Nonprofit regulation in the states

According to the Foundation Center, there are over 1.5 million nonprofit organizations in the United States. 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).

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.” 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 advocate expressly 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.

According to Guidestar, an organization that reports on nonprofit companies, regulation of nonprofit activity protects donors and organizations from potential fraud and helps "to maintain trust in the [nonprofit] sector." According to the London School of Economics, nonprofit disclosure requirements can create privacy concerns among potential donors, thereby having an unintended negative impact on donor participation.

Governing agencies

Each state has different governing authorities and agencies enforcing charitable solicitation registration laws. These agencies vary from divisions within the state executive branches, such as the Attorney General and Secretary of State, to separate departments such as Wisconsin's Department of Financial Institutions. In some states, multiple departments and authorities govern nonprofit charitable activity, but organizations generally deal with only one agency or authority when registering to solicit contributions, renew their registration, and report annual financial statements.

There are 10 states that require no charitable solicitation registration, but four of these states still have laws concerning charitable solicitations, even if they do not require nonprofits to register in order to solicit.

Registration requirements

In the 40 states and District of Columbia in which it is required, nonprofit groups or organization, unless exempt, must register with the state in order to comply with charitable solicitation registration requirements . Any non-exempt nonprofit, in any state, intending to solicit in one of those 40 states with registration requirements must also register, along with anyone intending to solicit in the state on behalf of a nonprofit. Nonexempt nonprofits generally 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, though exemptions vary by state. In every state with registration requirements (except for California), organizations must register prior to soliciting or receiving contributions. In California, organizations have 30 days to register following the receipt of their first contribution from a recipient in a state.

Exemptions

In every state with registration requirements, there are groups exempt from having to register. The categories of groups exempt varies as does the nature of the exemption; in some states organizations must apply to be exempted, because exemption is not automatic.

• 28 states have exemptions for organizations receiving gross annual contributions under a predetermined threshold. In 16 states, that amount is $25,000. In Connecticut, the amount is as high as $50,000. In most of these states, however, it is crucial for exemption requirements that fundraising staff be unpaid or volunteer. There are also varying rules about what counts towards the financial thresholds. In some states, government grants do not count towards the amount limit. In other states, like Michigan, nonprofits are exempt if they received contributions from fewer than 10 people. There are 11 states, however, that have no exemption for organizations receiving under a certain amount.

• Most tax-exempt religious organizations and churches are exempt from registration in all states, with caveats. There are 15 states, however, in which charitable solicitation laws don't apply to religious organizations at all.

• There are 15 states in which hospitals and public health organizations are exempt.

• There are 34 states in which educational institutions and organizations are exempt. What counts as educational varies from state to state, but most accredited institutions and their foundations are exempt in all the states.

• Membership organizations, in which the only form of charitable solicitation is membership fees and solicitation of members themselves, are exempt in 24 states.

• 18 states exempt political parties, candidates, and political action committees that are required to file with the Federal Election Commission or state election commissions.

• In 24 states, specific appeals for individuals are exempt, assuming all money goes to the person named in the charitable effort. Like the exemption for organizations with revenue under a specific amount, exemptions in this case require, in almost all cases, that fundraisers be unpaid or volunteers.

Procedures

In the 40 states that require registration, organizations in all but 8 can use either the Universal Registration System (URS) form or the individual state form. Only 8 states that require registration do not allow the URS. In 12 states, however, organizations choosing to use the URS must complete supplemental forms.

Documents

Documents required during initial registration vary from state to state. In general, however, organizations must include copies of their articles of incorporation; bylaws; an IRS determination letter; and their most recently filed IRS Form 990 or 990-EZ. Many require copies of fundraising contracts.

Fees

The registration fee varies widely from state to state, ranging from no fee in some states to as high as $425 in one state. In many states, fees are not the same for all groups, but rather determined on a sliding scale depending on a group's fiscal year contributions. Registering in every state would theoretically cost an organization over $1,500.

Renewal

In all but 6 states, registration lasts only one year and must be renewed. There are 20 states in which organizations may choose to use the URS as a method to renew. In 2 states, however, organizations must use the URS.

Financial reporting

Organizations must generally file annual financial reports with governing agencies in their states and the states in which they are registered. In most states, reporting requirements are satisfied by following the renewal steps, even though the process is technically distinct.

HIGHLIGHTS

In 6 states renewals are unnecessary but annual financial reports are required.

In 19 states, audited financial statements from a Certified Public Accountant are mandated. In some states, like California, organizations with revenue under a certain amount do not need to file an annual report.

In three states, specifically California, Florida, and New York, organizations must file copies of their IRS Form 990 with the Schedule B attachment, which discloses names and addresses of contributors.

State-by-state breakdown

The table below breaks down key nonprofit regulation requirements by state. Requirements are divided into four categories:

1. Charitable registration requirements: The state requires nonprofits that solicit charitable contributions in their state to register.
2. May use URS: The state allows registrants to use the Unified Registration Statement. In some states, they must use the URS; in other states, they have the option, or may request permission to use it.
3. Exemptions for small nonprofits: The state exempts nonprofits with revenue under a predetermined threshold (the amount varies, but in no state exceeds $50,000).
4. Must provide IRS Form 990 Schedule B: The state requires annual financial reports to include the IRS Form 990 Schedule B attachment, which discloses names and addresses of donors.

Recent news

This section links to a Google news search for the term "'United States + Charitable + Donor + Disclosure"

United States Donor Privacy News Feed

See also

• IRS code, section 501
• Nonprofit organization
• IRS Form 990

External links

• Internal Revenue Service

Footnotes

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