
The most formal path is creating an organization recognized as tax-exempt under Section 501(c)(3) of the Internal Revenue Code, which covers entities organized for religious, charitable, scientific, literary, or educational purposes, among others.2Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. Once approved, donors can deduct their contributions on their income tax returns under Section 170.3Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts To qualify, you have to show that the organization serves a public interest and that no insider profits from its earnings.
Getting IRS Recognition as a 501(c)(3)
Before filing anything with the IRS, form the entity under your state’s nonprofit corporation law. Then apply for an Employer Identification Number, which is the entity’s tax ID. The IRS warns against applying for an EIN before the organization is legally formed, because the three-year filing clock starts as soon as you have one.4Internal Revenue Service. Obtaining an Employer Identification Number for an Exempt Organization
Form 1023 vs. Form 1023-EZ
The standard application for 501(c)(3) recognition is Form 1023. It asks for a detailed narrative of your activities, your organizing documents, financial data, and a conflict of interest policy.5Internal Revenue Service. About Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code The IRS encourages that policy as a safeguard against accusations of impropriety by officers and directors, with procedures for disclosing conflicts and recusing affected people from votes.6Internal Revenue Service. Form 1023 – Purpose of Conflict of Interest Policy
Smaller organizations may qualify for the streamlined Form 1023-EZ. You are eligible if projected annual gross receipts will not exceed $50,000 in any of the next three years and have not exceeded that amount in any of the past three years.7Internal Revenue Service. Instructions for Form 1023-EZ (Rev. January 2025) An eligibility worksheet in the instructions tells you whether you can use it.
Fees and Timing
Both forms are filed electronically through Pay.gov. The user fee is $600 for Form 1023 and $275 for Form 1023-EZ.8Internal Revenue Service. Form 1023 and 1023-EZ – Amount of User Fee Timing is very different: the IRS issues 80% of Form 1023-EZ determinations within 22 days, while 80% of full Form 1023 determinations take up to 191 days.9Internal Revenue Service. Where’s My Application for Tax-Exempt Status? Applications flagged for further review take longer. If yours is denied, the IRS sends a letter explaining what to fix before you resubmit.
Registering With the States Where You’ll Solicit
Federal tax-exempt status does not, by itself, give you permission to fundraise anywhere. Roughly 40 states require charitable organizations to register before soliciting donations from their residents.10Internal Revenue Service. Charitable Solicitation – State Requirements Each state has its own application, fees, and renewal schedule. Common requirements include financial projections, bylaws and articles of incorporation, a list of officers and directors, and designation of a registered agent to receive legal documents.
Fees range from as little as $25 to several hundred dollars, often scaling with expected revenue. State processing is generally faster than the federal application, sometimes just a few weeks. A Unified Registration Statement can consolidate filings in the states that accept it, though not every state does. Check with the National Association of State Charity Officials for the specific rules where you plan to solicit.
Accepting Donations Through Your Website
If you take donations online, you may trigger registration in states you have never physically entered. Guidelines adopted by many state regulators say a state can require registration if your website specifically targets its residents or receives contributions from them on a repeated and ongoing basis. A few states go further, asserting jurisdiction if a single resident is even able to donate through the site. Multi-state compliance gets expensive quickly, and growing organizations often hire a compliance service to track registrations across dozens of jurisdictions.
Giving Donors the Right Receipt
Once donations start coming in, federal rules require a written acknowledgment for any single contribution of $250 or more. The acknowledgment must include the organization’s name, the amount of the cash contribution, and a statement about whether you provided any goods or services in return.11Internal Revenue Service. Charitable Contributions – Written Acknowledgments If you did, you need a good-faith estimate of its value. Without this receipt, the donor cannot claim a deduction.
A separate rule covers what the IRS calls quid pro quo contributions over $75. When a donor pays more than $75 and receives something in return, you have to provide a written disclosure stating how much of the payment is deductible and estimating the fair market value of what the donor received.12Internal Revenue Service. Charitable Organizations – Substantiation and Disclosure Requirements A common example: a $200 fundraising dinner ticket where the meal is worth $50. Your disclosure tells the donor that only $150 is deductible.
