Minnesota AG Report Illustrates Importance of Care When Advertising in Connection with a Charity

In many states, attorneys general play an important role in monitoring the activities of charities, as well as the interactions between private firms and charities.

For example, in October, Minnesota Attorney General Lori Swanson issued a compliance report regarding the nation’s largest car donation charity – Car Donation Foundation – raising questions about CDF’s relationships with for-profit companies, the percentage of donations to CDF that went to charitable causes, and CDF’s advertising campaigns, which the AG labelled “misleading.”

The report found that CDF conflates itself in advertising with the widely-known Make-a-Wish Foundation, but does not adequately inform donors that car donations go to CDF, not to Make-a-Wish.  The report pointed to print and internet advertisements stating that car donations would “benefit” Make-a-Wish Minnesota  and that did not mention CDF.  The report also criticized CDF’s claims that donations were “one hundred percent tax-deductible,” because charitable donations are tax-deductible only when an income tax filer itemizes deductions, something that only about thirty percent of taxpayers do.

Most of all, the report attacked the relationship between CDF and two for-profit companies – National Fundraising Management, Inc. and Metro Metals Corporation – used extensively by CDF and owned by two former board members, and current co-executive directors, of CDF.  Between 2011 and 2014, CDF is alleged to have spent approximately eighty percent of the revenue received from charitable vehicle donations on payments to National Fundraising Management or Metro Metals.  AG Swanson has requested that the IRS investigate CDF’s conduct and the continued appropriateness of its non-profit 501(c)(3) status, and called upon CDF to make a report to her office within thirty days documenting steps taken to correct issues raised by the report.

Because laws regarding advertising in connection with a charity vary from state to state, it is important for for-profit firms to consider campaigns involving charities carefully and consult state-specific guidance.  Massachusetts, for example, has fairly extensive regulations of both fundraising and commercial co-venturing,  which includes campaigns in which sales of goods or services are offered in connection with a charitable purpose.

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