Can Non-Profit Organizations Sell Tickets to a Concert?

By Sarita Douglas

Whether a nonprofit organization can sell concert tickets, or conduct any other common fundraising activities, is a something it needs to consider before embarking on the project. The primary issue its fundraising team will want to take into account before making the decision to proceed is the way that the IRS will characterize the fundraising activity in relation to the nonprofit's tax-exempt status. The organization should also determine whether state registration of the event is required.

Unrelated Business Income

In general, a nonprofit maintains its tax-exempt status when it conducts activities that support the tax-exempt purposes of the organization, such as an animal shelter providing care for its animals. If an activity is unrelated, any income earned might be considered unrelated business income, which is taxable. The test to determine whether income is UBI involves meeting a three-part test: First, it must be from a business or trade activity. Second, the activity must be carried on regularly. Third, the business must not substantially relate to the organization’s exempt purpose.

Fundraising Activities

Whether a nonprofit organization can sell tickets to a concert depends on how the activity fits into the three-part test. A nonprofit chamber orchestra could sell concert tickets on a regular basis as part of its exempt purposes. A school support organization, such as a PTO, could sell concert tickets as long as it doesn't sell such tickets frequently or regularly. An annual fundraiser, for example, is not considered something that's carried on regularly.

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Paying Taxes on UBI

A nonprofit organization can pay tax on UBI and not lose its tax-exempt status as long as the UBI is only a small part of the overall income of the organization. However, dealing with this can be messy, with increased filing requirements and the potential need to defend the organization's other activities fitting with its exempt purposes. It is generally preferable to keep all fundraising activities within the exempt purposes of the organization.

Individual State Requirements

Nonprofit organizations should check any requirements of the state or states in which they are going to conduct fundraising activities. Many states require registration with the state charity organization, for example, before seeking contributions from state residents. The website of the National Association of State Charity Officials has a list of all U.S. state charity offices.

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Legal Issues of Online Raffles for Nonprofit Fundraising

A raffle is a method of distributing prizes among people who have paid for a chance to win a prize, generally determined by drawing tickets. A raffle is considered a form of lottery or gambling by the Internal Revenue Service. As a result, there are a number of restrictions and reporting requirements on all raffles. An online raffle brings additional obstacles for nonprofit organizations, particularly because online gambling is illegal in many states. As a result, using an online raffle for fundraising must be approached carefully.

Can a Nonprofit Business Earn an Income?

Nonprofit organizations are given special tax status because of the benefits they provide to the community through their activities. Though these organizations can earn income without jeopardizing their special status, any profits made cannot be used for private benefit. Such organizations may have to pay taxes on income they earn through activities unrelated to their organizational purpose.

Requirements to Maintain 501C3 Status

More than 100 501(c)(3) organizations lose their exempt status every year, according to the Nonprofit Risk Management Center. The Internal Revenue Code section 501(c)(3) is a provision in the federal tax code, which allows certain nonprofit organizations, including charities, churches, educational institutions and other organizations that meet the requirements to be exempt from certain taxes. The IRS regulates and regularly reviews exempt organizations to ensure that they are following the regulations and that the organization continues to do the work that led to its exempt status. Failing to follow the guidelines can lead to fines and, in some cases, the loss of 501(c)(3) status.

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