Charitable Solicitation Registration-Why Register?
From the nonprofit fundraising scandals of the late 1970’s to the televangelist debacles of the 2000’s, charity scandals over the last few decades have led many state governments to increase their regulation of charitable fundraising. The most significant legislative response to the shifting nonprofit landscape is the charitable solicitation registration (“CSR”) statutes now enacted in at least 39 states and the District of Columbia. Today, states are regulating charitable solicitation more strictly than ever in order to protect their residents from solicitation fraud and give them the information they need to make wise charitable contributions. Another component of state intervention is the significant fees generated from registrations under these CSR statutes.
State CSR statutes generally cover the following areas:
- Registration, annual reporting, and record-keeping requirements for charities, professional fundraisers, and professional fundraising counsel;
- Exemptions from registration and reporting requirements;
- Disclosure requirements for charities and professional fundraisers during solicitations;
- Prohibitions against certain acts while soliciting; and
- Penalties for unregistered solicitation, late registration, and other violations.
In the context of CSR, the term “charitable solicitation” is used to refer to an extremely wide variety of methods, including direct mail, email, web-based donation systems, phone calls, in-person requests, and other indirect invitations to donate money. Any solicitation, regardless of whether it produces a donation, such as newsletters with donation mechanisms, can trigger state CSR requirements and enforcement. Enforcement actions taken by some states has become more excessive and penalties increase exponentially with each violation. Deputized fundraisers who solicit on behalf of a nonprofit organization for their own support (missionaries, for instance) also fall into this category. The exact definition of “charitable solicitation” and related legal terms varies widely by state, making nationwide registration confusing and incredibly time consuming for nonprofits which attempt to register without knowledgeable legal counsel. Doing CSR in house or using services without knowledgeable lawyers who regularly deal with CSR and tax-exempt organizations have led to problematic results and sometimes disasters.
Please note that many states also have separate registration systems regulating charitable gift annuities and charitable remainder trusts under their insurance laws in addition to charitable solicitation registration. Several states now require nonprofits to register as foreign corporations even though they have no physical presence in these states. State security compliance regulations may also apply if a charity is soliciting loans, bonds, or other securities. Moreover, states have registrations for professional fundraisers or fundraising counsel that also impact CSR as well.
In recent years, the IRS has changed its reporting requirements to further enable each state’s ability to more easily monitor charitable solicitation. Part VI of the IRS Form 990 now requires the organization to list which states it is registered in, which enables the IRS to easily compare the addresses of major donations listed on Schedule B of the IRS Form 990 to the states in which the organization can legally solicit. Until a recent Supreme Court decision, certain states required an unredacted version of Schedule B to be included with each filing listing names of specific major donors. These states now either no longer require Schedule be to be provided at all, or require Schedule B to be provided, with all donor information redacted.
If your nonprofit organization has been soliciting illegally, the need for registration is especially urgent. For example, if a nonprofit organization solicits in a certain state for ten years without registering, the organization may be required to pay the previous ten years of registration fees, late fees, and possibly statutory penalties for violating the law. Thus, an organization which has actively solicited illegally for several years across the nation could potentially be faced with thousands of dollars in penalties or more, and even restrictions against future solicitation. However, a knowledgeable attorney and paralegal can help you navigate through the regulations to reduce the past due fees and penalties.
Once your organization has made the decision to register for charitable solicitation, you will be faced with a maze of constantly evolving state statutes and registration systems. Our attorneys and paralegals, who specialize in nonprofit legal issues, can guide you through these minefields and ensure that your organization remains compliant with CSR statutes nationwide. Under a fixed-fee arrangement, our firm will first create a comprehensive plan for your initial registration and exemption filings, strategizing with you to most effectively use your time, attention, and resources. Once we have determined your registration obligations, we will register your organization and aggressively seek exemptions where available.
We strongly urge you to consider registering your nonprofit in any and all of the states in which you are presently soliciting or plan on soliciting funds. By keeping current on all law changes and aggressively filing for any available exemptions on your nonprofit’s behalf so that any unnecessary filings or fees can be eliminated, your nonprofit can often save hundreds of dollars per state each year. One state exemption alone will amount to thousands of dollars in fees and costs over a period of years.
With the states’ laws constantly changing and enforcement increasing for understandable reasons, you will need your nonprofit to stay ahead of the game, and in compliance with all state regulations regarding charitable solicitation. Now is the time to begin the charitable solicitation registration process. With our thoroughly trained legal staff guiding your way through the registration and renewal processes, you will be avoiding countless consequences that could permanently harm your nonprofit organization.
Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum. We thank our Paralegal, Therese Torerella, for her help on this article.
If you solicit throughout the country, we would be glad to conduct a complete nationwide analysis of your CSR obligations, tailored to your organization’s specific purpose, revenue, and solicitation practices. For organizations which retain the CSR services of our firm for at least two years, there is no charge for this analysis. Based on this analysis, we can then register your organization or apply for exemption in each state which requires it. If we can answer any further questions or provide additional information about this process, please do not hesitate to contact our CSR paralegal at 703-771-4671 and by email at attorneys Robert Showers, Esq. or Justin Coleman Esq. at jrc@simmsshowerslaw.com.
