Events and promotions (One-third rule)
This section describes additional rules applicable to special events and promotions commonly used to raise money for an SSF, including:
- Golf tournaments;
- Silent auctions;
- Special prizes or recognition events for contributors of a certain amount;
- Concerts; and
- Any other fundraising event or promotion using prizes or entertainment as an inducement to make a contribution to the SSF.
Basic rules apply
Organizations using these events must follow the general solicitation rules. This means that only the restricted class may be invited to participate in an SSF fundraising event or promotion. Moreover, any invitation to participate must incorporate the special notices for SSF solicitations.
Price paid = contribution amount
The full price of a fundraising item purchased (such as a t-shirt, a ticket to a fundraising event or a chance at a raffle) counts as the purchaser’s contribution, even if part of the price paid is used to defray the costs of the fundraising program.
Use of treasury funds
A corporation or labor organization may generally use its treasury funds to pay all costs associated with fundraising events, such as dinners, luncheons, receptions, dances and concerts. However, a portion of the costs of entertainment (other than food and drink) paid by the connected organization may need to be reimbursed by the SSF. See "The 'one-third rule.'"
Promotional items, entertainment and raffles
A connected organization and its affiliates may also provide tangible premiums to encourage SSF contributions, through raffles and other promotions involving prizes or entertainment. The aggregate cost of the prizes or entertainment, however, may not be disproportionately numerous or valuable in comparison with the contributions raised by the promotion. If the cost of the prizes or entertainment offered is high in comparison with the amount of money raised, then the SSF will have to reimburse the connected organization for a portion of its cost of the prize or entertainment to the organization.
An SSF may not accept prizes or entertainment donated by corporations other than the connected organization or its affiliates. However, a trade association may accept donated prizes and entertainment from its members for SSF fundraising events.
The "one-third rule"
A connected organization may provide its SSF with prizes and entertainment to encourage contributions, however, the aggregate costs of the prizes and entertainment may not be disproportionately valuable compared to the amount of contributions raised. FEC rules provide the "one-third rule" as a reasonable standard for deciding whether an SSF must reimburse the connected organization for fundraising costs. According to the one-third rule, an SSF must reimburse that portion of the cost of prizes or entertainment that exceeds one-third of the amount raised in contributions.
For example, a trade association spends $300 in treasury funds to purchase a TV set as a raffle prize. Sales of raffle tickets raise $600 in SSF contributions. Since one-third of the amount raised ($200) is less than the cost of the prize ($300), then the SSF must reimburse the association for the $100 difference.
On the other hand, if the SSF raises $900 in contributions, then one-third of that amount ($300) is equal to what the association spent on the prize, so no reimbursement is necessary.
Determining cost and time period of events
The fair market value of prizes or entertainment used in a fundraising event must be used for the purposes of calculating whether reimbursement is needed under the one-third rule.
In the case of an ongoing event (for example, prizes awarded to certain contributors over several months during a fundraising drive), the SSF must assign an ending date for the event and use that date to determine how much was raised during the event.
When the one-third rule does not apply
The one-third rule applies only to fundraising with promotional items, prizes and entertainment (other than food and drink) that have been paid for by the connected organization, its affiliates and, in the case of trade associations, its members. It does not apply to the other types of SSF fundraising activity. The one-third rule also does not apply when the SSF purchases the prize or entertainment with contributions made to the SSF.