1 Fundraising Regulations __ _ ________ Insert Replication...

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Fundraising Regulations

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What are we doing?

“Far too many charities have broken the understood covenant between the taxpayers and nonprofits– that charities are to benefit the public good, not fill the pockets of private individuals.” --Senator Charles Grassley, then Chairman of the Senate Finance Committee, now ranking Republican on the Finance Committee, at the June 22, 2004 Hearing on Charity Oversight and Reform

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Purpose of Today

Discuss legal and ethical issues in charitable fundraising

Provide you with a checklist Minimum legal requirements to stay in

compliance

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About Your Organization

Board of directors Members Staff members Volunteers Internal training program

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Regulations

State Requirements Maryland Charitable Solicitations Act Federal Requirements Federal Charitable Solicitation Requirements Special Topics

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Overall Confidence In Charitable Organizations, 2002-2008

A Great Deal

A Fair Amount

Not Too Much

None

September 2002 13% 47% 26% 11%

August 2003 12% 47% 27% 10%

October 2003 18% 45% 27% 7%

January 2004 13% 49% 25% 9%

August 2004 15% 50% 25% 7%

July 2005 15% 49% 24% 8%

July 2006 20% 49% 20% 9%

March 2008 16% 48% 25% 9%

CONFIDENCE IN CHARITABLE ORGANIZATIONS, 2006 June 2008, PAUL C. LIGHT

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Pension Protection Act of 2006

Annual reporting by nonprofits not filing 990 Tighten rules for gifts of façade easements New rules for donor advised funds and

supporting organizations Requires cancelled check or receipt for ALL

donations Limits deductions for donation of “fractional

interests” in artwork Excise tax exemption for blood collector

organizations

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Pension Protection Act of 2006 (2)

Limits donations of clothing and household items, must be good or better condition

Tightens requirements for credit counseling agencies

Increases penalties for valuation misstatements Doubles penalties for “excess benefit

transactions” Limits deductions for donations of stuffed trophy

animals—lesser of taxidermy cost or value 990-T disclosure (UBIT)

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State Requirements


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State Requirements

Incorporation General corporate law principles Specific corporate requirements and what is

not required Specialized record-keeping requirements

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Incorporation

Not required to obtain Tax-Exempt status from the IRS

Advantages of incorporation Protection from liability Recognition by the State

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General Corporate Law Principles

Legal Differences between Nonprofits and Corporations: Stockholders Vs. Members Powers of Members Board of Directors

Responsible for Governance Duty of Care and Duty of Loyalty In limited cases they may be liable

Maryland law does not require Opening meetings (Annual, Board or Committee) to the

public Employee access to financial records

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Specialized Record-keeping Requirements

IRS requires that nonprofits keep sample copies of all fundraising materials including: Dues statements Fundraising solicitations Tickets Receipts Evidence of payment Ad copies TV/radio scripts or transcripts Other evidence of any on-air solicitations (if applicable) And more!

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Maryland Charitable Solicitations Act


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Maryland Charitable Solicitations Act Requirements

Key concepts and terms Registration requirements Documents and materials which must be

available upon request Point of solicitation disclosures Working with a professional solicitor Honesty in fundraising

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Key Concepts and Terms

Charitable contribution Charitable organization Charitable solicitation Charitable representatives Fundraising counsel Professional solicitor Associate solicitor

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Registration Requirements

Fundraising notice registration Even if an organization is not required to

register, they must still file a “Exempt Organization Fundraising Notice” with the Secretary of State’s office

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Registration Requirements (Cont.)

Organizations are exempt from registration and disclosure requirements. An exempt organization does not engage professional solicitor and either: Solicit for a named individual and the gross amount is

delivered to that individual; Is exempt from federal tax and is a religious organization,

the parent or a school affiliated with a religious organization; Solicit contributions only from members (students, former

students, parents of students or former students, staff, of a school, college or university);

Do not receive more than $25,000 in charitable contributions for the year in which registration would be required; or,

Only receives contributions from for-profit corporations and private foundations.

