Can you compensate an individual for reffering someone else to donate to your non profit organization?

1 Answer

  • 9 years ago
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    Legally, probably. Ethically, no, probably not. The donor would probably not like it, either, unless they were related, like father and son. Then it might be a way for the father to get his son money.

    So, let's say that the son comes to you and says he can get his father to donate a large gift, perhaps a million dollars. You say "Wow, that's great." The son says he wants 20% of the money. If you do it, you've just helped the father give $200,000 to his kid without paying gift taxes on it. Then, the son pays income taxes on it but still keeps more than $100,000. In the meantime, the father gets a tax deduction on the total, as if it all went to a nonprofit, so he ends up avoiding $500,000 in taxes, and giving his son money. Again, it would probably be legal so long as you had a contract and it was all transparent, but you've just helped a family avoid taxes.

    Compensating someone to refer donors always sounds like a good idea when it's small amounts of money, but then it turns out to be terrible for the organization if it actually works, because you end up paying someone hundreds of thousands of dollars when you could have gotten a professional fundraiser for a lot lower salary. Also, in my experience, it never leads to donors who stay with you as an organization, so it's not a stable source of revenue. Further, the people who suggest this always promise more than they deliver. You count on them and they don't come through.

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