Responsibilities of associations, liability and the proper handling of donations

1. Responsibilities of associations and issuers of donation receipts

Charitable associations and other tax-privileged bodies bear significant legal responsibility when receiving donations and issuing donation receipts.

The association and its acting officers, particularly its board, must ensure that the statutory requirements for donation deduction are met and that donations are used in accordance with its constitution.

Key duties include:

Checking tax-privileged status

Review the tax-privileged purposes and actual management. In particular, donation receipts must comply with the conditions and time limits in § 63(5) AO: a tax exemption notice or corresponding annex to the corporation tax assessment no more than five years old, or, under the specified conditions, a determination under § 60a AO dating back no more than three calendar years. The time limit is calculated to the day.

Checking the contribution

Carefully determine whether it is genuinely a voluntary donation without consideration and whether anything is provided in return, such as advertising or sponsorship benefits.

Proper documentation

Maintain complete, traceable accounts and retain receipts and records as required by law.

Issuing donation receipts

Receipts may be issued only if all statutory conditions are satisfied. They must follow the tax administration’s official form.

Clear distinction between donations and sponsorship

Donations must be distinguished from sponsorship or advertising services, otherwise tax deduction may be jeopardised.

Internal controls

Establish suitable controls and responsibilities to prevent errors in receiving, using and certifying donations.

2. Liability risks arising from incorrect handling

Improper handling of donations can create substantial tax and personal liability risks.

2.1 Liability relating to donations

Incorrect receipts or improper use of donated funds may give rise to statutory donation-related tax liability.

Where the statutory conditions are met, lost income tax under § 10b(4) EStG or corporation tax under § 9(3) KStG is calculated at 30% of the contribution. This is not a discretionary maximum of up to 30%. Other tax liability provisions may also apply.

2.2 Personal liability of officers

Anyone who intentionally or with gross negligence issues an incorrect receipt or causes funds to be used for an improper purpose may be liable under the statutory conditions. For liability arising from causing improper use, the donation recipient must be pursued first. Individuals acting for it may be pursued on that basis only under the additional statutory conditions, particularly where enforcement against the recipient has been unsuccessful and the lost tax liability has not been extinguished (§ 10b(4) EStG).

Personal assets may therefore be at risk in such cases.

3. Loss of tax-privileged status

Loss of charitable tax status is one of the most serious risks for associations and tax-privileged organisations.

Potential causes include:

Diversion of donated funds

Using donations for purposes outside the constitution or outside the permitted charitable purposes.

Breach of record-keeping and evidence duties

Insufficient or incorrect documentation of income and expenditure.

Impermissible commercial activity

A commercial operation does not automatically cause complete loss of charitable status. Taxable commercial operations are subject to the special rules of § 64 AO. Tax privileges are particularly at risk if the constitution or actual management no longer meets the requirements of charity law.

Defective constitutional provisions

A constitution that does not meet the requirements of charity law.

Withdrawal of tax-privileged status may result in substantial additional tax liabilities and loss of related benefits. The consequences and periods affected depend on the particular breach and applicable tax rules.

4. Recommendations for proper handling

To minimise liability risks and maintain charitable status, associations should consider the following measures:

Regular legal review

Continuously monitor compliance with tax and charity-law requirements.

Training and advice

Keep board members informed and trained; obtain tax or legal advice when uncertain.

Transparency towards donors and authorities

Ensure that use of donated funds is transparent and traceable.

Clear internal procedures

Define processes for accepting, recording, using and certifying donations.

Notice

This information provides general legal guidance and does not replace individual tax or legal advice.

If in doubt, consult a tax adviser, a lawyer experienced in charity law or the competent tax office.