Filing Every Year to Keep Your Status
Tax-exempt organizations file annually with the IRS. Which form depends on size:
- Form 990-N (e-Postcard) for organizations with gross receipts normally at or below $50,000.13Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard)
- Form 990-EZ for organizations with gross receipts under $200,000 and total assets under $500,000.14Internal Revenue Service. Form 990 Series – Which Forms Do Exempt Organizations File
- Form 990 for organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more.14Internal Revenue Service. Form 990 Series – Which Forms Do Exempt Organizations File
Form 990 is a public document reporting income, expenses, program activities, and compensation paid to officers and key employees.15Internal Revenue Service. Exempt Organization Annual Filing Requirements Overview Experienced donors routinely review these returns before giving.
Miss three consecutive years of required returns and the organization automatically loses its tax-exempt status, effective on the due date of the third missed return.13Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard) Reinstatement means starting the application process over. Even a single late filing carries a penalty of $20 per day, up to $10,000 or 5% of gross receipts, whichever is smaller. Organizations with annual gross receipts over $1 million face $100 per day, up to $50,000.16Office of the Law Revision Counsel. 26 USC 6652 – Failure to File Certain Information Returns, Registration Statements, Etc.
Most states impose their own annual reporting requirements on registered charities, often asking for a breakdown of fundraising costs versus program spending. The information usually mirrors what’s already on Form 990.
Federal law also requires you to make certain documents available on request: your original exemption application, supporting documents filed with the IRS, and your three most recent annual returns.17Internal Revenue Service. Public Disclosure and Availability of Exempt Organizations Returns and Applications – Documents Subject to Public Disclosure Organizations other than private foundations do not have to disclose donor names and addresses. You can satisfy the requirement by posting the documents on your website or by providing copies within 30 days of a written request.
Rules That Can Cost You the Status
Accepting tax-deductible donations comes with limits on how you can operate. Section 501(c)(3) organizations are absolutely prohibited from participating in any political campaign for or against a candidate for public office. That includes contributions to candidates, public endorsements, and distributing statements favoring or opposing them. Violations can result in revocation and excise taxes.18Internal Revenue Service. Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations
Lobbying is treated differently. A 501(c)(3) can lobby to some extent, but it cannot be a substantial part of the organization’s activities. The IRS looks at both time and money devoted to lobbying relative to overall operations. An organization that loses its exemption for excessive lobbying faces an excise tax equal to 5% of its lobbying expenditures for that year, and the same 5% can be imposed personally on managers who approved the spending.19Internal Revenue Service. Measuring Lobbying – Substantial Part Test Because “substantial” is vague, some organizations elect into a more precise expenditure test under Section 501(h) that sets clear dollar limits.
Federal law also imposes steep excise taxes on excess benefit transactions, the IRS term for sweetheart deals between an organization and its insiders. A disqualified person who receives an excess benefit pays a tax equal to 25% of the excess amount. If the transaction is not corrected within the allowed period, an additional tax of 200% applies.20Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions Managers who knowingly participate face their own 10% tax, capped at $20,000 per transaction.21Internal Revenue Service. Intermediate Sanctions – Excise Taxes
At the state level, soliciting donations without proper registration can trigger civil fines that vary widely, sometimes several thousand dollars per violation, with repeat or willful violations escalating to criminal charges. Fraudulent solicitation, where money is collected under false pretenses, can lead to federal charges including mail fraud and tax evasion, each carrying up to five years in prison.
Keeping Registrations Current
Registration is not a one-time event. Federal exempt status continues only as long as you meet your annual filing obligations and operate within the limits of Section 501(c)(3). State charitable solicitation registrations typically require annual renewal, with updated financial data and a new fee. Missing a state renewal can suspend your authority to fundraise in that state even while your federal status is fully intact.
The organizations that get into trouble tend to be the ones that treated registration as a startup task and forgot the ongoing requirements. Set calendar reminders for every filing deadline, build donor acknowledgments into your donation workflow, and put one person in charge of compliance. Those three habits are what keep a legal fundraising operation running.