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Charitable organizations that must register: Organizations before they begin soliciting in the state Have contributions solicited on its behalf in the state Solicits contributions outside the state but is based in

Maryland Registration includes

Copy of 990 Audit by an independent CPA (>$200,000) Review by CPA ($100,000 – $200,000)

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After registration organizations must submit annual reports to the Secretary of State’s office

Annual Fees are as follows: < $25,000 with no professional solicitor: free < $25,000 with professional solicitor: $50.00 $25,000 – 50,000: $50 $50,001 - $75,000: $75 $75,001 - $100,000: $100 $100,001+: $200

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Charitable representatives Must register, pay a fee and submit a bond to

the secretary of state Exempt organizations must file a “fundraising

notice” Special Rules:

Federated fundraising Consolidated registration

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Documents and Materials Availability

Under MD law, you must produce the following documents within 30 days and mail it at no charge: A current financial statement which must include:

The organizations name, address and phone number Amount of total revenues Total revenues from charitable contributions Amount and percentage of revenues used in the past year

for: Management and general expenses Fundraising expenses Program services

If registered with SOS a statement confirming registration Statement of programs and uses for which funds are

requested

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Point of Solicitation Disclosures

Maryland law requires that written charitable solicitations, and receipts for a charitable contribution, must contain: A statement that a copy of the nonprofits current

financial statement is available upon request; The name of the nonprofit, and the address and

telephone number where requests for the financial statement should be sent;

A statement that documents and information submitted to the state under the Maryland charitable solicitations act are available from the Secretary of State for the cost of copying and postage.

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Sample State of Maryland Disclosure Statement

"A copy of our current financial statement is available upon request by contacting [name of organization] at [address and telephone number of organization]. Documents and information submitted to the state of Maryland under the Maryland Charitable Solicitations Act are available from the office of the Secretary of State, 16 Francis St., Annapolis, MD 21401 for the cost of copying and postage."

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Point of Solicitation Disclosures

When is a disclosure required? “Written solicitations”

A disclosure is not required for: Accredited schools Colleges or universities to students, former

students, parents of students or former students, board members and staff

Advisable to always make a disclosure Must be conspicuous

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Point of Solicitation Disclosures (Cont.)

Legal requirements which may affect soliciting: CAN Spam Act of 2003 FTC Telemarketing Sales Rule Junk Fax Prevention Act of 2005

Limited applicability to nonprofits

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Point of Solicitation Disclosure (Cont.)

Special rules when awarding prizes: Mandated disclosures must be made on the

first page of the written solicitation: Manufacturer suggested retail price Conditions which must be met Donor cannot be required to make a purchase Information on chance drawings

Special rules for vending machines, canisters and other collection devices

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Working with a Professional Solicitor

Regulatory requirements: Regarding filing of papers to the Secretary of

State Regarding what the solicitor must keep In addition there are special disclosure rules

for the solicitor including: Disclosure of identity Disclosure or organizations finances Written receipts Written authorization upon request

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Honesty in Fundraising

Maryland state law has additional provisions on solicitations including in the following matters: Representation of purpose of solicitation Usage of funds from solicitations False or misleading promotions Consent of charities False representation

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Federal Requirements


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Federal Requirements

Federal tax documents which must be made public

Methods of making documents available Penalties for noncompliance Multiple requests and harassment campaigns

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Federal Tax Document Availability

The following documents should be available to the public The Form 990 for the previous 3 years The Form 990-T Original application for tax exempt status with

all materials submitted in support (1023 or 1024)

IRS determination letter for tax-exempt status

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Making Documents Available

Must be available upon request at: The principal office Regional offices under certain conditions

3 or more FT employees (or PT equivalent) Does not include a service delivery site that

doesn't include an office for extra management staff other then those managing that site.

At a “reasonable location” if no office exists In person requests vs. in writing

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Making Documents Available (Cont.)

