Did you know that the IRS redesigned the Form 990 that all registered 501c(3) organizations are required to submit each year? The changes are meant to ensure more transparency for potential donors and also to help reduce the filing burden on (most) nonprofits.
One of the big changes in the new 990 is the inclusion of two questions explicitly asking you about your organization's compliance with laws that require nonprofits to register with each state where they solicit funds. I put the word "solicit" in quotes in the title of this post because each state defines solicitation differently. For some states, the mere existence of a donations page on your website is a solicitation…even if you don't have any current donors or prospects in that state. For other states, if you send an email to anyone in that state encouraging them to donate on your website, that is a solicitation. For other states, if you send anyone in that state an email that requests a gift (whether or not you have an online donations page), THAT is considered a solicitation. It's not just online giving that is governed by these rules: ALL states consider a mailing to someone in that state requesting a donation a solicitation.
Each state also differs on both the steps and fees required to register to legally solicit in that state. This makes the process especially confusing. Fees can range from a flat fee of $25 or so to a sliding scale that can reach as high as $400, depending on the amount of money raised in that state each year.
There is an ongoing effort to make this process as simple as possible. The Unified Registration Statement (URS) allows nonprofits to fill out one form that can be used to register in most states. You can find this form here. Unfortunately, this universal form is not quite universal yet. Some states don't accept the URS at this time. Other states require the URS plus additional documentation. And no states accept the URS for annual renewals - only the initial registration can be processed using the URS. This site provides contact information for registering in each state.
So far, I imagine this has all been bad news so far. The prospect of figuring out (and filling out) all of this new paperwork is probably feeling a bit overwhelming.
There is a very small bit of good news with this process - Exemptions! Your organization may be exempt in some states. In particular, some states have exemptions for religious institutions. For example, a quick search online finds that Pennsylvania and Maryland offer exemptions for religious organizations. Unfortunately, we can't give legal advice about whether or not your organization is exempted from filing in these (or other states); please consult a lawyer before making any decisions. Also, these states normally still require you to file some paperwork proving that you are exempt from registering.
Many of you are probably reading this thinking, "You want me to add one more time-consuming bureaucratic process to our over-worked board or staff? And I have to pay for it, too? Really?"
Unfortunately, the answer is yes. Your Organization may have legal liability for not registering to solicit funds. Even the Board members who sign the 990 may be liable for incorrectly stating that the organization is registered with each state to solicit funds based on those states' laws. Again, please consult with a lawyer to determine your liability.
In addition, an organization could open itself up to gift challenges from an heir or a family member if it is not registered in a particular state. An organization could risk losing a pledged gift if it is challenged on these grounds.
OnPhilanthropy.com and eJewishPhilanthropy.com have much more detailed information about these processes. There is another commentary about these regulations on eJewishPhilanthropy.com that may be worth a read as well. I recommend you review this information and discuss with your Board on how to proceed.
They realize that you won't be able to go out and immediately register with every state. Instead, they recommend you prioritize your filing and proceed as follows:
- Leverage the URS. This should save you lots of time.
- Determine if you are exempt from registering in any states.
- Register first in your home state.
- Register next in states where you send fundraising letters by mail (start with the states where you send to the most prospects).
- Register in states where you send email solicitations (start with the states where you send to the most prospects).
- Register in states where your website is considered a solicitation.
- Register in any other states where you are legally required to register.
Finally, you should also discuss your registration requirements and legal liability with a lawyer.
Please share with us any experiences you've had with this process. The 990 form revision is new, so we will all be learning on the fly. Hopefully we can make the process as simple as possible for each other.