What is a whistleblower policy?

A whistleblower policy is an organizational policy that encourages workers to report suspected illegal or improper activity within the organization while protecting workers from retaliation for making such reports.

Is our nonprofit required to have a whistleblower policy?

New York nonprofits that have at least twenty employees and annual revenues of $1 million or more are required to have a whistleblower policy under Section 715-b of the New York Not-for-Profit Corporation Law.

Keep in mind that whistleblowers have significant protections under other federal, state, and local laws, even if those laws do not explicitly require adoption of a whistleblower policy. For example, Section 1107 of the American Competitiveness and Corporate Accountability Act of 2002 (more commonly known as the Sarbanes-Oxley Act) makes it a crime to intentionally retaliate against any individual, “including interference with the[ir] lawful employment or livelihood,”  for providing law enforcement with truthful information relating to the commission or possible commission of any federal offense. Many states and municipalities have other laws that protect whistleblowers from retaliation.

A whistleblower policy helps to educate management and workers about these legal protections. It is a helpful tool in promoting a culture of lawfulness and integrity. By explicitly stating management’s commitment to protect whistleblowers from retaliation and laying out a process for reporting illegal or improper activity, a whistleblower policy encourages workers to communicate their concerns to the employer in good faith without fear of reprisal. Adopting a whistleblower policy is a recommended best practice for nonprofit employers.

What are the key changes to New York’s whistleblower protections?

Effective January 26, 2022, New York amended Section 740 of the New York Labor Law, which protects workers who engage in whistleblowing activity from retaliation by their employers.¹ The amendments expanded the classes of protected workers, the types of protected whistleblower actions, the types of employment-related actions that are considered illegal retaliation, the time frame for individuals to file a retaliation claim, and the potential penalties for employers who do retaliate against whistleblowers. Below is a summary of some of the key changes.

1. Protected Individuals. The prior law appeared to protect current employees only. The amended law protects current employees, former employees, and independent contractors from retaliation for whistleblowing activity.

2. Protected Actions. Under the prior law, whistleblower protections only applied to disclosures or threats of disclosure that involved an actual violation of a law, rule, or regulation and presented a substantial danger to the public health or safety or constituted health care fraud. There were many types of illegal activities that did not fit within this standard, leaving employees who reported such activities at risk of retaliation. The prior law also stipulated that whistleblower protections did not apply if an employee disclosed an illegal activity, policy, or practice to a public body without first notifying the employer and giving the employer a reasonable opportunity to correct the problem.

The amended law changes these standards. An employer may not retaliate against a protected individual for doing any of the following:

• Disclosing or threatening to disclose to a supervisor or public body an activity, policy, or practice of the employer that the individual “reasonably believes” violates a law, rule, or regulation or poses a substantial and specific danger to the public health or safety;
• Providing information to, or testifying before, any public body conducting an investigation into any such activity, policy, or practice by the employer; or
• Objecting to, or refusing to participate in any such activity, policy, or practice.
• Protected individuals also need only make a “good faith effort” to report the activity, policy, or practice to the employer prior to notifying a public body. No employer notification is required at all when:
  • There is an imminent and serious danger to the public health or safety;
  • The whistleblower reasonably believes that reporting to the supervisor would result in a destruction of evidence or other concealment of the activity, policy, or practice;
  • The activity, policy, or practice could reasonably be expected to lead to endangering the welfare of a minor;
  • The whistleblower reasonably believes that reporting to the supervisor would result in physical harm to the whistleblower or any other person; or
  • The whistleblower reasonably believes that the supervisor is already aware of the activity, policy, or practice and will not correct it. 

3. Prohibited Retaliation. The amended law expands the definition of unlawful retaliation to mean any adverse action taken by an employer or the employer’s agent “to discharge, threaten, penalize, or in any other manner discriminate against” a protected individual who engages in protected whistleblowing activity. This includes:

• Actual or threatened adverse employment actions against a protected individual in the terms and conditions of employment, including but not limited to discharge, suspension, or demotion;
• Actions or threats to take actions that would adversely impact a former employee’s current or future employment; or
• Contacting or threatening to contact United States immigration authorities or otherwise reporting or threatening to report a protected individual’s suspected citizenship or immigration status or the suspected citizenship or immigration status of a protected individual’s family or household member. 

4. Increased Filing Time, Right to Jury Trial, and Penalties for Retaliation Claims. The statute of limitations for filing a retaliation claim under Section 740 is increased from one year to two years. Parties are entitled to a jury trial. A successful retaliation claim against an employer may result in any of the following penalties:

• An injunction against the employer;
• Reinstatement of the whistleblower to their same position or an equivalent position, or front pay in lieu of reinstatement;
• Reinstatement of full fringe benefits and seniority rights;
• Compensation for lost wages, benefits, and other remuneration;
• Payment by the employer of reasonable costs, disbursements, and attorneys’ fees;
• A civil penalty for the employer of up to $10,000; and/or
• Payment of punitive damages by the employer, if the violation was willful, malicious, or wanton. 

5. Employer Notice Requirement. Employers are required to inform protected individuals of their protections, rights, and obligations under the law by posting a notice “conspicuously in easily accessible and well-lighted places customarily frequented by employees and applicants for employment.” The New York State Department of Labor has issued a model notice that employers can post. Employers must also provide an electronic copy of the whistleblower notice to protected individuals via email and/or posting on their website.

1 In 2022, New York also amended Section 741 of the Labor Law, which applies to whistleblower complaints against health care employers.

The post Updated Whistleblower Protections in New York – Is Your Nonprofit Compliant? first appeared on Perlman Sandbox.

While “pay-for-play” is still prohibited by the NCAA,² these new rules have opened the door for college athletes to explore a new world of sponsorships, endorsements and compensation.  For example, college athletes can now earn money for commercials, appearances, speeches, social media posts, hosting sports camps, giving lessons, writing books and more — all without violating NCAA rules.

“NIL collectives” have emerged as the chief brokers of these opportunities.  This article discusses what NIL collectives are, their legal forms of organization, and the regulatory framework that governs them.

How are NIL Collectives Structured?
NIL collectives are entities that are structurally independent of a school, yet fund NIL opportunities for the school’s student-athletes. They are typically founded by well-known alumni and supporters of the school.  Collectives generate and pool revenue raised through contributions from a wide variety of sources, including boosters, businesses, fans and more.  They use these funds to create opportunities for student-athletes to leverage their NIL in exchange for compensation.

