Access a listing of resources of interest to nonprofit organizations and their donors. They include publications, frequently asked questions, document library, and useful links for more information.
Most charities are organized as nonprofit corporations under state law. Assuming that the name you’ve chosen for your new enterprise is available for your use, and that there are no complex structural issues, forming a nonprofit corporation takes only a few days in most states. Obtaining tax-exempt status, however, takes longer.
Obtaining a formal IRS determination that the new charity is exempt from income tax under Internal Revenue Code Section 501(c)(3) can take as little as one month or as long as a year from when the charity files its tax exemption application (in some cases, even longer). (This does not count the time needed to prepare the exemption application package.) A charity can check the status of its application, once filed, by calling the IRS. For more information, go to “Where’s My Exemption Application?“. We are sometimes able to speed up the review process, especially with evidence that a grant is pending and will be lost unless the new charity can provide the funder with an IRS determination letter.
Some costs are fixed, such as the filing fees (generally $600 for the IRS). The range of costs for the legal work necessary to form and obtain tax exemption for a new charity will depend on many factors, such as the amount and quality of information that the new charity and its founders can provide; the time needed for counseling the organization about structural and operational choices; the complexity of the charity’s activities; the time needed to prepare the federal and state tax exemption applications and the corporation’s bylaws (its internal governance rules); and whether or not the IRS responds to the application with additional questions.
Section 501(c)(3) organizations that normally have more than $50,000 in gross receipts must file Form 990 each year. There are three exceptions: private foundations must file Form 990-PF every year no matter what their gross receipts are; public charities that are “supporting organizations” must file Form 990 every year regardless of their gross receipts; and churches (a tax category that includes synagogues, mosques, zendos, and similar houses of worship) and church affiliates are exempt from filing Form 990.
Some nonprofits must file their tax returns electronically rather than in paper form. For tax years ending on or after December 31, 2006, private foundations and non-exempt charitable trusts must file Form 990-PF electronically, regardless of their asset size. In addition, some large tax-exempt organizations – those with $10 million or more in total assets – must file Form 990 electronically.
For tax years that begin after December 31, 2007, there is a filing requirement for small tax-exempt organizations – that is, those organizations that normally have annual gross receipts of $50,000 or less and that would otherwise have to file a Form 990 or 990-EZ. These organizations will have to report to the IRS each year using Form 990-N. The IRS refers to Form 990-N as the e-Postcard because it is filed electronically and is, according to the IRS, as brief as a postcard. For more information, see Annual Electronic Filing Requirement for Small Exempt Organizations — Form 990-N (e-Postcard).
This filing obligation for small nonprofits is important because Congress requires the IRS to revoke the tax-exempt status of any organization that fails to meet its annual filing requirement for three consecutive years. In technical terms, organizations that do not file the e-Postcard (Form 990-N), or an information return Form 990, 990-EZ, or Form 990-PF for three consecutive years, will have their tax-exempt status revoked as of the filing due date for the third year.
There are other filing obligations as well. Nonprofits with unrelated business income over $1,000 must file Form 990-T. This obligation extends to churches. Unrelated business income is income from activities whose conduct, in itself, does not contribute substantially to the achievement of the organization’s exempt purposes. If you think your organization may have unrelated business income, consult legal counsel or an accountant familiar with the laws governing nonprofit organizations.
Nonprofit organizations must file other returns, depending on their activities, whether they have employees, and other factual issues. You should consult an accountant who is familiar with nonprofit organizations to learn what your organization must file and what state and federal agencies expect reports.
Different states have different reporting requirements. In California, for example, three state agencies require reports from charities organized as corporations:
Nonprofits are obligated by federal law to provide copies, on request, of their tax exemption applications and related correspondence. They must also provide copies, on request, of their three most recent tax returns. If the organization’s returns are available on the Internet in a form such as PDF format, that may be downloaded for free; the organization need not provide paper copies.
Charitable organizations in California that are legally required to prepare audited financial statements (e.g. California charities with $2 million or more in annual gross revenues) must make them available for public inspection within 9 months after the close of the fiscal year that the statements cover. California’s Attorney General has indicated that the same disclosure obligations apply to these financial statements as to the federal Form 990 series, except that unlike the 990 series, the deadline is firm; no extensions are available.
Public charities need not disclose the statement of major donors that Form 990 requires, but private foundations must do so. Nonprofits may not withhold compensation information from public disclosure.
Organizations need not disclose the minutes of Board meetings and other internal records to the general public. However, board members (and voting members of the corporation, if any) have certain inspection rights under state law.
