Charitable solicitation can constitute: requesting contributions by phone, in-person, by mail, by email or even having a ‘Donate’ button on your website. Charitable registration is the process whereby a charity requests a license to legally fundraise within a jurisdiction. 501(c)(3) organizations are typically required to register in around 40 states plus the District of Columbia.
Charitable registration laws exist principally to protect the public from fraudulent activities. From the charity’s perspective, registration and compliance can be an opportunity to lay foundations of trust with the public and prospective donors. It is an opportunity for a charity to be transparent about its fundraising activities and also shed light on the costs involved in raising funds vis-à-vis the actual dollar amount that goes towards its cause.
Charitable registration is regulated at the state level. Charities are required to comply with charity state laws before they can legally solicit for contributions within a state. Registration requirements vary from state to state and as such can be quite complex and time consuming to file and remain in compliance. For example, most states have initial registration requirements that must be met before a charity can begin soliciting within the state. Some states also require statements to accompany any written solicitation. In cases where the charity elects to use a Fundraising Counsel, issue Charitable Gift Annuities or partner with a for-profit entity in a Commercial Co-venture, additional requirements may apply.
It is important to know the difference between registering your charity to do business in a state vs. registering to solicit contributions in a state. Registering to do business in a state, is also referred to as Corporate Qualification. Corporate Qualification is required if your charity plans to open an office or have employees located in the state. Solicitation Registration is a filing done to be able to legally solicit contributions. Most charities file charitable state registration in many or all states but typically only file corporate registrations in a couple of states.
North Dakota and The District of Columbia require filing a corporate filing as part of the charitable solicitation registration process.
Any nonprofit that is requesting donations, is required to register. However, religious organizations, educational institutions and medical facilities can file for a registration exemption in some of the states.
You may not know much about nonprofit registration nor even that it is required in many states. This is particularly true for many smaller nonprofits, especially those that are volunteer driven. Ignorance of state statutes on nonprofit registration is not treated by the state as a valid excuse. Although most states are slow to take any punitive measures against a nonprofit, the importance of complying with state laws goes beyond avoiding fines and legal action. Trust is even more important, in fact, trust is vital to the success of nonprofits. If that trust is put into question, potential donors are more likely to be hesitant to donate to your organization. Given the fact that there are over a million charities competing for relatively limited funds, it is important to take a hold of factors you can control.
Documents, forms and filing fees vary from state to state. Generally, IRS Form 990, an IRS Letter of Determination, Articles of Incorporation, Bylaws and applicable fees are required to register.
1) IRS Form 990, Form 990-EZ, 990-PF, 990-N
IRS Form 990, is simply a form that provides the public with detailed financial information about a nonprofit organization and its mission. It is required to be filed annually.
2) IRS Letter of Determination
This is a notification from the IRS to the nonprofit organization that it has been granted tax-exempt status.
3) Articles of Incorporation
Articles of Incorporation, are documents that establish the existence of your charity, and must be filed with the state of domestication.
4) Applicable State Fees
Applicable fees vary by state and are often dependent on several factors, such as gross revenue from the previous year. In some cases, fees can be determined based on funds raised within a state.
Several states have converted to online charitable state filings; however, many states still require paper filing for initial as well as registration renewals. Some states us a combination of paper as well as online filings. A couple of states require filing on CD.
Organizations such as educational, religious and medical organizations can be exempt from filing registration in some states, but they must file for permission to be exempted from registration requirements. Other instances where an organization may file for exemptions would be when funds raised in the previous year did not meet state thresholds for registration.
State Charity Regulators typically require registered charities to renew their charitable registrations annually. Charitable Registration Renewals keep the state apprised of changes within the organization. These renewals are, in a way, a license to legally continue with its solicitation activities within a said jurisdiction.
States require information from Form 990 to be included in any renewal application. Since renewal deadlines are often early in a fiscal year, this poses a timing issue since IRS Form 990s are often not yet completed. To allow for time, it is often necessary to file extensions with the state.
Written by Franklin Asongwe