Fundraising Compliance: How to Address Board Concerns 

Fundraising Compliance in Today’s Environment: Fundraising compliance is often understood in theory, but questioned in practice, especially by organizations that have solicited across state lines for years without issue. For some nonprofit leaders, state charitable registration can feel like an unnecessary administrative burden rather than a governance priority.

What This Means for Nonprofits: Increased regulatory oversight, data-sharing, and digital fundraising have changed the risk landscape. What once went unnoticed is now far more visible, making proactive compliance an essential part of protecting donor trust, board accountability, and the organization’s mission.

In a recent article, Regulatory Compliance: A Nonprofit Organization’s First Line of Defense, Shannon McCracken, President and CEO at The Nonprofit Alliance, argues that “…regulatory compliance is your organization’s first line of defense against challenges to your tax-exempt status and public trust.” She goes on to say, “It’s far easier to…malign your public image for failure to maintain good governance standards than on the grounds of your mission-focused activities.” Granted, this article relates more to complex international compliance issues, but the argument is nonetheless applicable to domestic fundraising compliance requirements.

Most nonprofit executives and board members understand the importance of fundraising compliance, but sometimes there is a leader that raises concerns in opposition to state charitable solicitation registration requirements. This is especially true for longstanding, unregistered organizations that have solicited nationwide or in multiple states without any negative consequences. It is common for leaders of established nonprofits to view state charitable registration as an unnecessary bureaucratic hurdle, especially if they have operated for years without incident. However, the regulatory environment is shifting, and “the way we’ve always done it” is increasingly risky in an era of digital transparency.

Though their concerns are often justified, the negative consequences for failing to comply likely outweigh maintaining the status quo. Knowingly breaking state fundraising laws is rarely a good choice for any nonprofit. More information can be found at: Charitable Solicitation Registration, Renewal and Compliance: Required Filings and the Consequences of Failing to Comply.

With few exceptions, complying with charitable fundraising registration requirements is always a best practice. This is especially true in an era when public trust in nonprofits is waning. 

Here are the most common concerns raised by opposing leaders and the appropriate strategic responses to counter them.

The “No Consequences” Argument

Concern: We’ve been soliciting nationwide for 20 years without registering and have never had a problem. Why poke the bear now?

Response: A single disgruntled donor, volunteer, or ex-employee can trigger an investigation by filing a complaint with a state charity regulator or Attorney General. Many states now cross-reference IRS Form 990 data with their own registration databases. If your 990 shows revenue from a state where you aren’t registered, it’s a red flag that can trigger regulatory scrutiny. Failure to register isn’t just a “missed deadline”, it’s an ongoing violation. States can assess fines or demand back-payment of fees and penalties for every year you were non-compliant, which can reach thousands of dollars.

The Unwanted Scrutiny Concern

Concern: After registering to solicit in a state, our organization is under the scrutiny of state charity regulators and subject to fines, especially if we fail to renew our charitable registrations. It’s better not to register than to be on a state’s regulatory radar.

Response: Yes, some states charge late fees or impose fines, but that is not the case in most states. In terms of fines, the one notable exception is South Carolina, where failing to submit the required financial report may result in an administrative fine of up to $2,000. Fortunately, most states have no or low late fees and fines, mostly $25/month, but a few are higher (e.g. Virginia – $100, Ohio – $200).

The ROI and Cost Concerns

Concern: The registration fees and the staff time required to manage 37 filings will cost more than the donations we receive from those states.

Response: Some major foundations and corporate grant makers now verify registration status as part of their due diligence. Being unregistered doesn’t just cost filing fees, it can disqualify the organization from grant opportunities. The cost of compliance is an insurance policy against the cost of a public cease-and-desist order, which is far more expensive in terms of legal fees and lost donor confidence.

Concern: The states’ trend is for charitable registration and renewal fees to increase in the future.

Response: Fees do increase but not very often, because the state would need to amend their statutes to increase the fees. The state fees tend to stay the same but do rise over time, usually in pace with inflation. The price of everything increases over time, but state filing fees tend to be more static.

Concern:  The internal time and costs required to manage this process haven’t been factored in.

Response: Most of the process for complying with state charitable registrations and renewals can be outsourced, but there will be an internal time cost to maintain fundraising compliance. If outsourcing is not an option, then our do-it-yourself guide, Nonprofit Fundraising Registration: Nolo’s 50-State Digital Guide, is an affordable resource that will drastically simplify the process. It is updated semi-annually, includes links to state charity offices, forms and online filing platforms, statutes and rules, and much more. If purchasing a subscription, use the code “SAVE20” for a 20%-off discount. 

The Privacy and Disclosure Concern

Concern: These filings require us to disclose our board members’ home addresses and sensitive financial details. It’s an invasion of privacy.

Response: Transparency is the currency of the modern nonprofit sector. Donors increasingly use watchdogs like Charity Navigator or GuideStar, which flag organizations that are not in good standing with state regulators. Most of the information requested is already public on our IRS Form 990, and board members’ home addresses do not need to be disclosed. Proactive registration sends a powerful message to major donors that the organization is professionally managed and has nothing to hide.

The Internet Solicitation Misconception

Concern: We don’t solicit in other states; we just have a website. If someone from Florida finds us and gives, that’s on them.

Response: While old guidelines suggested a passive website didn’t require registration, some states have updated their laws. If you send emails to a list that includes out-of-state residents or target out-of-state donors via social media ads, you are actively soliciting in those states. In many jurisdictions, a “Donate Now” button when combined with repeated and substantial contributions from that state can legally require registration. It is safer to be compliant than to argue the nuances of jurisdictional reach.

Summary of Risks and Benefits

Concluding Considerations

If you are successful at convincing leaders opposed to state charitable solicitation registration, then the next step is to decide how to tackle the required filings. This is a difficult, time-consuming task, and quite honestly a distraction, especially when the focus should be on your mission.  This topic is explored further in The Pros and Cons of Outsourcing Charitable Registrations and Renewals, which outlines key considerations for managing filings in-house versus outsourcing.

Finally, if a decision is made to outsource state charitable registration and renewal filings, it’s important to be aware of two things. First, there are strategies you can take to minimize charitable registration filings, and second, you should be aware that most nonprofit leaders have misconceptions or are misinformed about specific state requirements.  In situations where selective registration is appropriate, nonprofits should be aware of strategies for limiting multi-state charitable solicitation registrations.

Misconceptions are especially common around requirements for operating in other states, including when an organization must qualify as a foreign corporation, appoint a registered agent, meet special filing requirements at state charity offices, and how online fundraising affects charitable registration obligations. These issues are addressed in Charitable Solicitation Registration: 3 Common Misconceptions and the on-demand webinar Nationwide Charitable Registrations: Fact vs. Fiction.

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.