The Benefits of Online Fundraising Compliance

May 24, 2017

The Internet is an amazing tool for your charity to share its mission and to connect with supporters around the world. If you’re like most organizations, you also use the power of your website, email, and social media to ask for and to collect donations. However, there are rules for charities that solicit contributions online. The IRS and each state wants to know that donors’ money are going to the charitable cause you advertise. While ignoring these requirements can get your organization into trouble, the benefits of fundraising compliance can be even greater.

WHAT IN THE WORLD IS FUNDRAISING COMPLIANCE?

Forty-one states require charities to file a formal registration prior to soliciting contributions. In other words, before they even ask. This is in addition to being a 501(c)(3) exempt organization in the eyes of the IRS. Registration takes place with the state’s charity official, usually the Office of the Attorney General or the Secretary of State.

While each state has different requirements, your charity will normally submit an application detailing your leadership, financial, and contact information. Most of the time, you will have to include information about your fundraising activities, a copy of your financial statements and other organizational documents, and a fee. Once registered, charities are required to renew their charitable solicitation license annually, and to submit a copy of their latest 990.

As a prerequisite to registering to solicit charitable contributions, several states require nonprofits to foreign qualify the corporate entity and to appoint a registered agent for service of process. In those states, your charity is required to maintain a registered agent and corporate good standing as well.

DO THESE REQUIREMENTS APPLY TO ME?

Charities that solicit by any means, including online, must review the requirements of each state before they start asking for donations. As a general rule of thumb, if you solicit, you have to comply. Remember, it’s the act of asking that triggers the requirements – not whether you actually receive any contributions.

Through your brilliant online fundraising campaigns, your charity likely reaches donors and solicits contributions in every state. That means you have to comply with each state’s unique requirements. This may be scary, especially if you’re only hearing about fundraising compliance for the first time. There are several tried-and-true strategies to meeting these diverse requirements. First, many charities register in all states proactively. For many organizations, the ability to fundraise freely in any state far outweighs the cost and time spent during the registration process. Smaller charities that are concerned about the cost often register in select states, and exclude the rest from their website and fundraising activities. Many organizations also choose a third-party compliance partner to help them understand and comply with ever-changing state requirements.

WHAT ARE THE BENEFITS TO BEING COMPLIANT?

You may be wondering why nonprofits bother with charitable solicitation registration. You might even be asking, “We’ve been fundraising without registering for so long, why should we start now?”  First, charitable solicitation compliance is the law. Failure to comply can lead to fines, penalties, and bad PR, which can follow your organization for years. Maintaining compliance with state and federal fundraising requirements is also best practice, and a major responsibility of nonprofit directors and executives.

However, the benefits of running a compliant organization far exceed any penalties. You owe it to your donors, who already feel connected to your cause. Now they want to know their gift actually goes there! Foundations, individuals, and corporate donors in each state use public databases to research the charities working in their community. If your charity is not registered, or is delinquent, they’ll know it – and you may lose their gift. Once you become registered properly, in many states, your charity will be required to include disclosure statements on your solicitation materials and website. The good news is that including these statements actually increases the likelihood of receiving a gift! Plus, with your donor management software, you should have no trouble including the proper “legalese.”  Ultimately, by registering and following applicable charitable solicitation laws, you demonstrate that your organization is responsible, and help reassure your donors that they are making a smart investment in you.

If you have not registered to solicit, but haven’t faced any sort of adverse action, act now. Take the opportunity to be proactive in meeting government requirements and exceeding your donors’ expectations!

In an interconnected world, your nonprofit’s online presence is more important than ever. But, before you launch into your fundraising campaigns, make sure you follow the rules.

Here are three quick tips:

  1. Make sure everyone knows the importance of compliance, including your board. Everyone has something at stake.
  2. Ideally, register before you start soliciting. If you haven’t gotten in trouble, register proactively. Most states do not penalize charities simply trying to do the right thing.
  3. If you’re like most charities that raise funds online, you probably have lots of questions. Don’t be afraid to seek outside help in answering them.

Ultimately, your efforts to become compliant will do your organization, donors, and community a world of good. Good luck!

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