Introduction to Charitable Solicitation Compliance

Fundraising and grant seeking are exhilarating opportunities to align new donors, corporations, and foundations with your mission. But before you can freely pursue these opportunities, there are certain government regulations with which your nonprofit must comply.

Each state has its own rules and requirements regarding fundraising, which states refer to as “charitable solicitation”. When it comes to state regulations, applying for grants is generally considered a form of charitable solicitation. These regulations are in place to protect donors and provide for an additional element of transparency. By staying compliant, your organization can not only avoid state penalties, but also reassure your donors that their donations are going to the right place.

The Fundraising Landscape

Many nonprofit leaders believe that having a 501(c) exemption from the IRS is their ticket to fundraise limitlessly. While it is true that your organization will not get far without an IRS determination letter, the states in which you solicit generally have additional requirements.

Forty-four states have laws surrounding charitable solicitation. Of those, forty-one states have registration requirements, meaning your charity must file a registration prior to soliciting donations (that is, before you even ask). You can view the full map of state requirements here.

Each state has a different registration process, but in general, you can expect to submit information on your nonprofit’s leadership, fundraising activities, programs, and finances. Registration fees vary by state, too, and they range from $0 (Arkansas) to over $400 (District of Columbia). You can also expect to appoint a registered agent and foreign qualify the nonprofit corporation in several states.

Determining Where to Register

If you ask for a donation from the citizens, corporations, or foundations of a given state, you must comply with applicable requirements based on your activities and the donations you receive. Common forms of solicitation include traditional methods such as mailings, phone calls, and special events. Grant seeking is typically considered a solicitation as well, and nonprofits seeking grant funding may have to register in the grant maker’s state as a criterion for eligibility. Without the proper registrations in place, your organization may not have the documentation needed to apply for certain grants.

If your nonprofit solicits donations using crowdfunding, social media, or through a “Donate Now” button on the organization’s website, pay special attention. Technically, those activities are considered soliciting donations, and a charity must register in the states that have such requirements.

Most nonprofits start by registering in their state of incorporation, and they register in other states as their fundraising activities require and their budgets allow. In most cases, it is better to review your own situation rationally and take proactive steps towards compliance, than to face “paralysis by analysis” and take no action at all.

Staying Compliant

Once you have registered your nonprofit to solicit donations in a given state, you are generally required to renew that registration annually. Renewal filings include the most current information about your nonprofit and fundraising data for that year.

As you might suspect, each state has its own due dates and renewal process. In most states, you can plan to submit your latest IRS Form 990 and financial statements, along with the state’s renewal application and a fee. Renewal fees are based on income your nonprofit raised in the previous year.

Tracking renewal due dates and submitting filings on time is a challenge for nonprofits of all sizes. Whether your nonprofit is registered in one state or forty-one, you can expect to spend plenty of time researching, preparing applications, and managing state correspondence each year. Fortunately, there are professional services that offer third-party assistance.

Reassuring Your Donors

Charitable solicitation compliance is one of the major responsibilities of running a nonprofit. By staying current with your state registrations, you avoid late fees and penalties for noncompliance, which can be thousands of dollars. You improve your chances of securing foundation and corporate funding. Perhaps most important, you give prospective donors the chance to research your organization, to see where their money goes, and to feel good about making a contribution. In doing so, you establish a relationship based on transparency and trust, and that goes a long way.

—James Gilmer, Compliance Specialist, Harbor Compliance 

James Gilmer is a Compliance Specialist for Harbor Compliance, which establishes 501(c) nonprofits and helps organizations stay compliant. Harbor Compliance assists charities in every state and several countries abroad. James serves on the Board for two nonprofits in Lancaster, Pennsylvania.