This blog focuses on the world of prospect research and various related fundraising topics. To diversify our subject matter, we like to feature the work of our friends and colleagues in the community. Join me in welcoming James Gilmer of Harbor Compliance and please enjoy this post on fundraising compliance.
Fundraising Compliance and the Impact on Giving
Fundraising and active donor engagement are critical to your nonprofit’s success. Many nonprofit leaders believe that simply being recognized as tax-exempt under IRC Section 501(c)(3) allows their charity to fundraise freely. However, fundraising (or “charitable solicitation”) is highly regulated at the state level. Failure to comply with the rules and requirements of state authorities can lead to steep financial penalties, loss of personal liability of the officers and directors, and a loss of credibility with your donors.
Proper registration and compliance directly impacts your ability to fundraise for major gifts. Consider this the “other side” of prospect research. While you are determining their giving capacity, donors will research your organization before they give. If you are not registered, or noncompliant, you risk losing a big opportunity.
This post will serve as an introduction to fundraising registration and demonstrate its potential impact on current and future gifts to your organization.
What is Charitable Solicitation Registration?
Charitable solicitation registration, also known as “fundraising registration,” registers your charity with the state (usually the Attorney General’s Office), and allows your charity to solicit funds in that state. Currently, forty states and the District of Columbia generally require nonprofits to register, and to renew the registration annually or biennially. By registering, you keep the state informed of your operations, financial information, leadership, and fundraising activities. The purpose is to protect the citizens of that state from unregulated or illegitimate organizations.
Each state has differing application requirements and filing fees. You can expect to submit information on the organization’s leadership, activities, and financials, as well as any corporate records. You can also expect to appoint a registered agent, and obtain a Certificate of Authority in several states. You will then file annually or biennially in most states in order to keep your registration active. Review your state’s registration and renewal requirements using this Fundraising Compliance Guide.
Why Register, and How Compliance Impacts Giving
Currently, forty-four states have laws surrounding charitable solicitation. Of those states, forty and the District of Columbia have a registration requirement. With few exceptions, your charity must register before it solicits funds, regardless of whether funds are actually received. That’s right, before you even ask for a donation.
The IRS also wants to know. On your IRS 990 return, you disclose all the states in which you fundraise and in which you have registered.
Most importantly, don’t believe for a second that while you are researching prospective donors, that they are not researching you, too. It’s a fact that donors who have made major gifts in the past are more likely to give again. Experienced donors and foundations use the state’s registry of charities to search for your nonprofit before they give, especially if they have never given to you before. If your organization is not registered, or is noncompliant, you lose credibility with those donors, and potentially lose the sale as well. By staying compliant, you demonstrate your organization’s credibility and reassure donors that they are making the right choice.
When Does My Organization Need to Register?
According to state requirements, your nonprofit should generally register before it asks for donations, including online. In reality, many nonprofit leaders are unaware of having to register for charitable solicitation. If you have already been sending solicitations, or receiving contributions from a state, consider registering there as early as possible.
State law is one motivator, but your organization’s bottom line is another one. Given what you now know about donor behavior, are you losing out on gifts because your nonprofit is not fully compliant? Are your donors demanding, either directly or indirectly, that you register? For many organizations, the value of compliance, through added contributions and avoidance of state penalties, outweighs the cost of registration.
By the way, if your organization fundraises online with a “Donate Now” button or on crowdfunding platforms, you are technically soliciting funds in every state. This means your nonprofit must comply with applicable registration requirements nationwide.
Once you have registered and become compliant, the last thing you want to do is fall out of good standing with state charitable solicitation authorities. Even if your charity operates and solicits donations in just a few states, tracking due dates and filing registration renewals on time is important, as one lapse can lead to penalties and fines. For larger organizations, tracking nationwide renewals can be a huge drain on staff time and organizational resources. If your nonprofit is using substantial resources managing registrations, remember that there are service companies, attorneys, and other professionals who specialize in this work, reduce the time you spend, and help you stay the course.
The reward for all your hard work is two-fold. First, by registering your nonprofit, you help stay in compliance with state and IRS requirements. You’ll also avoid state fines and penalties that may arise if your nonprofit is found to be noncompliant. Even greater, your nonprofit will have the freedom to solicit funds in any state where you are registered, and will give your donors the complete confidence to support your mission.
Author Bio: James Gilmer is a compliance specialist for Harbor Compliance, which establishes 501(c) nonprofits and helps them stay compliant. Harbor Compliance assists charities in every state and several countries abroad. James serves on the Board for two nonprofits in Lancaster, Pennsylvania.