Legal Question in Business Law in California

Follow-up, please see question below.
Thank-you Mr. Whipple & Mr. McCormick for your generous feedback, most appreciated.
If you'll allow me, I want to refine my question a little more please:
Que: is it legal for me to "test the water" and do the following:
* Tell the public that I'm proposing a project that will help the entire US to recover.
* Tell them about the project
* Tell them that at the moment, their donations would be "straight donations" and no tax write offs are allowed at this point in time (full disclosure)
* When we reach a certain monetary volume in donations (we'll tell them), we'll incorporate as a non-profit corporation, apply for non-profit status with US government.
* If we get approved we'll inform all donors that we're now a non-profit and we'll send then official receipt so they can take the deduction when they do their taxes next year.
* Note: if we don't get approval, we'll still inform them of our status as a normal corporation and they made a donation to help American recover.
Note: I would be more than happy to discuss the possibility of using your services in this project.
Previous Que:
If a US citizen makes a donation to a "proposed" non-profit corporation BEFORE I incorporate the business and get the legal designation from the US government, can the donation still be used as a tax write off for the person who made the donation?
Summary: as you know, my strategy is to make sure we have the support before we invest the capital to incorporate and get our non-profit status. By using full disclosure with all donors, we're honest and up front and communicating with everyone.
If we don't meet our financial goal, no one's credit cards are charged. If we do reach our financial goal, we'll have started the process of applying for non-profit status but, we can't inform the donors of the official status (the advice given earlier) until we get the official paperwork from gov.
In essence, I'm selling an idea to the public and if I reach a certain specified amount (disclosed to the public), we're going to take the donations, incorporate as a non-profit and implement our idea.
If we don't reach our financial goal, the citizens aren't charged.
Thanks
Mr. Bowen
San Diego
[email protected]

Asked on 9/13/11, 8:57 am

2 Answers from Attorneys

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Until you create the legal non-profit entity, AND get preliminary 501(c)(3) status approval, any donations you take would never be deductible. You are free to solicit donations for any lawful purpose at any time, as long as they are solicited honestly and are used for the purpose for which they were donated. You don't need any legal formalities or anything really, to do that. I can go stand on a street corner and solicit donations to help feed the hungry and then go pass it out to homeless people, or turn it over to a soup kitchen or whatever, with no legal formalities at all. It all gets tricky when you try to make the donations deductible. If I take those same donations and form a non-profit corporation with them, and apply for and get 501(c)(3) status, that too is a legitimate use of the funds and I would not have to pay taxes on them as personal income, BUT those initial donations would never be tax deductible to the people who gave them to me. ONLY donations received AFTER preliminary 501(c)(3) status is achieved can ever be deducted, and ONLY once final approval is given.

Answered on 9/13/11, 9:27 am

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