While a number of NIL collectives have been formed as for-profit entities,³ in a growing number of cases, they have been formed as nonprofits. Numerous nonprofit collectives have, in turn, sought and obtained 501(c)(3) public charity status from the IRS, which potentially allows donors to receive a tax-deduction for their contribution to the collective.⁴

Tax-exempt collectives typically use student-athletes as independent contractors to help further their charitable mission.  For example, some provide in-kind contributions of a student-athlete’s services to other charities, including speaking, appearances and other public relations services that help expand the charities’ reach and visibility in their communities.  The student-athlete is paid by the tax-exempt collective to provide the services, while the other charities receive these services on a pro bono basis.

Special Rules Governing Tax-Exempt NIL Collectives
Collectives that obtain tax-exemption should be mindful of special rules that apply to tax-exempt entities.  These rules are enforced not only by the IRS, but also by State Attorneys General, whose responsibility is to ensure that charitable funds are used for charitable purposes. These rules require that tax-exempt cooperatives operate differently from the typical NIL collective.

For example, NIL collectives commonly facilitate endorsement, merchandising and marketing deals that allow for-profit companies to promote their products and services using a student-athlete’s NIL, which helps these for-profit companies increase business and revenues.  Many NIL collectives have the flexibility to promote such commercial interests due to their structure as for-profit (and therefore, taxable) entities.

However, facilitating commercial deals does not constitute a permissible purpose for a charitable, tax-exempt organization.  Therefore, if a tax-exempt NIL collective engages in such activity, revenues from this activity could be taxed by the IRS as unrelated business income – i.e., income from a trade or business, regularly carried on, that is not substantially related to the collective’s charitable mission.

Also, if the IRS finds that these commercial activities constitute a primary or substantial non-exempt purpose of the organization, the IRS could revoke its tax-exempt status.⁵ State Attorneys General could bring enforcement actions for similar reasons.  Therefore, if a tax-exempt collective facilitates marketing or similar NIL arrangements, it should generally avoid arrangements promoting goods and services of for-profit companies.  However, it could use the NIL of student-athletes to help promote and amplify the charitable missions of nonprofits serving communities.⁶

NIL collectives are also becoming well-known for offering lucrative compensation to student-athletes in connection with promotional deals.  For many collectives, their status as for-profit entities give them the flexibility to do so.

But, in the context of a tax-exempt collective, these payments must be reviewed carefully to ensure they do not constitute “excessive compensation” for federal tax law purposes.  NIL collectives should therefore carefully structure athletes’ compensation in accordance with IRS rules to ensure it does not exceed fair market value.  Failure to do so could put the collective at risk of losing its tax-exemption, and lead to potential enforcement actions by State Attorneys General.

However, it should be noted that even if such compensation is determined to be reasonable, a tax-exempt NIL collective could nevertheless lose its exemption if the IRS determines that its primary or substantial purpose is to pay or recruit student-athletes.  For this reason, it’s important that tax-exempt collectives work closely with legal counsel to ensure they have well-constructed charitable programs.

Given the risks outlined above, an NIL collective seeking tax-exempt status should carefully consider whether any of its time and resources will be spent on pursuing commercial (non-exempt) activities.  Collectives considering such activities should consult with counsel to reconsider its structural options, and discuss whether it would be advisable to create a for-profit subsidiary to house any commercial activity.

NCAA Interim Rules
Aside from understanding the regulatory framework discussed above, NIL collectives (no matter their legal form) should have an understanding of the NCAA rules which, as of the time of this writing, consist of interim rules adopted in July 2021.  These interim rules will remain in effect until federal legislation creates a national standard (which is what the NCAA is calling for), or until new NCAA rules are adopted.  While the purpose of the interim rules is to suspend NCAA restrictions on athletes’ profiting off their NIL, the rules maintain certain guardrails to prevent “pay-for-play” and similar arrangements.  Subject to state law, the following is prohibited under the interim rules:

• NIL opportunities cannot be used as a recruiting tool for prospective student athletes.  Such an action is considered an “improper recruiting inducement.”  Therefore, NIL collectives should refrain from making offers of NIL opportunities contingent upon a student-athlete’s enrollment at a particular school.
• As discussed above, NIL arrangements that constitute “pay-for-play” are also prohibited.   This rule prohibits any kind of arrangement that constitutes compensation in exchange for a student-athlete’s participation or performance in college athletics.
• NIL agreements should be specific about the NIL work being performed by the athlete in exchange for compensation, and such compensation should be paid only for work performed.  Such compensation must be determined through an independent analysis, based upon the facts of each specific case and the value each athlete offers to an NIL arrangement.
• The NCAA interim rules prohibit compensation from any school in exchange for the use of a student athlete’s name, image or likeness.  In addition, schools may not direct how student-athletes use NIL compensation.  (For example, schools may not require a student-athlete to use NIL compensation for financial aid.) Athletic department staff are not allowed to represent student-athletes in marketing their athletic ability or reputation.  They also may not communicate with a recruit on behalf of an NIL collective.  In addition, such staff may not facilitate a meeting between an NIL collective and a student-athlete, including, for example, by sharing a recruiting list or watch list.

State Laws and School Policies
As noted above, the NCAA’s interim rules are subject to state law, which varies depending on the state.⁷  Therefore, NIL collectives should take steps to ensure compliance under any applicable state law, including any state law that applies to the collective, the school where the student-athlete is enrolled, as well as the state where the NIL activity will take place.

The collective should also look at any specific NIL policies established by the college.

Both state laws and school policies may include reporting requirements that NIL collectives should be aware of, and some state laws prohibit athletes from entering into a contract that conflicts with the student-athlete’s team contract.

Understanding the regulatory framework governing NIL collectives will help avoid missteps that can lead to punitive actions by the IRS, NCAA or State Attorneys General, or scrutiny from Congress, which has also taken an interest in these entities.  As the NIL’s regulatory environment continues to evolve, it is incumbent on both collectives and student-athletes to take affirmative steps, including consulting with legal counsel, to ensure compliance.

1 This dramatic shift by the NCAA also came on the heels of its loss before the U.S. Supreme Court in NCAA v. Alston 141 S. Ct. 2141 (2021). Though NIL compensation was not the subject of this case, Justice Kavanaugh wrote a concurring opinion which suggested that the NCAA’s NIL compensation rules could be in violation of antitrust laws, and stated that “the NCAA is not above the law.”  The NCAA’s change also follows action by numerous states that, since 2019, had led the way in creating NIL rights for student athletes.

2 As discussed later in this article, “pay-for-play” refers to any kind of arrangement that constitutes compensation in exchange for a student-athlete’s participation or performance in college athletics.

