In the world of nonprofit corporations, much of the focus is on charitable organizations.
These types of nonprofit organizations come up with many recurring questions, especially as they relate to fundraising and state charitable solicitation registration requirements.
To help address some common areas of confusion, we’ve shared the top 10 nonprofit compliance questions regarding fundraising that we field the most.
1. Which organizations are required to register to fundraise or solicit donations?
Religious organizations aside (if they are not required to file any version of the IRS Form 990), most nonprofits must register to solicit charitable donations, especially if they are fundraising in multiple states. There are often broad exemptions in many states for small organizations that raise less than $25,000 per year as well as for educational institutions, hospitals, and political and/or membership organizations.
That said, the answers are rarely black and white when it comes to state solicitation registration. There are frequently exceptions to those exemptions, and many states require charitable organizations to apply or request exemption.
2. When does my nonprofit have to register to solicit donations?
Barring an applicable exemption – of which there are many, most states require charities to register to solicit charitable donations when they are directing fundraising efforts toward individuals, corporations or foundations within a state. It is solicitation activities that result in the need to register, not the number or amount of donations received from them.
One exception is California, which allows for a 30-day grace period for registration from the time that charitable assets are first received by a charity from donors in the state.
3. Which states require charitable solicitation registration?
Most states require registration if a charity is soliciting anyone in their state, regardless of the nonprofit’s location or the method of fundraising outreach used (e.g. direct mail, grants, events). There are 9 states that don’t require registration, and a few that only require it for particular types of organizations. Keep in mind that even if your charity is in a state that doesn’t require registration, that doesn’t mean you are free of charitable registration requirements when you raise funds across state lines. Depending on your fundraising activities, your organization might also need to register in multiple states.
Note: Registration is generally handled at the Secretary of State’s Office or at the Office of the Attorney General. In some cases, it’s handled through a licensing or consumer protection office.
4. Does our charity need to qualify to do business in a given state before fundraising?
Only Washington D.C. (more on this in #10) and North Dakota require that a charity be qualified as an entity prior to being registered to solicit charitable donations.
However, not being required to qualify in order to register as a charity does not preclude a nonprofit from needing to qualify in other states in order to conduct its business affairs. Each state will have its own requirements for what constitutes doing business in its jurisdiction. In California, Colorado, and Oregon, charitable solicitation across state lines is considered ‘conducting business’, and therefore requires registration as a corporation in these states.
5. Does our nonprofit need a registered agent in every state where it’s registered for charitable solicitation?
Fortunately, most states do not require a registered agent in order for a nonprofit to solicit donations. In those states where a registered agent is required for charities, don’t confuse it with the statutory requirements for registered agent for business entities. There are separate and distinct registered agent obligations for nonprofits.
6. Is charitable solicitation registration required if our website has a ‘Donate Now’ button?
At current count, 41 states (plus Washington D.C.) require some form of charitable registration. What triggers the requirement? Solicitation of funds. Each state defines ‘solicitation’ differently, so it is important for nonprofits to seek guidance to determine which states consider a ‘Donate Now’ button as solicitation.
When hiring a professional fundraiser, nonprofits need to check whether this triggers the loss of any state charitable solicitation registration exemptions.
Exemptions are afforded based on monetary thresholds and type of organization (e.g. membership organizations, fraternal and social organizations, hospitals/hospital auxiliaries), but those exemptions may no longer be applicable when a professional fundraiser is brought on board. This oversight can be costly, especially to small organizations.
Those charities that are already registered and then engage a fundraising professional may need to amend their registrations, along with filing a copy of the fundraising contract.
8. Besides registering to solicit donations, are there other filing requirements for a nonprofit corporation?
In addition to one-time or annual charitable solicitation registration, most states require filing of an annual report, renewal, update or some form of compliance filing to remain in good standing with the state charity regulators.
These compliance filings usually include the nonprofit’s IRS Form 990, audited or reviewed financial statements, and/or state-specific financial reports.
Unfortunately, the audit threshold is very low in some states, such as Illinois where the threshold is $300,000 gross contributions received. Going back to the impacts of engaging outside fundraising help, this audit threshold gets lowered to $25,000 of contributions if your organization engages the services of a professional fundraiser. Audit requirements like these can vary widely by state.
The best reason for getting an extension with the IRS is to be eligible for filing extensions with many of the state charity offices, as the deadlines for state charitable renewal filings often mirror that of the IRS.
If a nonprofit organization finds that it’ll need additional time to meet filing deadlines, there are several states that will not allow an extension for their filings without first being granted the federal extension. This can lead to late fees, possible fines and, in some states, the need to re-register.
10. What are the charitable solicitation requirements in Washington D.C.?
Obtaining a charitable solicitation license in D.C. is no easy task, exacerbated by inaccurate information posted by sources that are expected to be reliable. Be advised that there are several prerequisite items required (including patience) for filing the Basic Business License form (BBL-EZ).
Still have questions? Our experienced nonprofit team is here to help.
From the Archives:
Catch our nonprofit compliance discussion on the Using the Whole Whale podcast, back when COGENCY GLOBAL was known as ‘NCR’. Names may have changed but the conversation is just as relevant today.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.