Charitable Registrations -- Are You In Compliance?

Charitable Registrations -- Are You In Compliance?

December 04, 2014 by jga_admin

We work in a rapidly evolving field. And one aspect of that evolution – Charitable Solicitation Registration – has become increasingly important. It is essential that we stay informed and up to date regarding it. It is our sense that many nonprofits are either not in compliance or are very uncertain about how to comply.

It’s the law. An often misunderstood, and often overlooked, legal requirement is that nonprofits must register to solicit funds in support of their organization in nearly forty states in the United States. The lack of compliance is due, in part, to the conflicting requirements in each state and the myriad application processes for registration. Many states may have their own definitions for what constitutes solicitation – everything from making a phone call to a donor to simply having a “donate now” button on your website. There also is little consistency on what types of organizations are exempt from registration. For instance, while fraternities and sororities are typically exempt, their foundations are not. Moreover, certain nonprofits, such as institutions of higher education may often be exempt from registration, but are not universally exempt in all states. In addition, some states require a charity to file an exemption application in order to enjoy the protection of such an exemption.

This issue has become more prominent recently as states attorney generals seek to protect their constituents from unscrupulous fundraisers. Charity scams associated with national tragedies such as the Sandy Hook Elementary school shooting, Super Storm Sandy, and 9/11 have increased the scrutiny of nonprofits; states are looking at ways to keep such scams from operating in their backyards.

To be in full compliance with the laws, each soliciting charity should undertake an annual state by state analysis of their solicitation activities examining them in relation to each state’s requirements.

For the majority of charities, adding a budget line item for compliance will become an additional cost of doing business. When no fines or retroactive registration fees are included, most charities can estimate their annual filing fees to run about $5,000 to $7,000. Adding a professional service firm to manage the filing process may cost an additional $10,000, which may be a great deal considering the manpower costs required to comply with the regulations, not to mention having the certainty provided by having someone with the expertise to both understand the statutory requirements and the breadth of filings that must be done.

The consequences of ignoring these laws can be significant. While most states are not currently imposing maximum penalties, that could change as this issue generates more interest and state governments continue to look for new revenue streams. Punishments vary, with some states waiving retroactive registration fees, to others who may assess fines and even bar charities from soliciting funds in the respective state. It is our sense that scrutiny on this is increasing and so will enforcement.

More important than possible penalties however is the reputational damage charities could suffer from not registering. Donors are becoming more aware of these state requirements and have been known to ask if an organization is registered or require such registration. Of additional concern, this information is now required as part of the annual 990 return, and lack of compliance may also result in your organization being reported to charity monitoring databases. Charitable solicitation registration is the law in 39 states plus the District of Columbia currently. Prudent institutions should seek to comply with these regulations.

There have been some attempts to bring uniformity to this annual registration process and efforts are underway at a second attempt to create a uniform system (the initial effort did not work effectively). Any new uniform system, however, is likely to be years in the future.

One option for compliance is to hire a professional firm to assist you with evaluating your unique state-level filing requirements and preparing and submitting your forms for you. One such organization, the international law firm of Faegre Baker Daniels, has developed a system to manage the process for charities from beginning to end and to monitor changes in requirements for your compliance and annual renewals. JGA has met with and learned a great deal about this topic from them.

JGA is urging our clients to address this issue proactively now. Please contact us if you have general questions about charitable registrations, but to ultimately determine your registration requirements we recommend you contact legal counsel.