3 Other legal forms taken by NIL collectives have included formation as for-profit limited liability companies (“LLCs”), which provides more flexibility in a number of ways.  For example, unlike tax-exempt nonprofits, for-profit LLCs are not subject to a cap on what’s considered reasonable compensation.  They may therefore offer student-athletes NIL work at any compensation structure.  For-profit LLCs are also not subject to limitations on the type of activities they can facilitate.  Therefore, unlike tax-exempt entities, for-profit LLCs may facilitate NIL arrangements for student-athletes such as merchandising or endorsement deals which promote commercial activities.  NIL collectives should consult with counsel to discuss the various pros and cons of these options.

4 On September 29, 2022, Senators John Thune (R-S.D.) and Ben Cardin (D-Md.) introduced the Athlete Opportunity and Taxpayer Integrity Act which, if passed, would “prohibit individuals and organizations from using the charitable tax deduction for specific contributions that compensate college or incoming college athletes for the use of their [NIL].”   They argue that “[s]uch activity is inconsistent with the intended purpose of the charitable tax deduction, and it forces taxpayers to subsidize the potential recruitment of – or payment to – college athletes based on their NIL status.”  As of the time of this writing, this federal legislation is the latest of more than a handful of NIL proposals introduced, but not yet passed, in Congress.  Congress’ appetite for eventually passing NIL legislation is unclear, though these proposals do indicate that NIL collectives are facing increased scrutiny from Congress.

5 Regs. Sec. 1.501(c)(3)-1(e)(1) and Sec. 1.501(c) (3)-1(c)(1).

6 One example of this approach is discussed in the previous section – i.e.,  tax-exempt collectives that provide in-kind contributions of a student-athlete’s services to other charities to help them promote their charitable missions.

7 As discussed above, the NCAA is lobbying Congress for legislation that would create a national standard, and thereby pre-empt differing state laws.

The post Seeking Tax-Exemption for a Name, Image and Likeness Collective (NIL)? What to Know. first appeared on Perlman Sandbox.

Current Trends and Issues in Charitable Regulation

Regulators
Conference panels presented by various state regulators covered ongoing trends and issues. Public trust of the charitable sector was a topic of general concern, based on surveys indicating a decrease in the trust in the nonprofit sector.  The regulators noted that they play an important role in enhancing trust by providing meaningful oversight of the sector.

Noteworthy topics included the importance of Board governance and oversight, particularly in monitoring the organization’s finances. The panelists noted a rise in for-profit entities soliciting in-kind disaster relief, particularly those that do not have a nonprofit partner. This trend has been largely observed in connection with the rise of natural disasters and the war in Ukraine.   Regulators are also troubled by the balloon and bust of opioid-crisis relief organizations. This is threatening given the importance these organizations play in their local communities. Such failures have been attributed to their overly rapid growth.

Several state regulators noted an increase in mergers and acquisitions filings of hospitals. Approval of these transactions generally turns on the question of whether the transaction is in the best interest of the community. As for charity care, regulators noted that nonprofit hospitals have a duty to provide subsidized care to patients in need, something they say they have seen too little of.

A notable increase of fraud, committed in the name of charities or directed at charities, is also of concern. It is reported that there has been a rise of bad actors using the name and information of known and respected charities to commit fraud.  One typical scheme is the impersonation of regulators claiming that registration fees are past due. Charities that receive such calls are admonished to use best efforts to confirm the identity of caller.

NASCO puts out an annual report detailing trends on state regulation and enforcement.

Nonprofit Sector and Practitioner Panelists
In the afternoon, other stakeholders in the charitable sector spoke on the trends they have observed during the past year. Jan Masaoka, CEO of the California Association of Nonprofits, discussed the Association’s concerns with donor-advised funds (DAFs) arising from the delay in time between donor benefit (i.e., the donor’s tax-deduction) and the donation reaching its target community. Erin Bradrick, Principal of NEO Law Group, spoke on the growth of fiscal sponsorships and the lack of sector education and oversight that exists. She observed that Decentralized Autonomous Organizations (DAOs) have the theoretical ability to seek 501(c)(3) status without having a governing body (the core distinguishing characteristic of DAOs).  Ms. Bradrick also noted an upward trend in the politicization of issues directly tied to key nonprofit areas, which have created a tension between state and federal law., naming the recent cannabis and abortion access laws as prime examples.

NFT and Cryptocurrency
Sara Hall, Chief Legal Officer and General Counsel of ALSAC, Andrea Kramer, Partner of McDermott, Will & Emory, Ruth Madrigal, Principal of the Exempt Organizations Group at KPMG, and Beth Short, Director of Outreach and Education, Charitable Law Section of the Ohio Attorney General’s Office, discussed cryptocurrencies, NFTs, and other emerging forms of donation.  The panel noted that these forms are not suitable for all organizations, as there is significant risk and several complex issues to consider in accepting donations of cryptocurrency.

It was noted that organizations that decide to accept NFT or cryptocurrency donations should ensure they have a detailed donation acceptance policy and procedure in place.  The policy should include how the organization will protect the security of the crypto wallets through which they accept the donation, how to appraise the cryptocurrency or NFT, and whether to use an intermediary service like a Donor Advised Fund (DAF). Including the development department on any decision on acceptance of these donations is critical.

Now and Next in Charitable Giving
In her keynote address, Dr. Una Osili, Associate Dean for Research and International Programs at the Indiana University Lilly Family School of Philanthropy, made a deep dive into the data to identify donor trends. Among those Dr. Osili highlighted are that giving is at an all-time high, that individuals remain the largest group of donors, and that fewer households are donating. She also pointed to a downturn in religious donations, historically the largest generator of donations, and an upturn in donations to racial identity and environmental groups. Donors are moving from a trend of making passive donations to getting more involved in the causes they support through active engagement and education.

Dr. Osili ended by sharing some of her key findings, notably that giving is the great equalizer. Adjusted for gross income, charitable giving is the same across all groups. Technology, specifically crowdfunding websites and social media, has become one of the strongest vehicles for attracting donations, making up 40% of all giving. Finally, charities should start thinking of the value of donating one’s testimonial and network of connection, not just time and gifts. For more information, visit the Indiana University website at Generosity for Life.

Establishing a Healthy Board
Dr. Gerri King, President of Human Dynamics Associates, taught board mediation and communication techniques. Her talk centered on the five states of group development: Forming, Storming, Norming, Performing and Adjourning. Dr. King explained that at each stage, there are unique challenges affecting Board dynamics, and that any change to the make-up of the Board can be a setback.

Dr. King emphasized the importance of creating a no blame, no gossip environment among the team and the organization, noting that although it sounds simple, it can be intensely difficult to achieve. The benefits, as she noted, are indispensable., creating higher accountability, cohesion, trust and efficiency.

