PayPal, as useful as it is, has a nasty habit of freezing funds of people who seek donations for a worthy project but don’t have a government permission slip to do so. There have been several high-profile examples lately of PayPal freezing the donations of everything from buying toys for sick kids to protecting the U.S. Constitution from abuse by police, just because those people didn’t have a 501(c)(3) official tax-free status from the IRS. I’m assuming this is the government’s fault, but PayPal is complicit too.
One of several big issues I have with this, and why I feel PayPal is complicit, is that the PayPal user agreement says nothing about this PayPal rule. I couldn’t find anything about it on the PayPal site in ten minutes of clicking on likely links. And the “setup button page” says nothing about “you must be a licensed 501(c)(3) to use this feature.”
PayPal recently froze a whopping 40,000 dollars gathered by patriot sheriff Richard Mack for a Constitutional Sheriffs Conference.
I realized long ago that PayPal does this, and here are my workarounds. (Disclaimer: I am not an attorney, am not giving legal or tax advice, merely stating what I personally do.)
1.I would NEVER keep an amount of money anywhere NEAR 40,000 dollars in my PayPal account. First, it would be a quality problem if I ever got that much in donations. I’ve never even seen that much money at one time in my life, from donations or from working. But I never keep more than 200 dollars in my PayPal account. I either spend it through PayPal on expenses with people who take PayPal (like my web host, which I often pay a year in advance) or cash it out to my bank account and get cash. Spending it through PayPal does not incur a fee. Cashing it out does incur a small fee, but I feel it’s worth it for the safety of not having it socked away somewhere that it could be frozen.
2. I do not have PayPal links that say “Donate.” I either use a “subscribe” link like I have here, with the explanation that subscribing is really a contribution and does not grant additional access, or I use the PayPal donate link code, but substitute the “Donate” button for the old style “PayPal” button (shown below, feel free to grab and host on your site, please do not hotlink from my site).
In both cases, I add this text in bold, to make it clear I am not a non-profit entity under US law:
Make a donation (donations are NOT tax-deductible, but they might just make you feel really really good)
I believe these two methods to be good due diligence against the heartache of having your funds seized.
–Michael W. Dean