18 Sep How To Stay Compliant In A Non-Profit World
charitable solicitation registration – across the map
The myRollCall team was recently introduced to Greg McRay, president and CEO of Foundation Group. Greg and his team help nonprofits reduce risk by ensuring their organizations are in charitable solicitation registration compliance. What a mouthful! Compliance can be a tricky state of affairs, especially when fundraising across multiple states, but, fortunately for us (and you), Greg is shining a light on all our burning compliance questions.
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What exactly is charitable solicitations registration?
Starting from the beginning, charitable solicitations registration is the licensing/registration regulatory structure required of nonprofits in order to allow them to solicit donations from the public.
So far, so good. But because these requirements are administered at the state level, the specific registration requirements vary depending on where you are. Especially with the proliferation of digital donations over the past few years, it’s crucial to understand multi-state compliance to avoid triggering red flags and attracting unwanted regulatory attention.
Like many things established at the state level, there’s a level of variance we see in registration requirements. Some states will provide online registration, while others require paper submission only. Some states require detailed financial reporting (like Form 990s), and others require a CPA audit above a certain gross revenue threshold.
Many, though not all, states require IRS 501(c)(3) status prior to registration, and virtually all expect registration to happen prior to soliciting the public.
It’s also worth noting that any state with a registration system will require renewal (typically annually).
What’s considered a solicitation?
In short, revenue-generating activities are considered solicitations. Of course, this includes fundraising events, direct mail and email campaigns as expected. It also includes one-on-one asks, website donation pages & “donate now” buttons. These may all seem obvious given you are actively asking for money. But what about the less obvious solicitations? Membership dues, participation fees, program revenue from the sale of products/services, unsolicited donations. While your organization isn’t reaching out and asking for these funds as donations, it is still money coming into your organization – revenue is being generated.
Greg discusses this in more detail in his recent blog post:
States Increasingly Say That All Revenue Sources Constitute a Solicitation
How do digital donations work across multiple states?
The Charleston Principles govern online donation activity and determine what digital activity requires registration and in which state(s).
First and foremost, the Charleston Principles state that an organization MUST be registered in its home state (if registration is required by that particular state).
Secondly, merely having online donation capability does NOT mean you need to meet a nationwide registration requirement. Let’s say you’ve registered in your home state and are accepting (unsolicited) digital donations from across the country (good for you!) – this does not trigger multi-state compliance or registration. You’re good to go!
What DOES trigger that multi-state compliance/registration is acting on one of those donations from another state with an “ask.” Once you reach out and actively ask for funds, you’ve triggered the need for multi-state compliance and registration. So, if you receive an online donation from someone in a neighboring state and follow-up with a thank-you note in which you ask for more money or future donations, this is where you may need to register across multiple states.
This may sound like you need to register across nearly all states in order to stay compliant and maintain your follow-up efforts, but because of the variance between states, you may not have to register in as many as it seems. This is where it might be beneficial to work with a trusted partner to help navigate the complexities between states. While you certainly don’t want to miss a required registration, you also don’t want to get bogged down registering in states that you don’t need to!
What happens if my organization isn’t 100% compliant?
With compliance enforcement on the rise, it’s of course always better to be safe than sorry. Finding yourself in a state of noncompliance can result in significant fines and penalties and/or being forced to cease activity. That doesn’t even include the PR nightmare, gap in fundraising and funds lost while getting the registration sorted out.
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Greg McRay is the President and CEO of Foundation Group. With a professional background in tax and accounting, Greg began working extensively with nonprofit organizations starting in the early 1990s. His solo practice continued to grow, leading to the decision to develop a professional services firm addressing the tax and compliance needs of nonprofits nationwide. Teaming with a like-minded associate, Foundation Group was launched in September 1995.
For over 20 years, Foundation Group has specialized in 501(c)(3) nonprofit formation, IRS tax-exemption, and state fundraising compliance, helping thousands of clients make better decisions, reduce risk, and grow their organizations.
“Nonprofits provide essential services to our country that cannot be effectively duplicated in the for-profit or government services arenas. Unfortunately, these same nonprofits have been grossly under-served by the professional services community for decades. Our ongoing mission is to be the solution to that imbalance.”