Update on the California Charitable Fundraising Platform Law
Brian Armstrong, Deputy Attorney General of the California Attorney General’s Office, discussed Assembly Bill 488, which is set to take effect on January 1, 2023. This is the first law in the U.S. specifically designed to regulate online charitable fundraising platforms, including through a new registration and reporting requirement, specific required public disclosures, and other provisions designed to safeguard charitable donations received through these platforms.

The proposed regulation is currently in the “review of public comments” stage. Armstrong indicated that a second, 15-day period for public comments will open up again once the review is complete, but did not specify when that would be.  During the follow-up Q&A, our team learned that the registration portion of the law is not likely to go into effect on January 1, 2023. Still pending would be final regulations and the development of the new registration forms. However, the AG’s office intends to begin enforcement of those portions of the law which are not dependent upon the passage of final regulations (e.g., the disclosure requirements).

Charitable fundraising platforms and platform charities should take time to carefully review their current platform disclosures (including disclosures made throughout the user/donor flow, as well as the platform Terms of Use) and ensure they are in compliance with these new requirements.  For more details on the legislation, please read California Enacts New Law to Regulate Charitable Fundraising Platforms by firm partner Karen Wu.

The post Takeaways from the 2022 NAAG/NASCO Conference first appeared on Perlman Sandbox.

Navigating the types of activities that tax-exempt nonprofits are allowed to engage in (and how much) without jeopardizing their tax-exempt status can be tricky.  Many charities engage in types of activities that are important to the organization’s mission, donors, and people they serve.  Two activities that charities may use to influence public policy include “advocacy” and “lobbying.”  While advocacy and lobbying are terms that are sometimes used synonymously, the two are distinct in important ways, most notably because federal tax law limits the amount of lobbying that charities may engage in.

How Does Advocacy Differ from Lobbying?

Advocacy can take many forms that do not constitute lobbying, including: leading, directing, conducting, and publishing research; and disseminating educational information.  Charities may engage in many different types of advocacy, and so long as that activity does not constitute lobbying, 501(c)(3) organizations are generally not limited in the amount of time or money they can spend on advocacy.

Lobbying, on the other hand, is subject to specific, restrictive rules.  Charities may engage in only an insubstantial amount of lobbying, and must take care not to jeopardize their tax-exempt status or run afoul of other lobbying restrictions.  Lobbying is any attempt to influence legislation, which can include acts, bills, resolutions, or ballot initiatives by Congress, state legislatures, local councils, or similar governing bodies.  An organization whose employees contact or urge others to contact members or employees of one of these bodies for the purpose of influencing (by encouraging them to adopt, reject, support, or oppose) legislation, is engaging in lobbying.

State and Local Lobbying Registration, Reporting, and Disclosure Requirements

In addition to following the strict federal tax rules governing the type of lobbying and amount of lobbying an organization can engage in,  charities should also be aware of any state and local requirements to register (including registration of certain employees as lobbyists, or registration of the organization itself, which retains and pays lobbyists) and to report lobbying expenditures and activities on a regular basis.¹ Federal and state lobbying rules can be confusing and complicated, and often depend on several factors, including: (1) whether the organization employs an in-house lobbyist or an outside lobbyist; (2) whether any of the organization’s employees are lobbying; (3) the total amount of expenses the organization spends on lobbying activities; and (4) the timing of any contacts or communications made with federal or state officials.

After the organization makes a determination about which federal and state registration requirements apply to its lobbying activities, the organization and its lobbyists must file regular reports (often quarterly or semi-annually) until the registration terminates (the method by which registrations are terminated also varies from state to state), or otherwise expires.

If an organization decides to engage in lobbying activities, it is critical to ensure that executive staff are aware of the applicable requirements for registration, reporting, and disclosure.  Failure to comply can result in fines, censure from the regulatory agency, and possible negative press exposure for the organization.

1 While this article is focused on the lobbying rules as they pertain to 501(c)(3) public charities, it is worth noting that 501(c)(4) organizations, which may engage in unlimited lobbying in furtherance of their tax-exempt missions, are more likely to trigger lobbying registration and disclosure requirements.

The post Is Your Charity Engaged in Lobbying? Make Sure You Know the Rules! first appeared on Perlman Sandbox.

While most nonprofits are required to register in many states to conduct charitable fundraising, religious organizations are generally exempt from the registration requirement. It’s important to be aware, however, that the scope of the states’ religious exemption varies. Therefore, religious organizations should carefully review each state’s statutory exemption to determine where they are exempt, and where they are not exempt and therefore may need to register to solicit contributions.

Overview of Charitable Solicitation Registration & Religious Exemptions

Charitable fundraising activities are primarily regulated at the state level, through the offices of the Attorney General, Departments of State, Consumer Protection and the like. Charitable solicitation regulations were established to protect the public from fraudulent fundraising and assist prospective donors in making well-informed giving decisions. Each state’s statutory framework typically requires charities to register with the state, disclose information about their finances and fundraisers, and provide certain oral or written disclosures to their prospective donors. Currently, forty-one (41) states and the District of Columbia require most organizations to register before soliciting charitable contributions in their respective jurisdictions.

Most states exempt or exclude religious organizations from their charitable solicitation registration and reporting requirements. Keep in mind, however, that each state defines the scope of its exemption for religious organizations differently. As a result, some religious organizations may be required to comply with a state’s registration requirements while others may not. Several states require that religious organizations make a written request to confirm that they are exempt from the state’s registration requirements, while others consider it a legal determination to be made by the organization, and explicitly advise that they do not provide legal advice or make a formal determination as to whether or not an organization is exempt.

For some states, the religious exemption provisions are broadly constructed, and exempt any “duly organized religious corporation, religious institution or religious society.” Other exemption provisions are more narrowly drafted, exempting only those religious organizations that are not required to file the Form 990 with the IRS, which primarily includes churches¹, their integrated auxiliaries², and ecclesiastical or denominational organizations. Churches and other non-990 filers are exempt from registering in all states unless they use the services of a professional fundraiser.

As a general matter, religious organizations that are required to file the Form 990 with the IRS will be exempt in some, but not all, states. Many religious organizations that are required to file Form 990 describe their mission as both religious and charitable as together these constitute an expression of their religious faith and values. Direct services for human needs may include the provision of food, shelter, education, and medical support to vulnerable populations. Oftentimes, they incorporate prayer and religious instruction in their programmatic work, and will require their employees to agree to an organizational statement of faith.

