Not-for-profit organizations shoulder a wide range of different compliance responsibilities. With so much to manage, the initial and ongoing requirements of applicable state charitable solicitation laws can sometimes fall through the cracks. Here’s what you need to know to avoid the potentially costly consequences of failing to follow applicable laws and regulations.

What Do the Laws Require?

Not-for-profit fundraising is the subject of intense state regulation, most often through some form of a “Solicitation of Charitable Funds Act.” According to the IRS, about 40 states have enacted such laws. The laws diverge on some points, but generally are intended to protect the public from fraud and ensure transparency in charitable fundraising.

These laws apply to not-for-profits that solicit charitable contributions from state residents. The definition of “soliciting” generally means directly or indirectly requesting money, credit, property, financial assistance or some other type of value to be used for a charitable purpose. State solicitation laws typically impose two types of obligations:

State Solicitation Registration

Nonprofits may be required to register with the appropriate state authority and pay a fee. Registration is required before your organization solicits (not receives) any contributions, but states usually are lenient with late registrations if nonprofits can demonstrate a good faith reason for delays.

Registration calls for extensive information about your nonprofit’s finances and governance, such as:

• Organizational purpose;
• Names and addresses of officers and board members;
• Place and date of organization;
• Data related to your use of professional fundraisers;
• Purpose of solicited contributions; and
• Potential conflicts of interest.

You may also need to provide documents, such as copies of your IRS determination letter, incorporation records and bylaws; financial reports; and certification by your CEO or CFO. States often require organizations to refile registrations regularly and by specific deadlines.

State Financial Reporting

Depending on the state, not-for-profit organizations may be required to provide additional financial statements to state reporting agencies. Many states require contributions, gifts, grants and functional expenses to be reported according to the AICPA industry audit and accounting guide. Some states require contributions, gifts, grants and functional expenses to be reported according to Generally Accepted Accounting Principles (GAAP).

Your organization may be exempt from such requirements, though. For example, most states exempt religious and certain educational institutions, public safety-related organizations and parent-teacher associations that satisfy certain criteria. States may exempt organizations whose annual contributions fall below a specific threshold, as well. If you believe your organization qualifies for an exemption, you’ll need to apply for it.

Where Do You File?

Not-for-profits don’t need to have a physical presence in a state to be covered by its requirements. Notably, some state solicitation laws have not been updated to include online solicitations. It is wise to assume, though, that the laws apply to all types of online fundraising, including crowdfunding, which can easily reach multiple states.

The National Council of Nonprofits recommends that not-for-profits register in their state of incorporation, any state where they have a physical presence and any state where they target residents or have ongoing contact with residents. You may need to closely monitor the sources of your donations to ensure you’re in compliance with all applicable state reporting requirements. Some large organizations avoid this hassle by simply registering nationwide, but that approach does not necessarily make sense for every not-for-profit.

Don’t Go It Alone

Compliance with solicitation laws is not just a formality. Your failure to comply can lead to substantial fines and penalties, litigation and loss of the right to solicit. You may also incur reputational damage. Even the loss of tax-exempt status may be on the table. Please contact us for further information on how to determine and satisfy your obligations under state reporting requirements. There are third-party organizations, including some law firms, that specialize in state reporting requirements.

Sidebar: What About the Unified Registration Statement?

While looking into your solicitation obligations, you may find references to the Unified Registration Statement (URS). The URS is part of an effort organized by the National Association of State Charity Officials and the National Association of Attorneys General to standardize and simplify compliance with states’ various solicitation laws. It was intended as an alternative to individually filing all of the registration forms required by different states.

A streamlined approach certainly is appealing, especially for smaller organizations. But the URS has fallen short of the hopes of many in the charitable sector. For starters, the URS hasn’t been updated since 2014. Some states have amended their laws and regulations over the past decade, so the URS may no longer comply with applicable requirements.

Moreover, not every state accepts the URS. Those that do might have varied rules for how the URS should be submitted. They also might have additional supplementary documentation requirements. And states may not accept the URS for renewals after the initial registration. Before relying on the URS, consult with legal or applicable counsel.

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