If your organization receives contributions of $250 or more from donors, or if your organization provides goods or services to donors who give more than $75, your organization must provide written acknowledgments to your donors. The best source of information on the specific requirements is IRS Publication 1771, Charitable Contributions: Substantiation and Disclosure Requirements. The most recent edition of Publication 1771, updated in March 2016, is available in PDF format on the IRS web site at http://www.irs.gov/pub/irs-pdf/p1771.pdf.
The following are the general duties and responsibilities of nonprofit directors in California. Many states have similar provisions, although the specific laws of nonprofit corporate governance will differ from state to state:
The IRS provides an online search tool, https://www.irs.gov/charities-non-profits/exempt-organizations-select-check, which contains organizations that have obtained formal determination letters from the IRS that they meet the criteria described in Section 501(c)(3). You can also find out whether a particular charity is a public charity or a private foundation.
The IRS publishes numerous booklets that explain the tax laws affecting nonprofit organizations. You can order them from the IRS by calling (800) 829-3676 or consulting the IRS website at www.irs.gov. Here are some of the IRS publications that may be useful to you:
The IRS website, www.irs.gov, has information on many issues affecting exempt organizations. In addition, your state Attorney General may have a website that focuses on your state’s laws governing charities. In California, the Attorney General offers extensive on-line information for charities and their supporters at www.caag.state.ca.us/charities. It contains frequently asked questions, information on charitable solicitation rules and the results of commercial fundraising campaigns, and (when the site is completed) the annual returns of all California charities.
The tax exemption applications and annual returns of most U.S. charitable organizations are available on the Internet at www.guidestar.org. Another source for 990s is http://foundationcenter.org/find-funding/990-finder.
Publications of particular interest to grantmaking charities are available from the Council on Foundations by phone at (202) 466-6512 or online at www.cof.org.
A searchable database of information on grantmakers is available online at the Foundation Center’s website, www.foundationcenter.org. The Foundation Center has libraries in New York, San Francisco, and other cities; the addresses are available on the website.
The California Attorney General’s Office has put its Guide to Charitable Solicitation online in PDF format. It is primarily directed to consumers and also contains some statutory history and useful definitions.
For full document, see “Charitable Solicitation Regulation” in Publicationscations
Under California law, a “solicitation for charitable purposes” means any request for a gift of money or property in connection with which (i) any appeal is made for charitable purposes, (ii) the name of a charity is used or referred to in the appeal as an inducement for making a gift, or (iii) any statement is made that the gift or any part of it will go to or be used for a charitable purpose or organization.
California law also governs a “sales solicitation for charitable purposes”, which is defined as any offer to sell a thing or a service (e.g., merchandise, a membership, a coupon, or an admission ticket) for which any of (i) through (iii) described in the first paragraph above apply with respect to a sale as opposed to a gift (i.e., the name of a charity is used as an inducement for making the sale).
Solicitations and sales solicitations for charitable purposes also include solicitations in which the name of an organization of law enforcement personnel, firefighters, or other persons who protect the public safety is used or referred to as an inducement for giving, with a limited exception (when the only purpose of the solicitation is for the sole benefit of the actual active membership of the organization).
For full document, see “Charitable Solicitation Regulation” in Publications
In most cases, charities formed in California will have no additional registration requirements as a result of conducting charitable solicitation beyond the registration and reporting that are already required by the California Attorney General and Secretary of State. Special rules do apply to raffles and bingo (see Question 13 below).
A charity might have an additional filing requirement with the Attorney General, if the charity collects more than 50 percent of its annual income and more than $1 million in charitable contributions from donors in California in one calendar year and spends more than 25% of its annual income on “nonprogram activities,” defined as employee salaries, fundraising, travel expenses, and overhead and other expenses. If your organization might fall in this category, we can provide additional information.
Foreign organizations (formed in another state) are required to register with the California Attorney General, if they are doing business in California. Examples of doing business in California by foreign corporations include:
“Doing business” in California generally does not include merely making grants to grantees in California or maintaining financial accounts or investments in an office of a financial institution in California.
The Attorney General takes the position that California laws governing fundraising apply to foreign corporations doing business in the state.
For full document, see “Charitable Solicitation Regulation” in Publications
Prior to any solicitation or sales solicitation for charitable purposes in California, the solicitor is required to disclose certain information in writing to the prospective donor or purchaser. This disclosure, which may be in the form of a charity brochure or other printed material, must include the name and address of the organization (or, if there is no charity, then the manner in which the money collected will be used for a charitable purpose); the nontax-exempt status of the organization, if it does not have tax exemption under both federal and state law, and the percentage of the gift or purchase price the donor or purchaser can deduct as a charitable contribution under federal and state law. The disclosure must state if any portion of the contribution is not tax deductible.