It is worth noting that the laws of a few states continue to include a provision in their religious exemption law which the Supreme Court has declared unconstitutional. These unenforceable provisions limit the scope of the religious exemption to only those religious organizations that are primarily supported by contributions from their members or congregation.³

Impact of Religious Exemptions on Fundraising Professionals

Even when a religious organization is exempt from registering in a state to solicit contributions, in most states, when a fundraising professional provides their services to the organization, the fundraiser must be registered with the state. In a few states, the religious organization’s exemption also extends to the fundraiser’s contract filing and reporting obligations, thereby relieving them of any such filing requirements.

Professional fundraisers (also known as commercial fundraisers or paid solicitors) that directly solicit funds on behalf of charitable organizations are required to register in up to forty-four (44) states. In addition, they must post surety bonds in each state, file copies of their fundraising contracts, and file annual financial reports relating to each fundraising campaign conducted in the state. There are ten (10) states that extend the religious organization’s exemption to their professional fundraiser’s contract filing and reporting obligations.

Fundraising counsels (also known as fundraising consultants) that help plan, manage, advise, or produce and design solicitation campaigns, but do not directly solicit or have custody or control of contributions, are also required to register in twenty-seven (27) states, file contracts, and in a few states, post bonds. There are seven (7) states that extend the religious organization’s exemption to their fundraising counsel’s contract filing and reporting obligations.

Fundraising professionals need to understand the scope of a religious organization’s registration or exemption status in those states in which they will be providing fundraising services to the organization. Not only must they comply with their corresponding filing obligations, but they must also ensure compliance with collateral obligations, such as solicitation disclosures. Thus, it would be prudent for religious organizations to ensure that they have appropriately assessed their exemptions, have documentation to support the exemption in each applicable state, be registered to solicit where required, and communicate with their fundraising professionals to ensure alignment on the impact of their status as a religious organization on both parties’ filing obligations.

Does a religious organization need to register if it solicits on the internet?

In addition to ascertaining whether a religious organization is exempt from registration based on its religious status, a separate analysis should be undertaken to determine if the organization’s solicitation activity creates a jurisdictional nexus that would trigger a state’s registration requirement. For example, a website with a donate button that is accessible to residents in all states does not necessarily create a sufficient jurisdictional nexus. In many cases, it makes sense to undertake a jurisdictional analysis based on the organization’s targeted and/or online fundraising activities before delving into the religious exemption analysis as there may only be a few states where the organization has a jurisdictional nexus based on its fundraising activities. In such cases, the organization may simply review the applicability of the religious exemption in those relevant states.

For more information on how to assess an organization’s registration requirements based on its online fundraising activities, please read this article.

What are the practical steps for religious organizations to determine their registration requirements?

Assess whether registration is necessary or not based on a jurisdictional analysis, taking into account both traditional forms of fundraising (e.g., direct mail, telemarketing, events) and online fundraising activities.
Review with your legal counsel whether your organization qualifies for the religious exemption in the relevant states.
Apply for religious exemptions where applicable and appropriate.
Follow the exemption application procedures in the states that have such procedures in place.
For states that take a “self-determination” approach, and will not formally confirm an organization’s qualification for the state’s religious exemption, it may nevertheless be prudent to submit a letter, putting the states on notice of the organization’s position that it is statutorily exempt from registering as a religious organization.
Register in all applicable states where: (1) a registration requirement exists; (2) the organization is soliciting (and the state has jurisdiction over their solicitation activity); and (3) the organization does not qualify for the religious exemption. Note that charitable solicitation registration must be renewed annually in each applicable state.

The post When are Religious Organizations Exempt from Charitable Registration? first appeared on Perlman Sandbox.

The bill follows New York’s passage in 2019 of another diversity related law which calls for a study of the number of women serving on certain corporate boards.

The bill’s sponsors say ethnic diversity is critical to a nonprofit board’s ability to understand its community’s needs.  They say when the ethnic makeup of a nonprofit board mirrors that of the community it serves, the board is more able to relate to the shared experiences of its community, and is therefore better equipped to identify problems and feasible solutions.   The bill makes an analogy to ethnically diverse police departments, stating that as data bears out that diverse police forces provide better service to diverse communities, the same may be true for nonprofit boards.

On January 5, 2022, the bill was referred to the Senate’s Corporations, Authorities and Commissions Committee.  It’s unclear whether this bill will gain traction during this legislative session.  Nevertheless, the call for more diversity on boards is trending not only in New York, but in California, Maryland, Illinois and other states where board diversity requirements have either been enacted or proposed.  Given the growing expectation for greater inclusion of underrepresented minorities on boards, nonprofits should consider familiarizing themselves with best practices for board diversity.

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Impact of COVID-19
The impact the COVID-19 pandemic has had on the charitable sector was a focus of the conference. Yael Fuchs, NASCO President and Co-Section Chief for the Charities Bureau of the New York Attorney’s General Office, pointed to many state regulatory changes in areas such as virtual meeting guidance, registration deadline extensions, changes to signature requirements, and modified filing requirements. Some of these changes can be found in the NASCO chart of state registrations laws. While many of the pandemic related modifications are set to, or have already, expired, NASCO is looking for feedback as to what virtual components and guidance modifications should stay. For further information on virtual member meetings, please read Virtual Nonprofit Board and Member Meetings in the Time of COVID by my colleague Jeremy Coffey.

Ms. Fuchs described the effects the pandemic has had on filings requiring regulatory approval. While the trends are anecdotal, it was a shared observation that charity regulators are seeing an increase in divestment of real property, deaccessioning of art, mergers, and amendments to certificates of incorporation. She further noted that charity regulators have not yet seen an increase in endowment modifications and dissolutions, but based on historic trends, they expect these types of transactions may be forthcoming in the near future.

Federal Trade Commission (FTC)
Tracy Thorleifson, Attorney and FTC’s leading expert on charitable solicitation fraud, highlighted some of the key work the FTC has been doing in the charitable sphere, and explained the role the FTC plays in charitable regulation. Specifically, the FTC has regulatory authority under the FTC Act to prosecute sham charities engaged in fraudulent and deceptive fundraising activities. The FTC also has oversight over robocalls when made by fundraisers hired by charities (i.e., professional fundraisers) on the federal level. The FTC encourages everyone to report any suspected or known charitable fraud activity to www.reportfraud.ftc.gov.

Policy Updates and Trends
Courtney M. Aladro, Assistant Attorney General and the Chief of the Non-Profit Organizations/Public Charities Division at the Massachusetts Attorney’s General Office, NASCO Board Member, and Chair of the Policy Committee, presented a handful of legislation and policy changes from the past year.

