Fundraising Compliance Guide
Charitable Solicitation Registration and Compliance
Charitable solicitation compliance is not optional. It is the law. Charitable solicitation is regulated on the state-level and the requirements vary by state. 41 states require registration and 4 additional states require disclosure statements to be included on solicitations. Charitable solicitation can take on many forms of asking for a donation, including fundraising online.
In addition to registration, many states require foreign qualification of the nonprofit corporation and appointment of a registered agent. Penalties for noncompliance can be severe, so proactively registering and maintaining compliance is ideal.
41 states require charitable solicitation registration. Asking for donations by phone, mail, in person, and online are all considered charitable solicitations and subject a charity to registration requirements. In addition, solicitations through professional solicitors, fundraising consultants, and commercial co-ventures trigger registration requirements.
Every state except California requires registration before a charity begins soliciting, regardless of whether donations are received. California allows charities 30 days to register after receiving assets. In most states, the government agency that oversees registration is the Charities Division of the Office of the Attorney General or the Secretary of State.
|Initial registration requirement|
|No initial registration required (but other solicitation laws may apply)|
Applications for Registration
State applications generally consist of the state’s specific form, a filing fee, and supporting documentation. Applications generally must include the organization’s IRS Determination Letter, IRS Form 990, and a list of officers and directors, among other items. Fees vary by state and are typically calculated based on total gross revenue in the previous year or amount of contributions received in the state. The application fees range from $0 to $412.50 for most organizations. Charities can face penalties in addition to these fees.
In many states, certain charities can be exempt from registration, including those that receive less than a certain amount of contributions annually. Religious organizations, hospitals, and schools can also be exempt. Ironically, exemptions themselves typically require an application and also require renewal on an annual basis. For those reasons, exemptions may reduce an organization’s state fees but hardly limit the time investment needed. Organizations that file exemptions still face the challenges of determining changing state requirements, preparing applications, tracking renewals, and monitoring fluctuations in annual contributions.
Charitable solicitation registrations must be renewed, typically on an annual basis. Like initial registrations, renewal applications are complex and require an application and supporting documentation. Most states have a separate process and fee structure for charitable solicitation renewals. Organizations can expect to file the most recent financial information with their renewals, which is typically the Form 990 and audit. Some states require organizations to provide organizing documents and bylaws each year; however, other states require charities to submit those documents only once.
Each state requires renewal applications to be submitted at different times throughout the year. Four months and fifteen days after the close of a charity’s tax year (May 15 for organizations on a calendar tax year) is a common renewal date. Keeping track of varied due dates is one of the major challenges of charitable solicitation compliance.
For organizations that have a calendar tax year, renewal deadlines of May 15 pose an additional challenge, since that is the same day that Form 990 is due to the IRS. Larger organizations tend to struggle to meet the state and IRS deadlines. The 990 and financial audit are commonly not ready in time to allow the organization to file renewals with the states. In those cases, it is necessary to file an extension with each state in order to stay in good standing. The process of filing for an extension varies in every state but often includes submitting a copy of the IRS Form 8868 to the state charity official.
Almost every state requires organizations to file initial and renewal registrations by paper. A handful of states require online filing and more states are transitioning to using an online system. Some states allow charities to file by email or fax, but for large organizations, these methods tend to be more inconvenient than sending a packet by mail.
Unified Registration Statement (URS)
The Unified Registration Statement (URS) was an attempt to make charitable solicitation application forms uniform across all states and simplify registration. Unfortunately, the URS was not successful on either account. 32 of 41 states accept the URS, and the other 9 do not. Of those 32 accepting the URS, 13 require supplements, which are typically a state-specific form.
The URS tends to add complexity rather than mitigate it. The form itself is longer and requires more information than state-specific forms, and examiners take longer to process URS applications. Using each state’s form typically leads to swifter approval. For these reasons, it is generally best to use the state-specific registration and renewal forms.
Online fundraising allows charities to access a broader donor base, which is great; however, it also poses unique compliance challenges. Fundraising online can take many forms including crowdfunding, website “Donate Now” buttons, email campaigns, and social media. Generally speaking, asking for donations via any of these online methods constitutes soliciting in every state and subjects a charity to registration requirements.
The Charleston Principles
As state legislation catches up to the pace of technology, different states regulate online fundraising in different ways. In an attempt to unify requirements, the National Association of State Charity Officials (NASCO) released the Charleston Principles in 2001 as guidelines to states on how to regulate internet fundraising. The Charleston Principles are simply guidance to the states; they are not law, and not all states follow them.
Corporate Qualification and Registered Agent
Eight states require charities to register as a foreign nonprofit corporation with the Secretary of State. This process is called foreign qualification and it is a prerequisite to charitable solicitation registration in those eight states. Foreign qualification involves filing an application for authority and appointing a registered agent. The registered agent must be located within the state and is responsible for receiving service of process and other legal documents on behalf of the organization. Maintaining good standing with the Corporations Divisions of the Secretary of State is necessary by filing periodic reports, typically annually. Approximately ten additional states require nonprofits to maintain a registered agent but do not require qualification.
24 states require charities to include disclosure statements on their solicitations. The specific required language varies by state. Generally, disclosures contain where a donor can obtain more information about a charity, either from a government agency or from the organization itself. Disclosures typically must be included on written solicitations, acknowledgments of donations, and on an organization’s website.
Consequences of Noncompliance
State penalties for noncompliance are diverse and can be severe. Soliciting prior to registering, failure to register after receiving funds, filing late renewal applications, or facing complaints filed by the public can all trigger adverse consequences, which can include:
- States fines, late fees, and penalties
- Civil and criminal action against officers and directors
- Revocation of tax exempt status
- Denial of the right to solicit funds
- Negative PR
- Damaged relationships with donors and grantmakers
- Lost donations or grants
Compliance with state charitable solicitation laws is challenging; however, it is necessary. Taking a proactive approach to charitable solicitation registration will help charities ensure compliance and avoid negative consequences.
Charitable Solicitation Compliance
What does it take to be compliant?
Brock Klinger in partnership with Neon (https://www.neoncrm.com)
Wednesday, August 23rd
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Charitable Solicitation Compliance
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