August 10, 2022
Deputized fundraising (DF) has been common among religious organizations for several decades. Yet it is rarely utilized outside the religious sector so it is almost never discussed in charitable giving literature.
For religious organizations, DF is a natural part of mission outreach—many people who are convicted by the mission want to support a missionary, and it is those people who feel directly connected to the organization’s work that are often its strongest donors.
Many other benefits can be mentioned, such as increased commitment to the mission amongst staff and a broader donor base that is more resilient to economic downturns. That said, there is a real cost to running a DF system, so an organization should only introduce it if it is willing to invest in its proper maintenance.
To understand the model, it is necessary to understand its practical implications, applicable IRS tax consequences, and employment considerations.
The basics of the deputized fundraising model
The idea of DF is simple: an employee of a tax-exempt organization is responsible for meeting certain fundraising goals, in addition to fulfilling his or her other roles.
Consider a hypothetical missionary, Michelle, who lives in LA and works for the charity, Faith in Hollywood. Most of her time is spent doing outreach through local parishes for which she is paid a salary, but she also committed to bringing family and friends on mission who could financially support the work of the charity. Their donations grow the total pool of resources from which her salary is ultimately drawn, which is the goal of DF.
The DF model can be broken down into three key elements:
The IRS tests
Over many decades, tax cases and rulings have distilled the requirements of a DF model into two tests:
Implementing deputized fundraising
Some nonprofits understandably find it tricky to translate these concepts into policies and practices.
Does Michelle think that to get paid more, she just has to raise more money? Do Michelle's family and friends think they are supporting her or Faith in Hollywood? Does Michelle think that when her time with the charity comes to an end, she can take the remaining monies she helped fundraise?
It is important for Faith in Hollywood to structure its operations carefully, otherwise the gifts will lose their deductibility status. The flow-on effects could be devastating for an apostolate heavily reliant on DF.
For best practices on this, see the Evangelical Council for Financial Accountability’s article on DF and ensure you consult an attorney/accountant who is familiar with DF.