State Legislation
The first focus was on two state legislative changes. The Washington Nonprofit Corporation Act (Chapter 24.03 RCW) makes changes to the existing regulatory regime. First, it updates the rules governing electronic communications and member meetings. Second, it enhances the Attorney General oversight of charitable assets held by nonprofit corporations. Finally, it allows for “domestication” and for-profit to nonprofit conversion. This new act will go into effect January 1^st, 2022.

The other state legislation highlighted was the California Bill on oversight of charitable giving on online platforms (AB 488), which was signed into law on October 7^th, 2021. The bill requires online platforms facilitating charitable fundraising to register with the Attorney General’s office. It also requires certain disclosures and prompt distribution of donations. Finally, it prohibits solicitations for charities that are not “in good standing” with the Attorney’s General Registry of Charitable Trusts, the Franchise Tax Board, or the IRS. NASCO has a crowdfunding working group that is continuing to monitor online fundraising activities. For a deeper understating of this bill, please read California Enacts New Law to Regulate Charitable Fundraising Platforms by my colleague Karen Wu.

Federal legislation
Ms. Aladro highlighted two federal bills applicable to charitable organizations. The first bill was the Fraud and Scam Reduction Act (HR 1215). This act was supported by NAAG/NASCO in an open letter sent on behalf of 47 states. The bill passed the House on April 15, 2021 and is currently awaiting Senate approval. The bill, if passed, would establish a Senior Scams Prevention Advisory Group to support training and education efforts to identify and prevent scams targeting the elderly. The bill would also establish the Office for the Prevention of Fraud Targeting Seniors in the Bureau of Consumer Protection of the FTC.

The other federal bill discussed was the Accelerating Charitable Efforts Act (S 1981, known as the “ACE Act”). This bill, which was introduced on June 9th, would create new rules for private foundations and donor-advised funds (DAF). The legislation takes aim at regulating DAF funds specific to deduction eligibility and payout requirements and timelines.

Supreme Court Decision
Americans for Prosperity Foundation v. Bonta was discussed. In this case California enacted a rule requiring all charities that fundraise in the state to disclose their confidential IRS Form 990 Schedule B, if they filed one, with the California Registry of Charitable Trust. The Supreme Court found this rule unconstitutional and struck it down. In doing so, it did acknowledge that states can obtain Schedule B information through subpoenas and audits, but only if there is an underlying reason. In response to this case, California, Hawaii, New Jersey, and New York have altered their Schedule B collection rules and/or practices. For more information on this case leading into the Supreme Court’s opinion, please read Schedule B Disclosure Cases Head to the Supreme Court – Is Donor Privacy Threatened? by my colleague Seth Perlman.

Alternative Nonprofit Fundraising
Brian Yacker, Adjunct Professor at the University of California Irvine, discussed issues surrounding alternative fundraising. Alternative fundraising can include many things (for example auctions or “virtual” bake sales), special event fundraisers such as games (raffles, bingo, etc.), virtual events (gala, run/walk, etc.), or crowdfunding. Some of these activities may generate unrelated business income tax (“UBIT”). If the amount of unrelated business activities become too substantial, it could jeopardize an organization’s tax-exempt status. It is therefore important that nonprofit boards keep a vigilant eye on the type of fundraising activities that generate UBIT to ensure that it does not become too substantial. It is also important that these activities are properly reported to the IRS on the Form 990. Failing to report properly could lead to tax liabilities, penalties, and an uncertain tax position.

Charities Working with Non-Charities
A panel of regulators discussed the various considerations an organization must take into account when deciding to partner with a non-charity. On the federal level, such considerations include the 501(c)(3)’s purpose, unrelated business taxable income, private benefit, jeopardizing investments, and self-dealing. On the state level, the considerations become much broader. An organization must consider, among other things, the various duties (loyalty, obedience, care, and accounting), the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”, enacted in all states except PA), registration and reporting requirements, charitable solicitation laws, donor expectations, and charitable purpose. One of the panelists, Assistant Attorney General for Washington Joshua Studor, pointed to the 2019 American Law Institute’s Restatement of Charitable Nonprofit Organizations Law as a great resource for many of these state considerations.

Fundraising Events – Virtual, In-Person, and Hybrid
Sara Hall, Chief Legal Officer for St. Jude’s Children Research Hospital, spoke on the uncertainty of fundraising events. She noted an increasing expectation for returning to in-person events. As a lesson learned, Sara addressed the hybrid event. Ms. Hall noted the heightened challenges of hybrid events (both virtual and in-person). The logistical issues with both types are compounded when thrown together.

Ms. Hall also noted that, in the area of event contracting, force majeure clauses have become less reliable. Vendors are specifically excluding COVID and no longer excusing non-performance. It is important to negotiate at time of booking with catering that cancellation penalties will be credited towards future bookings and that you have a date to confirm your numbers before food is purchased.

Cryptocurrencies, NFTs, and Beyond
Ms. Hall also spoke to the burgeoning areas of cryptocurrency and NFT donations. Currently, cryptocurrencies are considered property for tax purposes. If a charitable organization wishes to accept cryptocurrencies, it is important that they set clear policies and controls for doing so. These include: establishing gift acceptance policies and safeguards that are consistent with the organization’s finance and audit procedures, custodian agreements for individuals with account access, and monthly reporting and auditing of their crypto wallet. It is also important that charities work with vendors and exchanges that are regulated by the Financial Crimes Enforcement Network (“FinCEN”) or the New York Department of Financial Services (“NYDFS”) if you are a New York entity. For more information on how charities should handle cryptocurrencies, please see What Nonprofits Should Be Asking About Virtual Currency Regulation and Fundraising by my colleague Jeremy Coffey.

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Historically, New York’s NPCL did not allow nonprofit organizations to hold virtual membership meetings. That changed with the COVID-19 pandemic, when New York offered temporary flexibility to the boards of charitable and religious nonprofits.  Under the COVID-19 rules, boards of charitable nonprofit or religious organizations could unilaterally decide to hold member meetings virtually. Under the revised law, boards of nonprofit charitable organizations may unilaterally determine whether or not to hold member meetings electronically, as long as their certificate of incorporation or bylaws do not prohibit such a decision.

Similarly, the newly-created default rule under New York’s Religious Corporations Act (RCL § 28) is that a board of a religious corporation may organize a virtual membership meeting if the board is already authorized to determine the place of a membership meeting, under either the organization’s governing documents or another provision of the RCL. However, leaders of religious organizations should bear in mind that the RCL contains different provisions depending on the denomination of the organization – leaders must be careful to review their organizing documents as well as the applicable sections of the RCL to confirm whether they have the requisite power to call virtual membership meetings or, if not, whether they could amend their governing documents to acquire that power.

