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Old 06-27-2006   #1
poprockart
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Not for Profit link to For Profit site - is that bad?

Can a not for profit site lose its not-for-profit status by linking to a for-profit ecommerce site?

Recently, I received a response from a not for profit site stating that they are weary to link to my client's site because they are worried they might lose their not-for-profit status.

Our sites are similar in subject matter and my client's site is very much legit, getting great coverage in the SERPs.

I can't imagine that they will lose their status by linking to us, but would like to know if anyone has faced similar issues.

Thanks!
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Old 06-27-2006   #2
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It would seem to me that the only possible loss of non-profit status would be if they made money on the link and didn't claim it. They probably could even sell links on the site as a way to help defray site costs. I personally feel either the NFP is wrong on this or that is their standard "no-excuse." I am curious and hope that someone will come in and post that has a more legal background...so I moved the thread to Search and Legal Issues.
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Old 06-27-2006   #3
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In general, you would look at the motivation and follow the money, as Chris alludes to.

I do a fair amount of non-profit work, and have put some thought into this:

1. It's not OK to provide net benifits to members of the group. If the commercial site being linked to is owned or related to a member of the non-profit group, then be very, very careful (actually, avoid it when possible, and create a huge paper trail if you can't).

2. There is no problem with linking to a valuable resource - it's actually in the mandate of most non-profits to provide this type of information. The fact that it might be commercial is not an issue by itself, unless the same information or value can be had from a non-commercial source.

3. The standard fund raising rules and expectations apply to links. For example, if Microsoft donates a bunch of computers to your organization that's trying to get kids off the street, then linking to them as acknowlegment would not only be OK, it would be rather rude not too, IMO. But selling links is a different story - that would be a fund-raising activity in an of itself.

Yes, this can be complicated. I would say that the bar is raised for links from a non-profit to a commercial site: rather just being on-topic (the usual criteria), I would argue that the link should be of significant value and not available in an equivilent non-commercial form, or else it would be considered advertising.

Now, some non-profits are allowed to sell advertising as a money raising venture - it's up to the local rules for that group - they vary from jurisdiction to jurisdiction. This doesn't sound like this is the case here, though.

This is purely my personal opinion based on experience, rather than a legal opinion. As always, check your local laws.

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Old 07-11-2006   #4
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In the United States there are no basic legal issues that would stop a nonprofit from posting a link to a commercial site or to any other site. The two issues that could affect links have to do with the purpose for which revenue is transferred to the nonprofit and the value that the link purchaser or donor receives.

Income to the Nonprofit:
If a nonprofit is selling advertising in the form of links then the nonprofit must declare any revenue as Unrelated Business Income (UBI) and pay appropriate taxes on such income. This would be similar to a hospital that operates a commercial parking garage that is not for the sole use of hospital staff and patients. No donation is involved.

Market Value of Benefits
If the revenue is a donation then the donor cannot deduct from their taxes the fair-market value of substantial benefits that are not in the list of IRS exceptions. The fair market value is a good-faith estimate of what a benefit would cost if it were available for sale on the open market. (If the value exceeds $5,000 an independent appraisal is required)

One exception to the fair market value rule is that the IRS does allow for the recognition of donors in publications. As long as the benefit is generally available to all donors of a similar giving or charitable sponsorship level then it is not considered to count against possible deductions.

Recognizing donors on websites is still new territory so many nonprofits take an all or nothing approach. Typically, only larger nonprofits with sophisticated accounting practices will enter into any transactions that may include UBI issues. Finally, most not-for-profit officers and many Development Directors do not understand the finer complexities of accepting gifts or donor recognition when it comes to tax purposes.

If you do want to work with a nonprofit, talk to the Director of Development and not the Director of Communications or Marketing. If the Development Director is unsure, ask if they have a sponsorship manager, annual fund manager or membership manager that they could bring into the conversation. It is not rare for these people to have the best grasp of any UBI or IRS implications.

My advice is that if a nonprofit is unready to address this type of transaction then thank them for their time and move-on.

Last edited by Komodo Tale : 07-11-2006 at 05:38 PM.
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