Charity Registration and Solicitation Compliance Overview

Charity Registration and Solicitation Compliance

It’s not uncommon for 501(c)(3) tax-exempt nonprofit organizations to assume the classification is permission to seek donations.

Unfortunately, 501(c)(3) assigns tax exemptions by the IRS and does not grant explicit permission to raise funds. The IRS doesn’t provide oversight of nonprofit organizations; it only exempts them from federal taxes. Individual states govern nonprofit organizations and their activities. Each state a nonprofit operates or solicits donations likely has unique rules and regulations the organization must adhere to.

Whether a nonprofit was recently formed and is exploring initial fundraising efforts or is well-established and expanding fundraising nationwide, the organization must maintain compliance with each state’s charitable solicitation registration and reporting laws. These laws are designed to earn and retain your community’s and potential donors’ trust. Following the requirements of state laws is a fundamental principle of ethical fundraising.

Fundraising requires proper registration within most states (40) permission. Fundraising without proper permission can result in fines and penalties.

Charity Registrations Follow State Laws

Most states (40) require nonprofit organizations to register before soliciting donations from residents of that state. This restriction applies to soliciting across state lines through the internet, phone, social media, mobile applications, etc. For example, suppose your nonprofit is based in California but solicits donors online in Nevada. In that case, odds are the organization will need to follow both states’ charitable solicitation registration requirements.

“Solicitation” or “soliciting” is generally defined as oral, written, or online requests for contributions or donations. In other words, the organization does not have to be physically located in the state to engage in solicitation activities. An organization’s failure to register in any states it operates or solicits may result in a state investigation, fines, questions from the Internal Revenue Service, and reputational damage from current and potential future donors.

States That Do NOT Require Charitable Solicitation Registration

Nine states do not require Nonprofits to complete charitable registrations:

• Delaware
• Iowa
• Idaho
• Indiana
• Montana
• Nebraska
• South Dakota
• Vermont
• Wyoming

A few states only require registration if a nonprofit engages in specific activities or uses professional fundraisers. For example, Arizona requires charitable veteran organizations to register if they are soliciting money or other support in the state. Texas has limited registration requirements that only apply to law enforcement, public safety, and veterans organizations. Louisiana only requires registration if a charity engages paid, professional solicitors to fundraise in their state.

Learn more about your State Requirements!

Fundraising Solicitation Can Mean Many Things

• Online Fundraising: Using your website or social media (Twitter, Facebook, GoFundMe, etc.) to solicit donations, such as having a “Donate” button.
• Fundraising Events: Hosting any event (Galas, Run/Walk events, Movie Night, etc.) that asks participants for a donation.
• In-Person Asks: Asking for donations directly from the public, friends, family, etc.
• Direct Mail: Request donations in a letter or postcard sent through the mail.
• Phones Calls or Texting: Reaching out to potential donors via phone or text.
• Email: Sending email campaigns asking for donations, whether using an email platform or individually.
• Radio, TV, Newspaper, or Magazine Ads: Use ads or print/visual media to promote the organization and ask for donations.
• Other standard methods include applying for grants or collecting membership dues.

The Charity Registration Process

To register as a legal charity, your nonprofit must submit a registration or solicitation application, supporting documentation, and often a filing fee to the respective state agency. Most states typically accept online applications, but there are still a few that only operate via mail.

Generally, the registration application requests information about the nonprofit, and requirements vary by state. Here are many of the common requirements:

• IRS Determination Letter confirming 501(c)(3) status
• Articles of Incorporation
• Bylaws
• Board of Directors List
• Officers List
• Professional Fundraisers List
• Registered Agent Information
• Detailed Financial Statements or IRS Form 990
• Governance Documents

Please note that the organization’s registration information will likely be public, just as the IRS makes Form 990 filing public. The nonprofit must provide accurate and detailed info.

Fines and Penalties for Not Registering

501(c)(3) tax-exempt nonprofits should file the initial charity registration on time to ensure the organization can solicit contributions within the state and avoid late filing fees. Soliciting donations before registering, failing to register after receiving funds, or filing late renewal applications can cause many consequences.

State penalties for unlicensed solicitation are diverse and often severe. State agencies that oversee fundraising activities take unlicensed solicitation very seriously. For example, some states publish public lists of organizations that are considered delinquent. Potential donors can easily confirm late or unregistered nonprofits by searching the state’s charitable solicitation website. Nonprofits may incur these consequences even if they unintentionally break the rules.

The risks associated with not complying with charitable solicitation registration laws go beyond these state penalties. The damage to your nonprofit’s reputation could be irreparable.

Failing to Register or renewing late can result in some unwanted consequences:

• Affect the reputation and trust of current and potential donors and grant makers.
• Earn fines, late fees, and penalties from the state.
• Bring civil and criminal action against officers and directors.
• Receive tax-exempt status revocation.
• Lose the right to solicit funds in the future.
• Lose existing donations or grants.

While the list of penalties is broad, the best way to avoid repercussions is to stay current with all charitable solicitation registration requirements.

Charitable Registration VS Other Business Registration Requirements

Remember that registering to solicit in a state is not the same as filing for a business license or qualifying to transact business in a state. 

You may still need to register or apply for other requirements or opportunities, including:

• Local Business Licenses & Permits
• State Income Tax Exemption
• Annual Report Filings
• State Sales Tax Exemption
• Foreign Registration

Charity Registration and Solicitation Summary

Fundraising regulations can differ from state to state; no matter how the nonprofit raises funds, it is “soliciting” the public. Asking for a donation in anyway is a regulated activity in most states and will likely require proper registration. 

Remember that registering to solicit in a state is not the same as filing for a business license or qualifying to transact business in a state and Nonprofits may still need to register or apply for other requirements.

FAQs

Does my nonprofit really have to register before asking for donations?

A nonprofit must file a charity registration in most states before soliciting donations. Asking for a contribution or selling goods/services that benefit a charitable cause are types of “solicitation” that require a charity registration. An organization does not need to receive a donation to trigger registration requirements in most states.

When does our nonprofit need to register?

Approximately 40 states have enacted charitable solicitation statutes. Although specifics vary, the state usually requires organizations to register before soliciting residents for contributions. However, organizations sometimes start to fundraise once they get their 501(C)(3) and must be aware of the state registration requirements. In these cases, the organization should register as soon as it becomes aware of its registration obligations. Often, state agencies will process a “good-faith” late registration without penalty if the organization can provide a justifiable explanation for its lack of earlier registration.