Any boards considering adopting a virtual format for their upcoming membership meeting should consult with an advisor to review their organizational documents. Any nonprofit or religious corporations whose certificate of incorporation or by-laws prohibits virtual membership meetings should consider whether and how to revise their documents to provide the board with additional flexibility. We anticipate that many organizations and their members will decide to operate under virtual or hybrid formats in the near future.

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The new law defines a “charitable fundraising platform” as “any person, corporation, unincorporated association or other legal entity that uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur.”  The broad definition of charitable fundraising platform applies to most consumer-facing websites that facilitate the receipt of online donations, with limited exceptions.[1] It also applies to websites that run multiple promotions advertising that a portion of the purchase price from the sale of goods or services will be donated to specified charities, as well as websites or platforms that voluntarily invite customers to add a donation during the check-out process, or that encourage individuals to take certain actions to trigger donations.  According to one legislative analysis, examples of charitable fundraising platforms include Amazon, Benevity, Charity Navigator, CrowdRise, eBay, Facebook, GoFundMe, Google, GuideStar (Candid), Lyft, Overstock, and PayPal.

The bill also regulates platform charities, which are charitable organizations that facilitate acts of solicitation on a charitable fundraising platform.

Key New Requirements
The bill contains a number of new requirements applicable to charitable fundraising platforms and platform charities, including the following:

1. Registration and Reporting. Charitable fundraising platforms and platforms charities must annually register and submit financial reports to the California Attorney General’s office. Additional regulations addressing the content of the registration and annual report forms and the manner and timing of the filings will be issued by the Attorney General.[2]

2. Required Disclosures. The new law will require charitable fundraising platforms to clearly disclose certain information, including: (1) a statement about who will receive the donations; (2) if applicable, a statement that a recipient charity may not receive donations or grants of recommended donations, with an explanation identifying the circumstances under which a recipient charity may not receive the funds; (3) the length of time it takes to send the donation or a grant of the recommended donation to a recipient charity; (4) the fees or other amounts (if any) deducted from or added to the donation or a grant of the recommended donation; and (5) whether the donation is tax-deductible or not. The new law permits some, but not all, of these disclosures to be provided through a conspicuous hyperlink, so long as the disclosure is conspicuous when the hyperlink is selected.

3. Written Consent of Charity Beneficiaries (and a Limited Exception). The law generally requires that a charitable fundraising platform or platform charity obtain the written consent of any recipient charity before using its name in a solicitation, but provides that such written consent is not needed if all of the following circumstances are met: (1) the platform only includes certain information about the recipient charities on the platform, as set forth in the new law or future regulations (e.g., the recipient charities’ name, address, telephone number, internet website, EIN, registration number with the California AG’s office, NTEE Code, and publicly available information from the recipient charity’s tax or information returns filed with the Internal Revenue Service or the California AG’s office); (2) the platform conspicuously discloses before persons can complete a donation that the recipient charity has not provided consent or permission for the solicitation, and has not reviewed or approved the content generated by individuals engaging in peer-to-peer charitable fundraising, when applicable; (3) the platform promptly removes any recipient charity from its list or any solicitation regarding the recipient charity upon written request by the recipient charity; and (4) the platform or platform charity does not require that a recipient charity consent to any solicitations as a condition for accepting a donation or grant of a recommended donation.

4. Soliciting or Receiving Funds Only for Charities in Good Standing. A charitable fundraising platform or platform charity may only facilitate solicitations or the receipt of donations for the benefit of charitable organizations in good standing.  “Good standing” means the platform charity or other recipient charity’s tax-exempt status has not been revoked by the Internal Revenue Service or the California Franchise Tax Board, or is not prohibited from soliciting or operating in California by the Attorney General.

5. Segregation of Funds; Accounting of Fees. Charitable fundraising platforms and platform charities must hold charitable funds raised in a separate account or accounts from other funds belonging to the platform or platform charity, and must promptly ensure that donations and grants of recommended donations are sent to recipient charities with an accounting of any fees imposed for processing the funds.

6. Prompt Distribution of Donations/Grants. In addition to the requirement for platforms to disclose the amount of time it takes for donations to be sent to recipient charities, the Attorney General is authorized to establish regulations regarding the maximum length of time a platform or platform charity may take to send the donated funds, taking into consideration various facts and circumstances.[3] For platforms that make donations or grants based on purchases or other activity performed on the platform, the platform must send donations or grants of recommended donations to the recipient charities no less frequently than on a quarterly basis and subject to any minimum amounts, which may not exceed ten dollars ($10).  In addition, donations or grants must be sent after four consecutive quarters regardless of any established minimum amount, unless the recipient charitable organization is not eligible to receive the funds (which ineligibility must be disclosed pursuant to the statutory disclosure requirements).

Avoiding Duplicative Registration and Compliance Obligations
Recognizing that some charitable fundraising platforms could meet the definition of one or more other regulated fundraising categories — namely, commercial fundraisers (e.g., telemarketers), fundraising counsels (e.g., direct mail companies), and commercial coventurers (e.g., retail businesses advertising that the purchase or use of their goods or services will benefit a charitable organization) — the law provides the following clarifications to avoid such overlap:

1. Fundraising Counsel: If an entity meets the definition of both a fundraising counsel and a charitable fundraising platform, it will only be a charitable fundraising platform.

2. Commercial Fundraiser:
If an entity meets the definition of both a commercial fundraiser and a charitable fundraising platform, it will only be a commercial fundraiser when the entity, for compensation, performs any of the following acts of solicitation:
(i) Direct mail solicitation, excluding electronic mail or messages;
(ii) Estate gift or estate planning solicitation;
(iii) In-person solicitation through a fundraising event, door-to-door or other public spaces, or a vending machine or similar equipment that does not use a person to perform the solicitation;
(iv) Noncash solicitation;
(v) Nonincidental acts of solicitation that are not internet based, including solicitation through print, radio, or television;
(vi) Solicitation involving receiving something of value, or a chance to win something of value, in connection with a donation; or
(vii) Telephone solicitation.

3. Commercial Coventurer: An entity that meets the definition of both a commercial coventurer and a charitable fundraising platform by listing one or more recipient charities to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform will be only a commercial coventurer when the acts of solicitation through an internet website, service, or other platform to persons in the state are for six or fewer recipient charities per calendar year.[4] Entities that undertake charitable sales promotions or other activities that trigger donations on the internet for seven or more recipient charities per calendar year will be a charitable fundraising platform.

During the annual conference of the National Association of Attorney General (NAAG) and the National Association of State Charity Officials (NASCO) held on October 13, 2021, NASCO President, Yael Fuchs, noted that while she could not advise whether any specific states were planning to introduce similar legislation to AB 488, NASCO does have a Crowdfunding Working Group that has been following the California bill closely, and that the various state agencies are watching to see whether and how California’s law enhances regulatory oversight of online fundraising activities.

