Our team gladly fields questions on the necessity and process for charitable registration. These are the Top 10 questions asked by nonprofit organizations regarding charitable registration.
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Who needs to complete state charity registrations?
Most 501c3 nonprofit organizations need to register in all of the states where they ask for donations. Higher education, religious organizations, hospitals, foundations, member organizations, etc., may be exempt from the law in some states, but may still need to file financial and other documents in select states. When requirements and exemptions change, Capstone Charity Resources keeps you up to date.
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Why is registration important?
Simply stated, it’s the law.
Just as a nonprofit is required to file IRS Form 990 to maintain its tax-exempt status, charities are required to maintain nonprofit registration in over 40 states. In most cases, registration is required prior to commencing fundraising in a specific state.
There are exemptions for certain types of nonprofit organizations in some states, which reduces the number of mandated registrations. The IRS has now inserted itself into what used to be a state issue by changing the IRS Form 990. Charities are now required to answer questions about their fundraising activities and state registrations.
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What should I look for on our IRS Form 990?
Specifically, IRS Form 990 Part VI, Line 17 now asks the question: “List the states with which a copy of this Form 990 is required to be filed.”
The instructions are clear in that the appropriate states must be listed even if the charity has not registered. This filing is just one part of the state-specific charitable registration process. It is important to note that it does not ask where you have filed, rather where you are required to file. Schedule G also asks for information about where you are registered.
Ask yourself this: What is the view of your Board of Directors about compliance “only when someone is watching?”
Donors expect charitable organizations to be diligent about compliance. Ignoring the state laws puts your organization at risk. For the board and staff members, compliance is a best practice of financial stewardship. The cost is typically a small fraction of the funds raised. Compliance just makes sense, especially when faced with the potential consequences of not filing state registrations and renewals.
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What is the definition of “fundraising” as it relates to nonprofit registration?
Any charitable solicitation, either directly by the nonprofit, volunteers, professional fundraisers or others on your behalf, triggers the charitable registration requirement.
Common examples of fundraising include: direct mail, telephoning, purchasing advertising within the state, national media advertising, holding or publicizing fundraising events, door-to-door solicitations, placing donation boxes, etc. Applying for grants is frequently considered fundraising, as is raising funds online (e.g. websites, emails, etc.). Social media is a very common tool for fundraising, as is a “donate now” button on your website. Both are considered fundraising in some states.
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We have already begun active fundraising in states requiring nonprofit registration, but are not registered. Now what?
In most states, if you take swift action once you are aware of the requirements, there is not a penalty for late registration. The key is swift action. There are a few states that may levy a fine or late fee to be submitted with your first registration.
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What will it cost for our nonprofit to comply with charitable registration requirements?
Each state registration fee varies, from free to those with sliding scales based on amount of funds raised. Retaining the services of our professional staff to track due dates, gather the required information unique to each state, coordinate the numerous required signatures and file the annual reports, will result in an additional fee based on the number of states where registration is required. Through a free assessment, Capstone Charity Resources can estimate the cost of initial registrations and annual renewals.
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What are the penalties if our nonprofit doesn’t submit the charitable registration filing?
Each state enforces registration and determines the impact of not registering. Most include the option for:
- Penalties against the non-registering charity. Daily fines up to maximums of $50,000 may be assessed.
- Penalties against responsible people. Due to incorrect information being supplied on the IRS Form 990, the IRS can require a correction within a given timeframe. Daily fines up to a maximum penalty of $5,000 may be charged to the person responsible for complying with the IRS request in a timely manner.
- Loss of tax exemption status in extreme cases and in cases where incorrect returns are repeatedly filed.
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Are their examples of penalties levied against nonprofits that failed to register?
Yes!
The failure to submit the charitable registration filing has resulted in fines and scrutiny of worthy nonprofit organizations. For example, a large gift to an organization was contested, a professional fundraiser was investigated and, as a result, the nonprofit is now under the microscope. In addition, a large grant was received by an organization, and noncompliance drew attention from the state.
Remember, with tight budgets, states have become much more interested in collecting the charitable solicitation registration fees.
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Can Capstone Charity Resources register my nonprofit?
Yes! Given the challenges of managing the deadlines and paperwork and keeping up with renewals and the changes in reporting requirements that affect your organization, your time is better spent on fundraising and mission. We offer affordable Full Service Charity Registration options provide guaranteed coverage to ensure your compliance with the law.
If your organization has the time and expertise, Capstone Charity Resources also offers two self-service options to allow you to register your charity in the required states. Learn more about Self-Service and Self-Service Plus+ to see if one is right for you.
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Are exemptions available for certain types of nonprofit organizations?
Most states provide exemptions for nonprofit organizations in select categories. Higher education, religious organizations, hospitals, foundations, member organizations, etc., may be exempt from the law in some states, but may still need to file financial and other documents in select states. Several states offer an exemption, but nonprofits are required to file an initial exemption, and in some cases, annual exemption filings.