An investment in meeting registration requirements will pay off in the endYour nonprofit has developed a detailed fundraising plan. You've prepared your materials and trained your volunteers. You're ready to start asking for donations. But have you met your state's registration requirements?
Many small nonprofits are surprised to learn that soliciting funds for charitable purposes often requires state registration — and that failing to do so could cause problems. Here's what you need to know.
When fundraising registration is needed
Many states require nonprofits to register with a state agency before soliciting local residents for contributions, with exemptions for certain groups (such as nonprofit hospitals, and educational and religious institutions). This means that your nonprofit will likely need to file a registration form — known as a charitable solicitation registration — with any state where you're soliciting donations.
Where required, this type of registration is needed whether your nonprofit is soliciting donations through advertisements, mail, phone or online (including social media) and regardless of whether your nonprofit actually receives any donations.
In addition, your organization might need to file periodic financial reports. Some states require nonprofits to make an extra filing when working with professional fundraising consultants. If it's required in your state, make sure your fundraising consultant is registered. Also, if your nonprofit enters into an agreement with another organization to share revenue from sales activity, a special registration filing might be needed.
Understanding registration requirements
To complicate matters, fundraising registration requirements and forms vary from state to state. Some states require nonprofits to file a primary registration form and supplemental forms. In others, municipal or local governments require nonprofits to register and report, too. The list of exempt nonprofits also varies from state to state, so check the laws of each state you'll be fundraising in and whether the state requires your exemption to be confirmed by the state charity office.
To find out which states require registration, check out this map from Affinity Fundraising Registration.
The National Association of State Charity Officials also provides details on which states and which offices within those states regulate charitable organizations and charitable solicitations. Before soliciting donations, contact the appropriate state agency or agencies to find out about the applicable requirements.
How to register a fundraising campaign
Ensuring that your nonprofit is properly registered takes time and attention to detail. Some nonprofits pay the accountant who prepares their IRS Form 990, 990-N or 990-EZ to prepare and file their state registration forms, since much of the information needed is the same. Your nonprofit could also hire a firm specializing in preparing state registration forms or assign the task to internal staff.
When determining how your nonprofit will handle registration, consider the costs. Your organization will need to pay filing fees for each state registration and, if you outsource the work, labor costs. After your organization's initial registration, some states require ongoing registration in subsequent years — and there might be late fees for missed renewal deadlines. Other states require nonprofits to file a special form to end registration in the state, too.
To complete your fundraising registration you'll need to provide financial information — typically a recent IRS Form 990, 990-N or 990-EZ will suffice. Many states also require the signatures of more than one corporate officer. Some states require organizations to include disclosure statements in solicitation materials, such as annual appeal letters, to inform potential donors that the nonprofit is registered.
Consequences of not registering
Many small nonprofits have gotten away without meeting fundraising registration requirements in the past because states lacked the resources or will to enforce these laws. However, IRS Forms 990, 990-N and 990-EZ now require that nonprofits provide information about their state registration. Not properly completing these forms could cause your nonprofit unwanted scrutiny from the IRS and problems with donors.
Beyond tax issues, failing to register your fundraising activities in a state with requirements is against the law. Your nonprofit could face substantial fines or other penalties. You might have to stop soliciting donations in the state until you register.
Before you begin soliciting funds, do your homework. The time and money you invest in making sure you've met your state registration requirements will pay off in the end.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.
National Council of Nonprofits: Charitable solicitation registration
IRS: Charitable solicitation — state requirements (2016)
Nolo: Many nonprofits must file IRS form 990-N to stay tax-exempt by Stephen Fishman
Nolo: Fundraising registration: An overview by Stephen Fishman
GuideStar: State registration requirements for fundraising by Kristalyn Loson and Jeffrey Tennebaum (2014)
National Association of State Charity Officials: About