The required disclosure varies depending on whether the solicitor is a volunteer or a paid fundraiser. For instance, a volunteer solicitor can satisfy the disclosure requirements by providing the prospective donor with the name and address of the charity and the charitable purposes for which the solicitation is made and by stating that financial information about the charity may be obtained by contacting the organization’s office at the given address. Volunteers who are 18 years old or younger have no disclosure requirements at all under California law.
While the disclosure laws apply to all persons soliciting in California, the California Attorney General primarily is concerned with the activities of paid fundraisers. Paid fundraisers also have an additional disclosure requirement (See “What should I be aware of if my organization does engage a commercial fundraiser or fundraising counsel?“.)
For full document, see “Charitable Solicitation Regulation” in Publications
Charities that engage in fundraising also must comply with any local charitable solicitation laws, and these requirements vary a great deal from location to location. A charity can check on city and county requirements with either the appropriate city or county office. In some cases, the charity may need to obtain a permit or license; in others, particular disclosures or filings are required.
For full document, see “Charitable Solicitation Regulation” in Publications
The California Government Code sets forth specific prohibited acts and practices in the planning, conduct, or execution of any charitable solicitation or sales promotion. In general, charities and their fundraisers may not misrepresent the purpose of the charity or the nature, purpose, or beneficiary of a solicitation. Misrepresentation may be established by word, by conduct, or by failure to disclose a material fact, and the prohibitions apply “regardless of injury.”
In certain cases, the consent of a third party may be required. In particular, if you are going to represent that any other person sponsors, endorses, or approves a charitable solicitation or charitable sales promotion, then that person must provide written consent to the use of the person’s name for these purposes.
In addition, it is prohibited in California to represent that any part of the contributions solicited by a charity will be given to any other charity unless that organization has provided written consent to the use of its name prior to the solicitation. The written consent must be signed by an authorized officer, director, or trustee of the charity.
For full document, see “Charitable Solicitation Regulation” in Publications
A commercial fundraiser for charitable purposes is defined as any individual, corporation, or other legal entity that for compensation does any of the following:
A commercial fundraiser for charitable purposes does not include a federally insured financial institution that holds, as a depository, funds received as a result of a solicitation for charitable purposes, or an escrow agent or caging company that receives or controls funds received as a result of a solicitation. A “caging company” is defined as a business that receives contributions, processes donor mail, and deposits all contributions to an account under the sole control of the charity.
A fundraising counsel for charitable purposes is defined as any person who is described by all of the following:
Certain exceptions to the definition of fundraising counsel apply. For instance, registration is not required if the total annual gross compensation for performing fundraising counsel activities does not exceed $25,000. Attorneys, investment counselors, and bankers who in the conduct of their profession provide legal, investment, or financial advice also do not qualify.
In addition, a charity and employees of a charity do not qualify as either commercial fundraisers or fundraising counsel.
For full document, see “Charitable Solicitation Regulation” in Publications
California law requires that a commercial fundraiser or a fundraising counsel and a charitable organization must enter into a written contract for each solicitation campaign, event, or service, and that the contract contain certain mandatory provisions. The contract must be signed by an authorized contracting officer for the commercial fundraiser and by an official authorized to sign by the charitable organization’s governing body.
A charity may not contract with any commercial fundraiser or fundraising counsel unless that fundraiser has registered as required with the Attorney General’s Registry of Charitable Trusts. Charitable organizations may void contracts with commercial fundraisers or fundraising counsel if the fundraiser or counsel is not properly registered.
Before beginning any charitable solicitation, a commercial fundraiser must also file a notice with the Registry setting forth information identifying the fundraiser and the charitable organization, the fundraising methods to be used, the dates when fundraising will begin and end under the contract, and identifying information about the person responsible for directing and supervising the work of the fundraiser. The notice must be filed not less than ten days before the beginning of each solicitation campaign, event, or service, except for solicitations to aid victims of emergency hardship or disasters, in which case the notice must be filed not later than when the solicitation begins. Similar requirements apply to fundraising counsel.
Paid fundraisers also must disclose prior to an oral solicitation or sales solicitation made by direct personal contact, radio, television, telephone, or over the Internet, or at the same time as a written solicitation or sales solicitation: (a) that the solicitation or sales solicitation is being conducted by a commercial fundraiser for charitable purposes, and (b) the name of the commercial fundraiser for charitable purposes as registered with the Attorney General.
