Often times a charity cannot afford to hire a professional fundraiser.  In addition, many fundraisers desire to be paid a commission based on a percentage of the revenues that they raise.  Therefore, offering a commission for fundraising services is often perceived as a “win-win” situation.  Before entering into any arrangement, however, a charity must consider certain limitations on so-called percentage or commission-based compensation under the federal income tax laws, including the private inurement, private benefit, and excess benefit / intermediate sanctions rules.  To avoid application of these rules, the commission, as well as the fundraiser’s total compensation (including the commission and any other compensation) must be reasonable.  For example, commissions must be paid for services actually rendered and commensurate with the services rendered.  The IRS has also suggested that a ceiling or cap on the maximum amount of compensation is an important factor to ensure that commission-based compensation is reasonable.  Commission-based compensation based on the achievement of charitable objectives or established to serve a business purpose of the charity is preferable to compensation merely paid based on gross revenues.  It is also worth noting, although state laws limiting fundraising commissions have been struck down, professional fundraising associations generally limit or even prohibit commissions based on revenues for their members on the basis that such commissions are harmful to relationships between the donor and the charity and detrimental to the financial health of the charity.  In conclusion, before paying a fundraiser percentage or commission-based compensation, the charity must consider these laws and should consider consulting an experienced advisor to help them work through these issues.