Generally, a tax-exempt organization that intends to solicit charitable contributions from the general public is required to register with forty-one states and the District of Columbia. Whether your tax-exempt organization is required to register in a particular state depends on whether solicitations take place within the state, if the organization has hired professional fundraisers to assist in fundraising, and from whom contributions are sought. States do have exemptions from registration, but they are narrowly tailored to very specific groups. More likely than not, your tax-exempt organization is required to register in order to solicit charitable donations from the general public.
What is a solicitation?
States have adopted an expansive definition of “solicitation.” For example, Kentucky defines solicitation as “the act of, requesting, directly or indirectly, that an addressed person or limited audience or the public generally make a contribution. Solicitation shall be deemed to have taken place when the request is made, whether or not the requested contribution is made.”
So, what exactly counts as “the act of requesting a contribution”? Well, many activities. Does your tax-exempt organization:
- Maintain a website with a ‘donate here’ button?
- Send out mailers, pamphlets, flyers, magazines, etc.?
- Send emails that include a request for contributions?
- Hold fundraising events?
If you answered YES to any of the above questions, your organization is likely required to register.
What is a tax-exempt organization’s risk of not registering?
Violation of registration requirements can be embarrassing, costly, and result in increased scrutiny from both federal and state regulators. Soliciting while not registered, failure to register after receiving contributions, or complaints filed by the public can all trigger adverse consequences, which can include:
- Monetary fines and penalties
- Personal liability against directors
- Enjoinment from soliciting funds
- Negative PR
- Damaged relationships with donors and potential donors
- Lost donations or grants
Although registration is complicated and timely, it is important to do this important work up front. Ultimately, these requirements are the law, passed and enforced by states to protect their residents from fraudulent charities. Following the law and maintaining compliance is important in the nonprofit world, where community standards and a premium on reputation are particularly high.
What can you expect during the registration process?
Each state has its own requirements. Many states requiring registration accept the Unified Registration Statement (“URS”) in lieu of its state specific form. However, many of those states also require state-specific supplements to be filed along with the URS. In addition, each state requires that some or all of the following supporting documents be attached to the registration form: Articles of Incorporation, Bylaws, IRS Form 990, audited financial statements, IRS determination letter, IRS Form 1023 (Application for Exemption), conflict of interest policy, and contracts with fundraising professionals. Fees vary by state and are typically calculated based on total gross revenue or total contributions during the most recent fiscal year.
The renewal process.
After the organization’s initial registration is accepted, the organization must annually renew its registration. These annual renewal dates vary from state to state. For example, Maryland’s renewal due date is 6 months from fiscal year end, Kentucky’s is 4 ½ month from fiscal year end, and North Dakota’s is always due September 1. Renewals require an application and supporting documentation. Organizations can expect to file the most recent financial information with their renewals, which is typically the form 990 and audit. Like the initial registration, fees vary by state.
Properly registering is very important, and most likely required of your tax-exempt organization. However, understanding and complying with multiple state registration requirements can be confusing and time-consuming.
Contact Patrick Hogan at Manley Burke Compliance, LLC to help you feel confident that your organization is following the law, so you can get back to focusing on the mission of your organization.