What You Need to Know About Charitable Solicitation and Registration

Regina Hopkins D.C. Bar Pro Bono Center January 19, 2017 Charitable Solicitation Registration

Overview • 39 states and the District of Columbia have laws that require charitable organizations to register with the government before the organization solicits contributions. • The 11 states that do not regulate are: Arizona, Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, South Dakota, Texas*, Vermont, and Wyoming. • Generally, an organization must register in the jurisdiction in which it is incorporated. • It must also register in each state in which it solicits contributions.

* Organizations that solicit for certain law enforcement, public safety, or veterans causes must register. 2 Charitable Solicitation Registration

D.C.-Based Organizations • Organizations located in D.C. that solicit contributions in the metro area will have to register in Virginia and Maryland, as well as D.C. • Note: Solicitations appearing in newspapers, on radio or T.V., etc., will trigger the registration requirement in MD and VA because the solicitation is circulating in the entire metro area. • If an organization solicits nationwide, it must register in all 39 states as well as D.C. • Note: There are de minimus dollar level thresholds in each state below which an organization is not required to register, but they are generally based on an organization’s entire revenue, not just contributions raised in a particular state. 3 What is a “Solicitation” in D.C.? • D.C. has a very broad definition of what constitutes a solicitation which includes any verbal or written request for contributions. • The solicitation can take the form of a mailing, a posting or publication, or the circulation/dissemination of any written advertisement. • Includes press releases, television and radio appearances, and telephone calls. • Also includes any communications regarding an event (e.g. fundraiser, benefit, contest, party, exhibition, performance, sporting event, social gathering, etc.) which the public is requested to attend, or to which the public is asked to make a contribution. • Also includes the sale of any advertising space, merchandise, subscription, or other thing where the name of any charity is used as an inducement for making the sale, or when a statement is made 4 that all or part of the proceeds will go to a charity. What is a “Solicitation” in D.C.? • A solicitation also includes: • Raffle tickets or drawings; • Grant requests; • Requests for in-kind contributions; and • Certain loans, such as non-interest loans to a charitable organization. • The charitable registration requirements apply to solicitations of: • Individuals; • Foundations; • Corporations; and • Government. 5 D.C. Registration Process • The Department of Consumer and Regulatory Affairs (“DCRA”) oversees the charitable registration process in D.C. 501(c)(3) Status • In order to register under D.C.’s charitable solicitation act, an organization has to be tax-exempt under Section 501(c)(3) of the Internal Revenue Code, as evidenced by their IRS Determination Letter. • This can be a problem for start-up organizations seeking to raise funds in order to apply for 501(c)(3) status. • In order to deal with this difficulty, an organization can make use of a fiscal sponsor – another 501(c)(3) organization that is willing to take donations on behalf of the start-up organization. • The fiscal sponsor has legal control over the funds, and while they are designated for the start-up’s program, the fiscal sponsor cannot 6 use the funds if it would violate its mission under Section 501(c)(3). D.C. Registration Process

Business License • An organization wishing to register in order to solicit charitable contributions must do so as part of the process for obtaining a basic business license. • In order to get a basic business license, a nonprofit must first: 1. Ensure it is registered to do business in D.C. with DCRA; • Organizations which are incorporated in another state, but are doing business in the District, must register as a foreign corporation. • “Doing business” includes having an office, conducting programs, hiring employees, or soliciting contributions within the District. 2. Have a registered agent in D.C. – the person who receives legal notices on behalf of the organization; and 3. Obtain tax exempt status under D.C. law and a D.C. tax ID number by filing Forms FR-164 and FR-500 with the D.C. Office of Tax & Revenue. • Once an organization has taken these steps, it can file its application 7 for a basic business license. D.C. Registration Process

Business License (cont.) • To file for a business license, applicants must complete the Basic Business License EZ Form. • Along with the BBL-EZ Form, the organization must submit: • A Clean Hands Self-Certification; • The Tax ID number from the Office of Tax and Revenue; • Certificate of Occupancy for its premise; • A copy of the IRS Determination Letter; • A Certified Resolution authorizing the registration; and • A copy of each contract with a professional fund raiser or professional solicitor (if using). 8 D.C. Registration Process