Payment for copies Disclosure of reason for request Avoid providing copies by putting this

information on the internet: Provide URL to the requestor It only excuses the organization from providing

copies, not from making the documents public Posting must be in PDF form

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Penalties for Noncompliance

Federal law provides penalty for noncompliance

“Willful failure” to allow inspection or provide copies: $5,000 plus $20 for every day you fail to

provide the forms Maximum penalty of $10,000

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Multiple Requests and Harassment

An organization does not have to respond to: Multiple requests from the same individual or

address Two requests within thirty days Four requests within a year

Requests that are part of a harassment campaign

Organizations must apply to IRS to determine if harassment is occurring

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Federal Disclosure Requirements for Soliciting

Contributions


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Federal Charitable Solicitations Requirements

Deductibility of contributions under IRS code The quid pro quo rule Substantiation of charitable contributions

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Deductibility of Contributions

In general Section 170 of the IRS code

Organizations to which Charitable Contributions are allowed: A governmental entity if "for exclusively public

purposes;" Certain “corporations, trust, or community chest, fund

or foundation” A post or organization of war veterans From an individual to a lodge system under conditions A cemetery company

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Deductibility of Contributions (Cont.)

Percentage limitations on contributions Generally, corporations may deduct up to 10%

of taxable income Generally, individuals may deduct up to 50%

of adjusted gross income NOTE: The precise calculations are

somewhat more complicated and the specific provisions of the Internal Revenue Code should be reviewed and donors should be encouraged to talk to tax advisors

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Quid Pro Quo Rule

Assumption of deductibility No expectation of receiving anything

More complicated when donor receives or has the right to receive. For example: Dinner or entertainment provided with

donation Promotional merchandise Membership benefits

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Quid Pro Quo Rule (Cont.)

Background. 1993 law establishes strict rules.

Applies to any contribution over $75 where donor receives something in return.

Charity must provide an estimate of “fair market value.”

General rule: An organization should NOT state in solicitation

materials, catalogs, or tickets that the donor's payment is tax-deductible if the donor is receiving something of value in exchange for the contribution.

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Defining “fair market value (FMV)” The retail value of the goods or services to

the donor Charity must provide a “good faith estimate”

based off of “reasonable methodology” Although only required for contributions of

$75+, advisable for everything

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If FMV = cost of ticket. No portion of the contribution is deductible and

this should be stated on the ticket. However, it is deductible if the donor refuses

the goods or services offered. Refusal must take place at the time of the

contribution.

Payments for raffle tickets, lottery tickets, bingo cards or other gaming activities are not tax-deductible.

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The “insubstantial” exception Full amount may be tax-deductible if:

The FMV of what the donor receives is less than either 2% of the amount of the contribution or $96 in 2010, whichever is less

The amount of the contribution was more then $48.00, the benefits consist of token items with the organizations name and the cost of the token was less then $9.60 (2010)

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PENALTIES ARE SUBSTANTIAL!!! A charity can be assessed a fine of $10 per

contribution, with a maximum penalty of $5000 per event

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Sample disclosure "Ticket price: $100. For tax purposes only $50

is tax-deductible. The balance of $50 represents the fair market value of the food and entertainment at this event."

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Deductibility and charity auctions Charity must make a “good faith estimate”

This estimate may be done with “any reasonable methodology”

Donors must be told that they may only deduct the value of their bid exceeding FMV

When the items are unique, FMV may be estimated from similar items in the marketplace

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Membership benefits. Annual membership for $75 or less may be

disregarded if the benefits are "rights or privileges that can be exercised frequently during the membership period."

Free admission to an event may also be disregarded, provided that the event is open only to members and cost (excluding allocable overhead) for the event is no more than $9.60 per person in 2010.

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Membership benefits (cont.) Newsletters may generally be disregarded Two-tiered membership categories:

Membership in the higher tier may be disregarded if the benefits are identical to benefits in the lower tier

Example: Bronze ($60): free admissions, free parking and

gift shop discounts Silver ($200): free parking, gift shop discounts for

goods and services, and special commemorative silver bowls (valued at $35)

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Corporate employee benefits. May be treated the same as an individual

benefit. Charity just needs to provide a description of

services offered rather then FMV estimate. Matched contribution benefits.

Benefits provided to the employee will not effect the employers deductible.

