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Nonprofit regulation in California
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Nonprofit regulation in California involves a complex set of rules that govern nonprofit organizations and charitable giving throughout the state. Major issues surrounding nonprofit regulation nationwide include the following:
- contribution limits,
- donor disclosure, and
- the redefinition of issue advocacy.
California is one of 39 states that require charitable organizations, and those intending to solicit on their behalf, to register with the state in order to solicit contributions, whether they are a California organization or based out-of-state. Unlike most states, organizations within California need only register after receiving their initial contribution, rather than register before being allowed to solicit contributions. In California a very small number of groups and organizations are exempt from registration. These groups are not required to apply for exempt status; it is automatic.[1]
California was also one of 3 states (along with New York and Florida) that required organizations to file copies of IRS Form 990 Schedule B attachments, which list names and addresses of contributors who gave over $5,000. However, on April 21, 2016, the California Attorney General, Kamala Harris lost her legal case against Americans for Prosperity, in which she argued that those forms were necessary and that donors' names would not be disclosed publicly. Judge Manuel Real disagreed in the face of evidence that over 1,400 Schedule Bs were on the state's website. He issued a permanent injunction against forcing a nonprofit organization to file these forms, which the organization argued was a violation of the free speech of their donors.[2][3]
California is one of 32 states that allows registrants to use either the Unified Registration Statement (URS) or the state registration form.[4] California-based organizations, however, may use only the state form. Only seven states requiring registration do not accept the URS.
- Note: The following is not a how-to guide in managing an organization's registration and reporting requirements, but rather an attempt to share information about the relative degree of regulation governing nonprofit charitable activity at the individual state level. The information on this page was last updated in early 2015.
Background
According to the Foundation Center, there are over 1.5 million nonprofit organizations in the United States.[7] Section 501 of the U.S. tax code outlines which types of nonprofit organizations may be granted tax exempt status by the Internal Revenue Service. The section of this code that provides for exemption is section 501(a), which states that organizations are exempt from some federal income taxes if they fall under sections 501(c) or 501(d), or under section 401(a).[8]
Organizations classified as 501(c)(3) are nonprofit charitable, religious and educational organizations. These include organizations like the Red Cross and Habitat for Humanity as well as the American Civil Liberties Union and the Lucy Burns Institute, which provide, as defined in the federal code, “instruction of the public on subjects useful to the individual and beneficial to the community.”[9] Organizations granted 501(c)(4) status are political education organizations, and can engage in political lobbying. This includes donations to political committees that support or oppose ballot measures, bond issues, recalls or referenda. 501(c)(4) organizations can thus engage in issue advocacy, but they are not allowed to expressly advocate for the election or defeat of a particular candidate.
While the Internal Revenue Service designates eligible nonprofit charitable organizations with a federal tax exempt status, individual states require their own level of regulation and reporting, particularly when organizations attempt to solicit fundraising contributions. The amount of regulation required differs by state, as does the degree to which state regulations protect the privacy of individual donors. Three states, for instance, require annual copies of IRS Form 990 (schedule B), which lists individual contributors who contribute over a specified amount. Research shows that attempts to make contributions more transparent has an unintended negative effect on the number of contributors who give, as well as the amount.[6]
Governing agencies
The California Attorney General, through the Registry of Charitable Trusts, is the agency in the state that oversees rules governing donor solicitation and registration.
See law: California Government Code sections 12580-12599.7 and California Code of Regulations, Title 11 sections 300-307, 311, and 999.1
Registration requirements
Any nonprofit group or organization located in California, unless exempt, must register with the Registry of Charitable Trusts within 30 days of receiving its initial contribution. Out-of-state groups must register if they have property in California or perform any business in the state, which is broadly defined as anything from soliciting to holding business meetings or having employees or officers that perform work from the state. Non-exempt nonprofits might include traditional charitable organizations like the Red Cross or Habitat for Humanity, educational or policy organizations like the American Civil Liberties Union, or issue advocacy groups like the League of Conservation Voters.
Exemptions
A very small number of groups are exempt from registering in California. Unlike many states, California does not exempt organizations who receive a small number of contributions. Any group, however, that meets the exemption requirements need not apply for exemption.
The following groups are exempt from registering:[1]
- Nonprofit religious groups
- Nonprofit educational institutions
- Nonprofit hospitals
- Licensed health care service plans
- Federal or state agencies
- Religious corporations holding property for religious purposes
- Political committees reporting to the California Secretary of State
- Cemetery corporations
Procedures
California-based nonprofits must use state form CT-1, Initial Registration Form. Out-of-state organizations, on the other hand, may use the Unified Registration Statement (URS) form.[1]
Documents
The following documents are required along with your registration form:[1]
- Articles of incorporation
- Bylaws
- IRS Form 1023, if submitted to the IRS
- IRS determination letter, if available
Signature and fee
Any officer, director or trustee of the organization may sign the registration; no notarization is required.
The initial registration fee is $25.[1]
Filing procedures
Registration materials must be mailed to:[1]
California Attorney General's Office
Registry of Charitable Trusts
P.O. Box 903447
Sacramento, CA 94203
Renewal
Renewal is required four and a half months after the end of organization's tax year, or by May 15 if simply using the calendar year. Organizations may receive an automatic three-month extension by filing IRS Form 8868, Application for Extension of Time to File an Exempt Organization Return.
The Unified Registration Statement is not accepted for renewals. Organizations must file using the "Annual Registration Renewal Fee Report." If an organization received more than $25,000 in contributions or revenue, it must file a copy of its recent IRS Form 990 and any attachments. IRS forms may be filed electronically, as can any form or materials for the entire renewal.
The renewal fee is on a sliding scale from $0 to $300 and depends on how much the organization received in the previous year. The financial penalty for not filing a renewal may be as high as $800.[1]
Financial reporting
Organizations with more than $2 million in revenue must provide audited annual financial statements prepared by a Certified Public Accountant. The $2 million threshold excludes any grants from government, if as part of that grant the group is required to explain how it uses the money. Statements do not have to be filed; rather, organizations must make them publicly available.[1]
Extensions
There are specific extensions involved in the annual financial reporting.[1]
Fee
There is no fee to involved in the annual financial reporting.[1]
Recent news
This section links to a Google news search for the term "California + donor + privacy"
See also
External links
Footnotes
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Fishman, S. & Barrett, R. (2012). Nonprofit Fundraising Registration: The 50 State Guide. NOLO.
- ↑ Labyrinth, Inc, "IRS 990 Schedule B Required With Registration," August 28, 2013"
- ↑ Wall Street Journal, "Free Speech 1, Kamala Harris 0," April 21, 2015
- ↑ "Multistate Filing Form," accessed December 17, 2014
- ↑ Guidestar, Fundraising: What Laws Apply?" accessed February 18, 2015
- ↑ 6.0 6.1 London School of Economics, "Campaign finance laws that make small donations public may lead to fewer people contributing and to smaller donations," January 7, 2015
- ↑ Foundation Center, "Frequently Asked Questions," accessed December 17, 2014
- ↑ Cornell University Law School, "26 U.S. Code § 501 - Exemption from tax on corporations, certain trusts, etc," accessed January 13, 2015
- ↑ Cornell University Law School, "26 CFR 1.501(c)(3)-1 - Organizations organized and operated for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals," accessed January 13, 2014
