When you're thinking about giving to a charity, or even when you're actually writing the check or clicking the "donate" button on a web site, it may not occur to you that charities have legal responsibilities to meet before they can take your money. Because you know your donation may be tax deductible, you probably have an idea that charities must register with the Internal Revenue Service (IRS).
You may not know, however, that most states require charities to register with a state agency or office before they accept donations. In fact, as a recent Florida incident shows, sometime people running a charity don't know about it either. The story also shows how failure to register can mean financial ruin for the charity.
Florida Charity Nearly Ruined
Sun Coast Law Enforcement Charities (Sun Coast) is a police charity benefiting police officers and their families in several Florida counties. Recently, the Department of Agriculture and Consumer Services (Department) served the charity's president with a lawsuit.
Why? Because the charity failed to renew its registration with the Department, even though it had sent letters and made phone calls reminding the charity to do so. In Florida, any charity that asks for donations in the state must register with the department each year. It costs between $10 and $400, depending on how much money the charity raises. Sun Coast's registration fee was $75.
The Department's lawsuit wanted to impose a $10,000 fine against Sun Coast. Paying that fine would have ruined the charity. According to its IRS filings, the charity's 2008 total revenue was only $11,000. Luckily it avoided the problem.
It explained to the Department that a former bookkeeper had ignored calls and letters from the Department. The Department took into consideration that Sun Coast had been registered since 2000 and kept up its renewals until the 2009 incident. In the end, Sun Coast paid a $1,000 fine and remains in operation.
Many states are like Florida and require registration of charities. Arizona, Connecticut, Colorado, and Pennsylvania are good examples. The rules usually are different in each state, though. For example, in some states, a charity must register:
- And pay a fee each year if it "does business" in the state
- And pay a fee only the first year it "does business" in the state, but must submit financial and other records each year
- Before it accepts donations, before it asks for or "solicits" donations, or both
- By completing forms provided by the state, by submitting a copy of the charity's IRS form, or both
Who has to register is different as well. In some states, a charity must register any time it asks for or solicits donations inside that state. That means a charity having an accessible web site in that state, makes phone calls in that state, or sends mail or email in that state asking for donations must register there. In other states, registration is required only if the charity's office or headquarters is physically located in that state.
In addition, some states make exceptions to registration rules for:
- Some educational institutions
- Fraternal, patriotic, social, educational, alumni organizations and historical societies that use only their memberships to solicit contributions
- People who solicit donations for specified individuals in need, so long as the people making the solicitations aren't paid
- Humane societies that work for counties or cities under contract to capture and care for stray animals
Know What's Going On
If you're involved in the operations of a charity, it's a good idea to know the registration laws in any state where your charity asks for donations. Talk to an attorney if you're uncertain about your registration responsibilities. Avoid what almost happened to Sun Coast and don't let a small registration fee cost your charity thousands of dollars in fines.
If you're thinking about making a donation, check the charity's registration status as part of your research of the charity. Many states have the information online. The National Association of State Charity Officials (NASCO), an association of state offices in charge of overseeing charitable organizations and charitable solicitations in the US, has a list of state agencies regulating charities.
Checking a charity's registration can tell if a charity is following the law and is, therefore, less likely a scam. It also helps you make sure your donation will go to the people its intended for and not for the payment of fines.
Questions For Your Attorney
- If a charity is registered, does that mean that it's backed or endorsed by the state government as legitimate?
- Does my charity have to register in this state if the main office is another state but my web site asks for donations in this state?
- Can a charity pay registration fees one or two years in advance to help avoid problems with renewing registrations?