Individual Solicitors • When an organization files a Basic Business License application, it has the option of obtaining Solicitor Information Cards for individuals soliciting on its behalf. • In order to obtain the cards, the organization must submit a list of the individuals who will be soliciting and receiving custody of charitable contributions on its behalf, along with their addresses. • Exemption – Any such solicitor who: • does not receive in hand more than $1,500 in contributions during a calendar year; • is unpaid for his or her services; and • pays no part of their collected contributions to any officer, member, or solicitor, or uses contributors for the benefit of these individuals 9 is exempt from the registration requirements. D.C. Registration Process

Filing & Renewal • The filing fee for a Basic Business License with Charitable Solicitation registration is $412.50. • Once registered, the organization must display its certificate of registration in a prominent place. • The registration must be renewed every two years. • Renewal is due 30 days prior to the expiration date of the previous license.

10 D.C. Registration Exemptions 1. Organizations that do not raise more than $1,500 per year. • Fundraisers cannot be paid for their services, and no part of the contributions may be paid to any officer, member, or solicitor. 2. Organizations that solicit donations only from their members or members’ families. • The governing body must approve the solicitation. • An individual is not considered a member simply because the person previously donated to the organization. 3. Organizations that only engage in workplace giving campaigns. • The solicitation must be approved by the employer and carried out under the employer’s supervision, and only at the workplace. 4. Religious organizations that solicit for educational or religious purposes. • The organization must submit to DCRA a certified copy of its IRS determination letter and an affidavit stating that the exemption is still in effect. • A religious organization may not solicit contributions until after its application for exemption has been approved. 11 Maryland Registration Requirements

• In Maryland, all organizations are required to register with the Secretary of State before soliciting within Maryland. • Organizations must submit Maryland’s Registration Statement (Form COR-92). Applicants will also need to submit: • a copy of the organization’s articles of incorporation and by-laws; • a copy of the organization’s IRS tax determination letter; • a copy of the latest signed IRS Form 990; • the names and addresses of the board of directors; • a copy of all contracts with professional solicitors or fundraising counsel, other than employees located in the State of Maryland; • a statement describing the organization’s mission; and • a statement detailing how the contributions to be solicited will be used. • If the organization’s contributions are at least $300,000, but less than $750,000 per year, the organization must submit a financial review performed by an independent certified public accountant. • If the organization’s contributions are at least $750,000 per year, the 12 organization must submit an audit performed by an independent CPA. Maryland Registration Requirements

Registration Fees • Organizations must pay an initial registration fee and, thereafter, an annual fee. Both of these fees are based on the gross level of charitable contributions the organization received from any source.

Annual Level of Charitable Contributions Fee Less than $25,000 $0 $25,000 but ≤ $50,000 $50 $50,001 but ≤ $75,000 $75 $75,001 but ≤ $100,000 $100 $100,001 but ≤ $500,000 $200 13 $500,001 and more $300 Maryland Renewal Requirements • Each year the organization must submit the Annual Update of the Registration Form. • The organization must include with the Annual Update: 1. The most recent Form 990 • Alternatively, Form COF-85 if your organization does not have to file a Form 990, or files a Form 990-N; 2. A list of the current board members; 3. Any new fundraising contracts; and 4. A financial review or audit if the organization’s contributions equal or exceed $300,000 and $750,000, respectively. • The renewal date is technically six months after close of the fiscal year, but an extension to the 15th day of the 11th month will be automatically granted.

• The organization must also pay the annual filing fee. 14 Maryland Exemptions The following organizations may claim an exemption from registration: 1. A tax-exempt religious organization, parent of a religious organization, or school affiliated with a religious organization. The organization needs to submit to the State of Maryland: • A copy of the IRS determination letter, • The organization's articles of incorporation and by-laws; and • A document explaining the mission of the organization. 2. An organization that only raises funds from its members. To qualify, the organization must confer some benefit to the members and the members must have the right to vote for and hold office in the organization. The organization needs to submit: • A copy of the organization's by-laws showing members’ rights; and • A statement of who will be solicited. 3. An organization which solicits contributions for a specific, named 15 individual, where the gross amount is delivered to that individual. Maryland Exemptions (cont.)

