This is a guest post from Cliff Perlman, Attorney At Law with Perlman & Perlman.
Although Investigative News Network members may not solicit funds in many places or receive large sums, it is nevertheless important to understand the laws that apply to your various fundraising efforts. Failure to comply can lead not only to fines from the state in which you solicit and such failure can also lead to bad publicity which can hurt you and the Network on many levels. It is important for you to understand how charitable fundraising activities are regulated. This article provides an overview of charitable solicitation.
Charitable fundraising activities are primarily regulated at the state level, through offices of the Attorney General, Departments of Consumer Protection, and other charity regulatory bureaus. These regulations were established to protect prospective donors by preventing fraudulent fundraising and assist donors to make well-informed giving decisions. The state statutory schemes typically require charities to register with the state, file copies of fundraising contracts, and provide prospective donors with certain oral or written disclosures. About 39 states and the District of Columbia require charities to register before soliciting contributions in the jurisdiction.
The following are some frequently asked questions regarding these laws:
When must an organization register?
By law, nonprofits are required to register prior to conducting solicitation activities or receiving funds within a state. For fundraising consultants, commercial co-venturers and professional solicitors, registration is required prior to the commencement of services. If and when possible, an organization should renew its license prior to expiration.
Are there any groups that are exempt from registration?
Many states exempt any organization that plan to raise less than a particular threshold in contributions ($5,000 – $25,000) or within a fiscal period. There are also exemptions given to particular categories of nonprofits. For instance, in many states, schools, hospitals and religious organizations are generally exempt. Despite this, it is important to note, that many states continue to re-define who is exempted (i.e. what is the definition of a “church”?). To make this question even more complicated, there are some states that require the organization to apply for exemption, by filling forms. Beyond that, there are some states that require the organization to file exemption applications each year in order to be exempt from registration requirements.
How does a state become aware that an organization is soliciting unregistered in their state?
States discover non-compliance in a few different ways. The most common is when a consumer makes either an inquiry or complaint to the agency that regulates nonprofits in that state. Other states, like Pennsylvania, get their employees names “seeded” into direct mail or telephone solicitation lists that are purchased by nonprofit organizations.
If I have been soliciting contributions prior to becoming registered are there any penalties I will incur?
All states have the right to impose fines and penalties on those who solicit without registering in their state. In some states, (Florida, Pennsylvania, etc.), criminal penalties may be imposed along with fines for non-compliance.
California, New York, Illinois and many other states may impose civil penalties.
Failure to register may also result in the revocation of solicitation privileges in the state. Furthermore, the board members can be liable for your organization’s criminal or civil wrongdoings under the principles of fiduciary liability. On top of all this the IRS has stepped in. The new IRS Form 990, which non-profits must file annually if they raise over $25,000, asks two questions about your compliance with registration laws in states where you solicit. The 990 is signed by an officer under penalty of perjury.
Is registration required in all 50 states?
All but six (6) states require some form of registration. Currently, 39 states (including Washington, DC) require nonprofits to register. Specific forms and practices vary from state to state.
Any INN member intererested in finding out more about registration should contact Kevin Davis, who can facilitate a conversation with Perlman & Perlman on their behalf.