We’ve posted previously on the importance of being current with the changes to IRS Form 990 and the various State charity registration requirements that most nonprofits need to report on. Today, we bring you the first of two guest posts by Tony Martignetti, Esq. laying out some state specific information.
We also strongly suggest you review your organizations’ procedures, and needs, with appropriate professional advisors.
State charity registration laws have been on the books for decades. And largely ignored. Now that the IRS has stepped in, the game has changed, and you can’t ignore these laws any longer.
These are the laws, different in each state and the District of Columbia, requiring non-profits of every stripe to obtain approval from state authorities before conducting fundraising.
The new and extensively revised IRS Form 990 asks two questions about your organization’s compliance with this body of state laws. Merely two questions out of hundreds, but these questions require lots of research and work if they’re to be answered truthfully. The form is signed by an officer under penalty of perjury.
Some purely religious institutions are exempt from the annual 990 filings that other non-profits take such pleasure in, so the most imminent impetus for state registration compliance doesn’t apply. But all non-profits enjoy these remaining incentives:
- In many states, non-compliance is criminal;
- Your board members can be personally liable;
- Gifts can be challenged on the basis the solicitation was illegal;
- You really should operate on the right side of the law.
In Florida, a rather popular state for fundraising, failure to register is a third degree felony, punishable by fine up to five thousand dollars. In Arizona – which has extremely narrow exemptions – it’s a Class 1 misdemeanor. Pennsylvania scofflaws face a first degree misdemeanor and fine up to ten thousand dollars. Lots of other states, like California, New York, Illinois and Texas, have civil liability for failure to properly register. Under basic principles of fiduciary liability, your board members can be held liable for the charity’s criminal and civil misdeeds.
The third bullet is easily comprehended if you allow your imagination to stroll through the garden of mischief that can be played when a disgruntled donor (or heir) hires an enterprising attorney. There’s no attorney required to understand the last bullet. It’s just the right way.
How do you get started on the road to compliance? You have to know where you solicit, because those are the states in which you must register – or seek exemption. The definition of ‘solicitation’ varies from state to state but there are a few neat categories.
In a large group of states, the mere presence of online giving (a website that accepts donations) triggers the registration requirement. These are New York, Florida, Arizona, Illinois, Georgia, Kansas, Kentucky, Virginia and others.
Add states like California, Arizona and Wisconsin if you induce their residents to your website by email, paper mail, advertisements or otherwise.
In every state, you’re soliciting if you send Postal Service mail to ask for gifts or host meetings or events where donations are requested. If you’re doing these in a state, it doesn’t matter what they say about your website ‘Donate Now’ button.
I hope you see why your organization can’t ignore state charity registration laws any longer.
Tomorrow, in Part II, I’ll lay out a plan for getting started.
Tony Martignetti, Esq. has been supporting the fundraising needs of non-profits since 1997. He is the author of Charity Registration: State-by-State Guidelines for Compliance and Managing Director of Martignetti Planned Giving Advisors, LLC. His two websites are State Charity Registration and Martignetti Planned Giving Advisors.
To contact Tony, email him at firstname.lastname@example.org.