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Is Your Nonprofit Hosting an Auction? Here’s What You Need to Know- Part 1

September 09, 2021

Hosting an auction and unsure of all your compliance requirements? We’ve got you covered.

Hosting a charitable auction is a great way to raise money for your organization…but there are compliance requirements that can be difficult to juggle. In part one of our auction series, we dive into the ins and outs of hosting a charitable auction.

What types of auctions can you host?

Online- Online or virtual auctions are popular today, especially given the ongoing pandemic. Online auctions are hosted through a dedicated website and item catalog, allowing users to bid for products and services online.

Live- During live auctions, an auctioneer manages the bidding process, where participants place bids on items by raising paddles or shouting.

Silent- Silent auctions allow participants to bid on items by writing amounts on paper bid sheets or through a mobile app.

Things to consider before the auction

Charitable solicitation registration- If you use a commercial fundraiser/company or purchase items from auction companies, you will need to make sure they are registered with your state’s attorney general’s office before the auction, through a charitable solicitation registration requirement. On the contrary, if your organization is hosting the auction itself, you will most likely not need to register.

Alcohol license- Selling alcohol at the event? You will need a license from the Department of Alcohol and Beverage Control.

Auction donation acceptance policy- It is a good idea to state what kind of donations you can and cannot accept by adopting a written acceptance policy. Things that you might prohibit could be vehicles, live animals, items with significant handling costs, etc.

Risk considerations- Ensure that the facility where you’re hosting the event is accessible for persons of all ages and abilities.

Insurance- Make sure you have the appropriate coverage and premium in place, especially if you are serving alcohol at the event.

What documents do you need to give donors?

Donors must receive a letter or receipt for any contribution of $250 or more (cash or non-cash). Donors must have substantiation of donations in order to include those donations on their itemized federal tax returns, and a letter from the non-profit organization is the clearest document they can have to prove their donation.

Your donor receipts should include the following items:

  • Full legal name of your organization,
  • Donor name,
  • Amount of a cash donation,
  • Description of any non-cash donations (but not the value!), and
  • Statement of whether or not benefits (goods or services) were provided, and if so, a good faith estimate of the value.

Event attendees, what do you need to know?

As an attendee of a charitable event where there is an auction or raffle, participants have the opportunity to obtain items for a limited price; however, the tax consequences of auctions and raffles may surprise the winners. Auction bidders often have the misconception that any payment made for the auction item constitutes a charitable deduction. Instead, these payments are quid pro quo transactions in which the winner has received something of value. Only the amount that exceeds the items' fair market value represents a donation.

What are the sales tax requirements once you’re at the auction?

Same as for-profit enterprises, most non-profit organizations are required to collect sales taxes on the sale of goods. Exemptions are common for certain fundraising activities, but this varies by state, so make sure you determine if you need to collect state or local taxes on auction sales or event admissions.

An auction can be a great money maker for your organization and enable you to continue fulfilling your organization’s awesome mission! Stay tuned for part 2 where we’ll cover post-auction responsibilities. Questions? Contact us.

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