by Robert I. Evans & Avrum D. Lapin
As we cope with the last days of summer and look to the High Holidays, we are also seeing some increasing activity by state attorneys general and other officials around significantly changing policies in the charitable sector. Compliance and required paperwork for charitable registration in states across the U.S. have increased dramatically in recent years, but what is more critical are the changing regulations that vary widely from state to state and cause even the best of us to have a degree of uncertainty about compliance.
Looking at the glass half-full, states legitimately contend that stricter rules ensure transparency. And this has truly been a year in which donors have invoked the word transparency and the philanthropic marketplace has changed as a result. Demands for transparency are impacting broadly upon nonprofit operations, and the Jewish nonprofit world is not immune. Donors at all levels now expect financial transparency from the organizations they support and many (but unfortunately not all) Jewish nonprofits are responding with sounder fiscal planning, including opening their financial records and behaving much differently.
Transparency is further reflected in Federal rules governing charitable organizations. Earlier this year, we discussed the new IRS form 990 and how it affects Jewish charities. We stressed and caution again for groups to be aware that the 990 has undergone some very significant modifications and the IRS expects each non-profit to complete all questions.
And for the first time, the IRS now asks about compliance with appropriate individual state laws. Has your organization been able to quickly adapt to new and higher expectations from these new state and federal rules? We temper this question with the knowledge that they don’t make it easy.
Our review of this situation reflects that the terms for solicitation tend to vary for certain states. Sticking with the transparency premise: leaders of Jewish nonprofits must continue to do their due diligence, checking the registration requirements for every state where their donors reside. Further, state-by-state requirements for registration have been muddled in recent years due with the rise of online donations.
So even though your organization may not actively reach out to all 50 states, regulations could impact you. For example, California does not consider online donations as solicitations. However, once an organization sends emails and/or letters, then it is considered a solicitation and thus requires registration. New York and New Jersey, however, classify solicitation as any online donation. Direct mail will require registration in all 50 states.
It is very confusing. Registration fees also tend to vary between states. Florida and New York have a tiered fee structure that is determined by the size of the registering organization. Most states require annual renewals and the payments of escalating fees. However, some states do not currently have a renewal policy. Certain states have religious and educational exemptions, while others do not; therefore, it is imperative that Jewish nonprofits be aware of aware of exemptions that tend to fluctuate and stay abreast of these many rules.
We predict that even as we begin to emerge from the global economy recession, the enforcement of registration policies and government-required reporting, a consistent theme that has emerged in 2009 will be more determined going forward.
The disparate fees, classifications, and legal qualifications to register a nonprofit change so significantly those even usually-reliable publications can’t seem to stay current. So how can non-profits be expected to comply?
And we all understand that it will not take much for future sophisticated donors to be turned off by a perception that a nonprofit is not handling the business side of their organization properly. To maintain stability and be in compliance, it will require you and your non-profit to be meticulous and vigilant and to pay attention to changes; they often do apply to you! Not doing so and potentially hiding your head in the sand will indeed have negative consequences for your agency’s financial future.
Robert I. Evans, Managing Director, and Avrum D. Lapin, Director, are principals of The EHL Consulting Group, of suburban Philadelphia, and are frequent contributors to eJewishphilanthropy.com. EHL Consulting works with dozens of non-profits on fundraising, strategic planning, and non-profit business practices. Become a fan of The EHL Consulting Group on Facebook.