4. An organization which only receives contributions from for- profit corporations and private foundations. • The organization needs to submit its latest Form 990 and financial documents to establish its income sources. 5. An organization that receives less than $25,000 in total contributions from Maryland residents and nonresidents in the most recent year. • Organization needs to submit the Exempt Organization Fund-Raising Notice. • For each year that an organization continues to receive less than $25,000, the organization will need to submit the Renewal Exempt Organization Fund-Raising Notice for that year. In order to qualify for any exemption, an organization must not employ a professional solicitor. 16 Maryland Disclosure Requirements

• Organizations are required to include a disclosure statement on all written solicitations and receipts. Each disclosure statement should include: • A statement that a copy of the current financial statement of the charitable organization is available on request; • The name of the charitable organization and the address and telephone number where requests for a copy of the financial statement should be directed; and • A statement that documents and information submitted in compliance with the Maryland Solicitations Act are available from the Secretary of State. The statement should indicate the person making this request must pay for the cost of copies and postage. • Example: “A copy of the current financial statement of XXXX is available by writing to XXXXX, P.O. Box XXXX, Any Town, USA XXXXX, Attn: Disclosure Requirements, or by calling 1-800-XXX-XXXX. Documents and information submitted under the Maryland Solicitations Act are also available, for the cost of postage and copies, from the Maryland Secretary of State, State House, Annapolis, MD 21401, (410) 974-5534.” 17 18 19 Virginia Registration Requirements

• Both VA and non-VA organizations are required to register with the Office of Consumer Affairs before soliciting contributions from Virginia residents. • To register, applicants must submit the Virginia Registration Statement for a Charitable Organization with the following attachments: • a copy of the organization’s articles of incorporation and by-laws; • a copy of the organization’s IRS determination letter; • the organization’s Form 990 • if the organization files IRS Form 990-N, then a balance sheet and income/expense statement verified under oath or affirmation by the Treasurer; if the organization has no financial history, then a budget for the current fiscal year; • a list of the organization’s officers, directors, and other executive staff; • a list of each professional fundraiser or solicitor, other than employees, who work for the organization and a copy of any contract made with professional fundraisers; • a statement detailing the percentage of the organization's income that is spent on fundraising; and 20 • a statement describing the general purposes for which the solicited contributions shall be used. Virginia Registration Requirements Filing Fees • If an organization has prior financial history when it first registers, it must pay an initial $100 registration fee and the annual fee, which is based on the total contributions the organization received in the previous year. • An organization with no financial history is only required to pay the initial $100 fee. • Thereafter, an organization is required to pay the annual fee when it resubmits its Annual registration statement. Level of Charitable Contributions Fee Less than $25,000 $30 $25,000 but < $50,000 $50 $50,000 but < $100,000 $100 $100,000 but < $500,000 $200 21 $500,000 but < $1 million $250 $1 million and above $325 Virginia Registration Renewal

• Organizations are required to re-submit the Virginia Registration Statement each year. • The deadline for this submission is the fifteenth day of the fifth calendar month following the end of the organization's fiscal year. • If the organization’s financial statements are not completed in time to file the renewal date, the organization may request an extension of time to file. • To request an extension, a written request may be submitted by fax or email. If the organization’s file is up to date prior to the request, the request will be granted. • Organizations are not required to resubmit their charter, by-laws, IRS determination letter or contracts, unless they have been altered. 22 Virginia Registration Exemptions

