Play by the rules . . . save face and $

Non-profit organizations in recent years have been bumping into increasingly demanding state registration requirements. As of today, 39 states and the District of Columbia require registration.

Some non-profits view the registration process as one more annoying “legal hurdle” for doing fundraising in America’s current environment. Others ignore the issue. They are either under the false assumption that they are exempt from required registration or — that there is a very small chance of getting caught. The other misconception is that, if you do get caught, fines are relatively inconsequential.

Don’t risk negative exposure along with stiff fines.

Intensive media “witch hunts” related to charitable fundraising, along with a number of well-publicized charity fraud cases, have motivated state regulators to devote more time and energy to monitor non-profits. And states themselves are encouraging individual citizens to investigate any solicitations they receive, which opens the door to many more “detectives” looking over your shoulder. This can be an especially passionate cause for anti-religious folks who enjoy going after anything that hints of faith in God.

Fines for organizations deemed first time violators usually run between $1,000 and $10,000, after time-consuming and often costly negotiations. But some cases have cost the non-profit up to $40,000 and a whole lot of bad press.

Besides fines and negative publicity, other consequences could include state ordered auditing of the ministry’s books, a review of all solicitation in recent years, state oversight of the ministry’s operation for a period of time and a court order to return donations to residents in states in which the organization was not properly registered. That last consequence could present a difficult process to staff with significant expense attached to it.

Play it safe . . . even with consultants.

Generally, a tax-exempt organization that intends to solicit charitable contributions from the general public, via direct mail, telemarketing, online or even personal solicitors, is required to register in 39 states and the District of Columbia. Individual state registration hinges on whether solicitation takes place in the state, from which contributions are sought, if the non-profit has hired outside entities to assist it in the solicitation, and whether the organization can qualify for various exemptions provided by the states.

Ministries that believe they are generally exempt from registration should confirm on a one-time basis their exemption in each state, particularly if the ministry expects to contract with a professional fundraising consultant or a professional solicitor, e.g., a telephone solicitation firm. This is because many states also require registration of fundraising consultants and professional solicitors, and will deny registration to a consultant or solicitor if the state has no record that the ministry is either properly registered or recognized by the state as exempt from registration. Masterworks requires all clients to confirm their exemption in advance in order to avoid problems that could otherwise cause the early termination of a telephone or mail campaign.

At present, more than 25 states require fundraising consultants to register before providing fundraising consulting services to charities that are soliciting in those states.

Masterworks is registered in all states requiring registration and can connect you with the leading experts in the field of state registrations. Often, they offer generous cost reductions for non-profits, depending on size and scope of the registration project. Here is an overview of the state charitable solicitation registration which also includes who you can contact for more help with this.

For more information on the Federal Government’s 990 form for non-profits, visit http://www.stayexempt.irs.gov/. The IRS allowed a coalition of non-profit industry representatives to help draft the instructions in 2008. They are much improved over the previous instructions.

Contact your Account Executive, if you’re a Masterworks client, for further information.

A little time invested now can save a whole lot of cost and chaos later.