We are producing a movie and have a fiscal sponsor that allows us to accept tax deductible donations. To reward our donors, we would like them to share in the profits of the film, if there are any. Can donors receive a profit from their donations? If not, is it possible to hire a donor as an associate producer and pay them their profits in the form of a salary?

ANSWER

The BIDaWIZ Team's Answer:

We'll assume the fiscal sponsor is indeed a tax-exempt registered 501(c) organization. Typically, a fiscal sponsor offers their services to organization engaged in related activities for the purpose of leveraging their tax-exempt status under IRC 501(c). In addition, a fiscal sponsor typically charges an administrative fee for the contractual arrangement. While the organization may generate profits as a result of the the funding source provided by the Fiscal sponsor, the compensation guidelines are fairly dependent on the model used. As far as the donors go, the answer is that they cannot participate in any profit-sharing program. That activity would disqualify the non-profit organization as the motive has changed from non-profit to profit. The donors initial contributions would be treated as investments as it would no longer meet the requirements defined in IRC Section 501(c). In addition, the donors are already receiving a tax benefit on the contributions made.