• Virginia exempts several types of organizations from its registration requirements. Among the most common are: 1. Educational institutions that are accredited by the Board of Education or a recognized national or regional accrediting institution; 2. Persons requesting contributions solely for the relief of a specified, named individual; 3. Charitable organizations that do not intend for the total amount of the contributions it receives from both Virginia residents and nonresidents to exceed $5,000 • If the organization has financial history, the total amount of the actual contributions it received from the public each year, for the last three years, must be less than $5,000 • These funds must also be solicited by unpaid individuals; 4. Organizations that only solicit from members. To qualify, the organization must confer a benefit to the individual and the individual 23 must have the right to vote for and hold office in the organization; Virginia Registration Exemptions 5. Organizations that do not have a physical office in Virginia, but solicit from outside the state, and also have a chapter, branch or affiliate within Virginia that has already registered; 6. Certain tax-exempt healthcare institutions; 7. Any church or association of churches that is primarily operated for non-secular purposes, where no part of the net income of which directly benefits any individual; 8. Nonprofit organizations that only solicit contributions through grant proposals submitted to for-profit corporations, nonprofit organizations and private foundations. • In order to qualify for these exemptions, an organization must file the Virginia Exemption Application for a Charitable or Civic Organization. • There is a onetime fee of $10, and, after being granted, the exemption remains in effect so long as the organization solicits in accordance with its claim for exemption. • Organizations that qualify for the church exemption are not required to submit any documents to the Office of Consumer Affairs. 24 Virginia Disclosure Requirements

• Nonexempt organizations are required to include a disclosure statement on all written solicitations and receipts. The statement should inform contributors that a financial statement for the organization is available from the Office of Consumer Affairs upon request. • Example: “A financial statement is available from the State Office of Consumer Affairs in the Department of Agriculture and Consumer Services upon request. “

25 Unified Registration Statement • It can be burdensome for organizations soliciting contributions in more than one state to fill out a different form for each state so charity officials from several state governments created the Unified Registration Statement. • The Unified Registration Statement is now accepted in most of the 40 jurisdictions that require organizations to register in order to solicit. • Some jurisdictions have more stringent registration requirements than others. Therefore, it may be necessary to fill out supplemental forms in addition to the Uniform Registration Statement • Maryland and Virginia allow organizations to use the Unified Registration Statement rather than the state-specific forms. However, the organization must attach the state-specific attachments. • DC continues to require use the BBL form, and does not accept the 26 Unified Registration Statement as a replacement. On-line Solicitations

• As a general rule, the same rules that apply to solicitations in regular mail or in-person apply to electronic solicitations. • Emails to donors are no different than any other solicitation. • An organization must register in all applicable states to which it sends email solicitations. • However, there are different considerations for “passive” solicitations. • Most organizations have a “donate” button on their websites. • In many of these cases, an organization is not otherwise reaching into a state to solicit donations, but will accept donations from donors in states where it is not registered. • To deal with this situation, the charity officers of the various states adopted what are known as the Charleston Principles. 27 Charleston Principles

• The Charleston Principles are advisory and are not binding on anyone. Some states may be more strict than the principles allow. • The principles provide that if a charitable organization has a passive donation link on its website – meaning that the donor has to come to the website in order to donate – the organization will not be considered as soliciting donations in the state where the donor lives. • There are some important caveats to that principle: • The organization cannot use other means of communications to individuals in the state to induce the donor to visit the website in order to make a donation. • The amount of donations that the organization receives from a particular state cannot be repeated and ongoing or substantial. This means that the organization received contributions within the fiscal year that are of sufficient volume to establish the regular or significant - as opposed to rare, isolated, or insubstantial - nature of those 28 contributions. Charleston Principles (cont.)

• In order to avoid registration, the organization cannot subsequently re-solicit the donor. A subsequent solicitation will trigger the registration requirement unless the organization is otherwise exempt from registration. • In some, but not all states, if the organization uses an intermediary, such as Network for Good, to accept and process on-line donations, the organization may not be required to register, as long as the intermediary is registered. • In other states, the fact that contributions are being made on the organization’s behalf is sufficient to require registration. • However, the Charleston Principles suggest that “states should consider whether, as a matter of prosecutorial discretion, public policy, and the prioritized use of limited resources, it would take action to enforce registration requirements as to charities who do not independently” solicit funds. 29 Conclusion

• Online resources: • DC Government website: • http://dcra.dc.gov/page/get-charitable-solicitation-license • Virginia website: • http://www.vdacs.virginia.gov/food-charitable-solicitation.shtml • Maryland website: • http://sos.maryland.gov/Charity/Pages/default.aspx • How to Handle Charitable Contributions • http://www.lawhelp.org/dc/resource/nonprofit-webinar-how-to- handle-charitable-contributions

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