Is the charitable organization soliciting for donations?
There are many ways a charitable organization can solicit for charitable donations. Some methods are apparent such as direct mail, telephone, special events, major donor and radio/tv appeals. Others may not be so obvious like email, membership, social media, cause-related marketing, corporate and government grants and having a donate button on the organization’s website. All of these, and more, trigger charitable solicitation registration.
What is charitable solicitation registration?
It is a legal obligation for a charitable organization to register in a state where it solicits for donations or have solicitation conducted on its behalf. The laws exist to protect the public from fraud and to ensure accountability on the part of the charitable organization. In 2008, the Internal Revenue Service (IRS) amended the form 990 to include two (2) questions that assisted the states in making the registration requirement known to non-compliant nonprofits. Those two questions are: 1) list of states with which a copy of the tax form is required to be filed with, and 2) list of states in which the organization is registered.
Forty-six states and the District of Columbia regulate charitable solicitation of which, approximately, forty-one states and D.C. require private and public charitable organizations that “ask” for donations from its residents to register and submit an annual report or renewal registration. The organization is required to maintain its solicitation license annually for as long as it requests for support (monetary or gift-in-kind) within the state.
Is the organization’s charitable purpose one that may qualify the organization to apply for exemption from registration?
Almost all states grant exemptions from registration for certain types of charitable organizations (e.g. educational, religious, membership). Although many states exempt the same type of groups, each state’s definition and registration requirements will need to be closely reviewed to determine if the organization qualifies. Note that most states require a formal request for exemption, whether it be on a form provided by the state or simply sending a letter requesting exemption with a copy of supporting documents.
What if the charitable organization is not registered but has been fundraising?
By statute, a charitable organization should register prior to the commencement of solicitation in a state. If the organization fails to register, all states have the right to impose fines and civil penalties on the organization. Depending on the gravity of the situation, the states can cause a charity to lose its nonprofit status, ability to raise funds in the state or even sue the charity for the return of funds raised in the state. However, in most situations the states do not need to impose or enforce such severe penalties. There are approximately a handful of states that inquire about activity in its state prior to the initial application. Those states may request additional documentation and fees based on the organization’s activity in the state prior to its initial application.
The charitable organization is using the services of a professional fundraiser. Does the professional fundraiser also need to be registered?
Yes, the professional fundraiser has its separate obligations to register with the states where its clients reside and its services reach into. Each state’s definition will need to be reviewed to determine where the professional fundraiser needs to register depending on which category the fundraiser falls in – professional solicitor, fund-raising counsel, commercial co-venturer. In addition, a written fundraising contract is required to be disclosed in the respective state(s). If the professional fundraiser is not registered where the charitable organization is fundraising using their services, then solicitation in that state must cease until such time the fundraiser obtains its license to fundraise. Otherwise, both the fundraiser and the charity can be subject to fines.
Does the charitable organization have to qualify to do business in the state if it is solely soliciting for donations in the state?
Generally, if the organization does not have a presence or is not, otherwise, transacting business in the state, the organization does not have to register to do business in the state for soliciting its residents. However, District of Columbia and North Dakota require a charitable organization soliciting for donations within its borders to register with its Corporation Division.
Does the charitable organization need a registered agent in all states where it registers?
No, though many state applications request a registered agent to be named. A registered agent (individual or entity that resides in the state) is, generally, required where the charity needs to register with the Corporation Division (e.g. District of Columbia and North Dakota). For most other applications, the state’s Secretary of State can be named. A few states allow an officer of the organization to be indicated and are not required to be a resident of the state.
Are there disclosure requirements required on solicitation materials?
Yes, several states require specific disclosures at point of verbal communication with donors and written solicitation materials to donors which includes the organization’s website if there is a donate button. If the organization does not wish to receive donations from residents of a specific state via their website, a disclaimer stating such should be placed in a conspicuous area.
If the organization did not apply for tax exemption or the application is pending with the Internal Revenue Service, the IRS requires proper disclosure to the donor to inform them that the donation is not tax deductible. If the organization has applied and the application is pending, the donor can be made aware of that and be provided a receipt along with a substantiation letter.