The new law goes into effect on January 1, 2023.  Beginning on January 1, 2022, the Attorney General is authorized to establish rules and regulations necessary to administer the new law.

[1] Exceptions include a charity’s own website, vendors that solely provide technical or supportive services to such platforms (e.g., domain hosting services or payment processing services), and sponsoring organizations of donor-advised funds that do not list or name recipient charities for solicitation purposes on its platform to individuals other than its donor-advisors. Additional clarifications for determining when an entity is a charitable fundraising platform when it meets more than one regulated fundraiser category is discussed later in this article.

[2] The law also signals that the Attorney General may issue regulations that would increase reporting efficiency by allowing partnering charitable fundraising platforms or platform charities to submit an annual report on behalf of other charitable fundraising platforms in a consolidated fashion.

[3] The considerations affecting the maximum length of time for funds to be distributed to recipient charities include the acts of solicitation being performed, the number of donations made through the platform, who the donations are made to (e.g., the platform, platform charity, recipient charities, or peer-to-peer fundraisers), whether the recipient charity has provided consent for a solicitation, whether further verification information is requested to prevent fraud, and whether donations are sent to alternate recipient charities.

[4] California does not require commercial coventurers to register with the state if they enter into a written agreement with each beneficiary charity signed by two charity officers, distribute funds to the charity every 90 days throughout the promotion, and, and provide an accounting with each payment.

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What is a Professional Fundraiser? 

A professional fundraiser (a/k/a commercial fundraiser for charitable purposes, professional solicitor or paid solicitor) is generally defined as a person or entity who, for compensation, directly solicits contributions on behalf of one or more charitable organizations.  A professional fundraiser may have temporary custody of contributions and is permitted to receive percentage-based compensation.

Examples of professional fundraising activity include telemarketing, in-person meetings with prospective major donors, vehicle donations, thrift store operations, event ticket sales, auctions at charity events (including the acquisition of auction items), and operation of certain internet fundraising platforms.

Where Does a Professional Fundraiser Need to Register?

Generally, a professional fundraiser is required to register in any state where they are directly soliciting charitable contributions on behalf of a charity.  With respect to internet solicitations, a state may impose its registration and reporting statutes only on a PFR’s activities that meet the constitutional requirement of “minimum contacts” with that particular state.

Acknowledging these jurisdictional limitations, and given the practical reality that applying (and enforcing) their registration requirements to every internet solicitation is virtually impossible, the National Association of State Charity Officials (NASCO) issued guidelines in 2001 known as the Charleston Principles (the “Principles”).  The Principles are not binding law; however, NASCO encourages state charity regulators to use them as practical guidelines for applying their state laws to online fundraising activities.

The Principles summarize the application of state registration and reporting regimes to PFRs as follows:

1. Entities domiciled within the state.

An entity is domiciled within a particular state if its principal place of business is in the state. However, according to the Principles, a physical presence within a state, such as a branch or regional office, may also be indicative of appropriate state jurisdiction.

2. Out-of-state entities whose non-internet activities would require registration in the state (e.g., inbound telephone or face to face solicitations in the state).

3. Out-of-state entities that solicit through an interactive or non-interactive website and either (a) specifically target persons physically located in the state or (b) receive contributions from the state on a repeated and ongoing basis, or a substantial basis, through or in response to the website solicitation.

The Principles leave the definition of “repeated and ongoing” or “substantial” to the individual states.  Currently, three states, Colorado, Mississippi and Tennessee have, by regulation, formally adopted numerical thresholds.  In Colorado, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least fifty online contributions, or the lesser of $25,000 or 1% of its total contributions, in online contributions during a fiscal year, respectively.  In Mississippi, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least twenty-five contributions or $25,000 in online contributions in a year.  In Tennessee, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least one hundred contributions or $25,000 in online contributions in a year.

Professional Fundraising Contracts

In addition to the registration requirements, state charitable solicitation statutes require that contracts between a charity and a PFR be filed in the states where solicitation activity is occurring and that they include certain provisions. Common contract provisions required by state statute including the following:

• Legal name/address of the charity
• Statement of the charitable purpose for which the solicitation campaign is being conducted
• A clear statement of the fees to be paid to the professional fundraiser
• The effective/termination dates of the contract
• A statement that the charity exercises control and approval over the content, volume and/or frequency of any solicitation
• An estimate of the amount the charity is expected to receive as a result of the solicitation campaign
• California and New York require lengthy cancellation provisions designed to allow the charity to cancel the contract within 10-15 days of signing without penalty
• Several states require the contract to be signed by two authorized officials of the charity

Campaign Financial Reports

Nearly all states that regulate PFRs require them to file a report that accounts for the funds raised in the campaign.  The reports generally require disclosure of the total amount raised, the fee paid to the PFR, and certain campaign expenses.  These reports are required within a certain time period following the end of the campaign (typically ninety days) or, for ongoing campaigns, annually in connection with the anniversary date of the campaign.

Bonds

As part of the registration process, PFRs are required to obtain a surety bond.  The purpose of the bond is to guarantee against malfeasance in the conduct of charitable solicitations.  The face amount of the bonds required by the states range from $10,000 to $25,000.

Point of Solicitation Disclosures

Virtually all states require a PFR to identify its status as a professional fundraiser, and many require the PFR to disclosure that the PFR is being compensated.  If asked by the potential donor, the professional fundraiser must truthfully disclose how much of the donation will go to the charity.

In addition, a number of states require solicitation disclosure notice statements on all written materials used when soliciting contributions.  The required disclosures must include how additional information about the organization may be obtained as well as certain state regulatory agencies’ contact information where donors can obtain further information. Solicitation disclosure notice requirements apply to charitable organizations as well as professional fundraisers.

The solicitation disclosure notice is required to be included on every printed solicitation or written confirmation, receipt, and reminder of a contribution. Customary examples of printed solicitations are direct mail solicitations, fliers, or solicitations contained in a newsletter.  Often overlooked, however, are emails or the organization’s website, which, if it includes a donate button or other request for a donation (including a link to the donate button), is considered a form of written solicitation.

The services that professional fundraisers provide can be of great value to nonprofit organizations. Understanding the regulatory framework governing professional fundraisers will help avoid missteps that can lead to actions by state regulators, including fines and penalties. It is incumbent on both the professional fundraiser and its charity clients to take the steps that ensure compliance under state charitable solicitation laws.  If in doubt, it is always a good idea to seek legal counsel.

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