For full document, see “Charitable Solicitation Regulation” in Publications
A commercial coventurer arrangement exists when a business represents to the public that the purchase or use of any goods, services, entertainment, or any other thing of value will benefit a charity or will be used for a charitable purpose.
Through a commercial coventurer arrangement, a company can associate itself with a charity both to support a good cause and to increase its sales or otherwise enhance its business. Regulators typically want to ensure that the promised charitable contributions occur and that no misrepresentations or misleading statements were made in connection with the promotion. Approximately 22 states regulate commercial coventurer arrangements and approximately 11 states require some form of registration.
State requirements vary. These requirements include registration with the state prior to the promotion; payment of a registration fee and in some cases posting a bond; a written contract between the commercial coventurer and the charity, in some cases including certain mandatory terms; record keeping requirements; submission of financial reports following the promotion; and mandatory disclosures to the public in connection with the promotion. Some states also require a charity to report its commercial coventurer arrangements and to register in the state where the promotion is being held.
A charity should familiarize itself with commercial coventurer requirements in the applicable state(s) before agreeing to participate in a promotion. In addition, any contract with a commercial coventurer should be reviewed to make sure that the charity is adequately protected and to avoid any unintentional joint venture relationship or unrelated business income as a result of the charity’s participation.
For full document, see “Charitable Solicitation Regulation” in Publications
Approximately 40 states and the District of Columbia require a charity to register before engaging in charitable solicitation in that jurisdiction. Each state has its own registration requirements and laws governing charitable solicitation and may have the right to impose fines and penalties on those who solicit without registering in their state. A state may also revoke the right of an organization to solicit contributions in the state.
You should first determine if your organization’s activity in another state will rise to the level of requiring registration in that state. For instance, holding a fundraising event, having employees or paid representatives physically present, or actively targeting prospective donors in a state (e.g., through an email distribution list) may be sufficient.
If a charity is actively soliciting in a state, it should consider the following questions:
For full document, see “Charitable Solicitation Regulation” in Publications
Registering in each state requires review of that state’s filing requirements and also possible exemptions that may be available (e.g., for some religious or educational organizations in certain states, or if the amount raised is below a certain threshold).
In lieu of completing independent registration forms in each applicable state, a Unified Registration Statement (URS) exists that attempts to standardize and consolidate the information and data requirements of each state that requires registration. The URS may be useful to organizations soliciting on a broad scale and subject to the registration laws of many states. Some states, however, do require state-specific information or attachments with the URS.
For full document, see “Charitable Solicitation Regulation” in Publications
It is not clear when Internet activity will result in jurisdiction in a particular state. If a charity is passive and donors visit its web site, a state may not impose its charitable solicitation requirements. On the other hand, a state may exert jurisdiction in cases where a charity actively reaches out to donors in that state. A strict reading of many states’ solicitation laws would require that a charity maintaining a web site that includes a request for contributions register in that state.
The Charleston Principles reflect the nonbinding advice of the Board of Directors of the National Association of Attorneys General/National Association of State Charity Officials. In response to the proliferation of web site solicitations, state charity officials developed guidelines addressing when and where a charity needs to register for online charitable solicitations. For instance, under the Principles, either (i) an organization’s specific targeting of persons located in a state for solicitation or (ii) the receipt of contributions from residents of a state on “a repeated and ongoing basis or a substantial basis” (neither of which is defined) through the organization’s web site is sufficient to require registration in that state for a charity that is not otherwise located there.
For full document, see “Charitable Solicitation Regulation” in Publications
A charitable solicitation often is defined broadly. As a result, applying to a foundation or corporation in another state for grant funds arguably could qualify as a solicitation in that state. In addition, an independent grant writer may qualify as a commercial fundraiser or fundraising counsel. Each state’s law would need to be considered. Some states may exclude solicitations to foundations or corporations.
For full document, see “Charitable Solicitation Regulation” in Publications
California generally prohibits games of chance, but makes certain exceptions for charitable bingo and raffles, subject to specific requirements. In California, holding a raffle requires separate registration and reporting obligations with the Registry of Charitable Trusts. If a game of chance is conducted over the Internet, other states may also seek to impose jurisdiction. We can provide information on raffles and bingo upon request.
For full document, see “Charitable Solicitation Regulation” in Publications
The Charleston Principles described in Question 11 above for internet solicitation were established before Facebook, Twitter, and other crowd-sourced fundraising websites changed the landscape for soliciting money on a broad scale. State regulation largely has not yet caught up with technology; we will continue to monitor how state regulators decide to tackle networks that solicit and raise money through social media.
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