Guest post by James Gilmer
James Gilmer is a compliance specialist for Harbor Compliance, which establishes 501(c) nonprofits and helps them stay compliant. Harbor Compliance assists charities in every state and several countries abroad. James serves on the Board for two nonprofits in Lancaster, Pennsylvania.
The Importance Of Charitable Solicitation Compliance
Every successful nonprofit leader knows the importance of fundraising, and how retaining a network of donors is critical to sustaining program revenue. What nonprofit executives often overlook is charitable solicitation compliance.
Complying with state solicitation requirements allows your charity to fundraise legally, to avoid penalties with the state, and to demonstrate your nonprofit’s credibility to potential donors. Simply having a federal tax exemption under 501(c)(3) is not enough; most states require registration before you can solicit funds in that state.
This post will serve as an introduction to charitable solicitation registration and compliance. Your charity will have different requirements based on your situation. As you read, remember that there are professionals who can provide guidance with your charity’s registrations.
What Is Charitable Solicitation Compliance?
Forty-one states currently require charities to register prior to soliciting donations from their citizens. If your charity solicits funds (that is, asks for donations) in one or more of those states, you must comply with the applicable registration requirements. Generally, registration takes place with the Attorney General’s Office or the Charities Division of the Secretary of State.
Each state has its own registration process, per this handy map. Most states have their own application and required supporting documentation, which can include Articles of Incorporation, an IRS determination letter, IRS Form 990, and more. The Unified Registration Statement (URS) is a consolidated form that 32 states accept, however, charities must determine their eligibility and make sure to submit the required supplemental information specific to each state. Some states require charities to qualify with the corporations division and appoint a registered agent.
Does My Charity Have To Register?
Most charities register first in their state of incorporation, and then register in other states as they expand their fundraising efforts. If your charity solicits funds in a given state, or has already received contributions from a state, you must comply with applicable requirements in that state.
Typically, this means registering, but there are some exceptions depending on your charity’s revenue and activities.
What About Online Fundraising And Crowdfunding?
One of the joys of the internet is the ability to seemingly gain donors and revenue from anywhere. While this is true, your charity should beware that online fundraising also triggers state fundraising requirements. By maintaining a “Donate Now” button on your website or by using crowdsourcing platforms, you are technically soliciting funds in every state.
States treat online fundraising and crowdfunding like any other form of solicitation, and you have to comply with registration requirements nationwide unless you do not accept donations from certain states.
What Makes Charitable Solicitation Compliance Difficult?
The reality of charitable solicitation compliance is that registrations must be renewed annually in each state. When your charity fundraises in several states, or nationwide, tracking due dates and filing annual registration renewals on time takes up an enormous amount of staff time.
If you’re like most organizations, your staff time is better spent on program development and fundraising, rather than navigating complex government requirements. For this reason, you may consider outsourcing the management of your annual registrations to a professional service provider.
“Why Register?” And The Value Of Compliance
Charitable solicitation compliance may seem like a large investment of money and time, but there are three reasons why your nonprofit should register:
1. It’s the law. Most states require charities to register as an extra protection for its citizens (aka your donors) from unregulated or illegitimate charities. Failure to register, either unknowingly or willingly, can lead to fines and penalties.
2. The IRS wants to know. Each year, you will disclose all the states you have registered to solicit funds on your IRS 990 return.
3. Lastly, and perhaps most importantly, your donors rely on it! Most states maintain a database of registered charities, and prospective foundations and private contributors search for your organization before they give. They want to know that your nonprofit is legitimate, and with an investment in charitable solicitation compliance, you simultaneously demonstrate your commitment to your mission and help instill confidence in your donors about your organization.