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An employee makes a $500 contribution to a charity which is then matched by his/her employer with an addition $500. The charity provides the employee with goods/services based on the combined contribution of $1,000, and does not provide any additional benefit to the employer. The receipt given to the employee must include: The amount of the employee's contribution, A description of the goods/services provided, And the organization's good faith estimate of the fair market

value of the benefit received. The receipt provided to the employer for the matched payment

must list that no good or service was provided to the employer in consideration of its $500 contribution.

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Substantiation of Charitable Contributions

Donors must have proof to claim deduction Cancelled check Bank record Receipt from charity

Name and address of donor Amount of donation Disclosure statement

For donations of $250+, a donor needs written proof from the charity

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Substantiation of Charitable Contributions (Cont.)

Thank you for your contribution of $250 on [date]. You should retain this receipt/letter in your records for tax purposes. As you may be aware, the IRS no longer will accept a canceled check as substantiation of a charitable contribution of $250 or more. [Select one]: (this letter further serves to verify that you did not receive anything of value in exchange for your contribution. Therefore, the entire amount of your donation is tax-deductible) or (this letter further serves to verify that you received described goods or services, which had a fair market value of $_____. therefore, only $xx.Xx of your donation is tax-deductible) or (this letter further serves to verify that the items you received in exchange for your donation were insubstantial under IRS guidelines. Therefore, the entire amount of your donation is tax-deductible.)

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When contributions are deducted from payroll, two documents are needed Pay stub, W-2 or similar documents Document outlining that the employee did not

receive anything for the contribution Each contribution should be considered

separately when considering the $250 threshold

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Donations of goods Clothing or household goods must be in “good

or better” condition Donor must obtain a receipt of donation

Should just mention items donated Donor is responsible for valuing items

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Value of donation $250+

General IRS rules apply $500+

Form 8283 must be filed with return Donations of items worth $5,000+

Form 8283 AND an appraisal from a qualified appraiser

Donations of property of $5,000+ Organization must sign part IV of 8283 If the organization sells property within 2 years, they

must file a form 8282 with the IRS

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Planes, boats and automobiles Gross proceeds vs. FMV Significant intervening use Material improvement Donor must obtain a “contemporaneous

written acknowledgement” with: Donor’s name and SSN or FEIN Vehicle identification number (VIN) One of three statements

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Intellectual property. The lesser of the donor’s “tax basis” in the property or

its FMV. Other special cases:

Taxidermy property. Facades of historical buildings. Conservation easements. Partial interests in art or other valuable property. Property used by charities for their charitable purposes

and subsequently sold.

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Receipts where the donor obtains good or services. Subtract goods or services from value of

donation. If a donor made a gift of $275 and in exchange

received goods or services valued at $50, then the deductible portion of the gift is only $225 and the receipt requirement is not triggered. However, the donor will still have to have proof to claim the deduction.

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Special Topics


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Special Topics

Fundraising and the internet State consumer protection laws Direct marketing association – privacy rules

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Fundraising and the Internet

State charitable solicitation laws Uniform charities registration form Fundraising appeal on the internet Solutions

Disclaimer language Multi-state registration

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State Consumer Protection Laws

Commercial-nonprofit marketing alliances Consumer protection laws apply to nonprofits as

well. A nonprofit is as engaged in advertising as the

sponsor. Advertisements may not misrepresent a

nonprofits’ stance on a product. Advertisements must avoid expressed or implied

claims that advertised product is superior, unless claim is true an substantiated and nonprofit has determined product to be superior.

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State Consumer Protection Laws (Cont.)

Commercial-nonprofit marketing alliances (cont.) Advertisements shouldn't be misleading about

the effect of consumers purchasing decisions on charitable contributions by the consumer or commercial sponsor.

Nonprofits should avoid entering into exclusive relationships. Where they do, the exclusivity should be clearly and conspicuously disclosed.

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Direct Marketing Association – Privacy Rules

The direct marketing association rules: Companies must disclose when they are

sharing consumer's private information (e.g. Names and addresses) with other marketers.

Allow consumers the option to not have their information shared.

Honor requests to not receive solicitations Participate in DMA's two national name-

removal services. DMA’s Mail Preference System DMA’s Email Preference System

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QUESTIONS???


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