Fundraising Regulations

1. Insert Replication Partner Logo Fundraising Regulations ________ _____________ ______________ ________________

2. 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

3. Purpose of Today • Help you stay legal in your fundraising efforts • Focus on legal aspects of fundraising covering issues such as: • Registration for charity solicitation • Special events • Fair market value • Raffles • Disclosure laws

4. About Your Organization • Board of directors • Members • Staff members • Volunteers • Internal training program

5. Sources of Operating Revenue • Government contracts and grants 32% • Program Revenue 52% • Philanthropic Support 12% • Individuals • Foundations • Corporations • Other 3% Source: Urban Institute, Core Files, 2008

6. Where does the non-governmental philanthropic support come from? • Individuals • Foundations • Corporations

7. Philanthropy in the US Source: Giving USA 2011

8. Today’s Agenda • State Requirements • Maryland Charitable Solicitations Act • Federal Requirements • Federal Charitable Solicitation Requirements • Special Topics

9. Insert Replication Partner Logo State Requirements

10. State Requirements • Incorporation • General corporate law principles • Specific corporate requirements and what is not required • Specialized record-keeping requirements

11. Incorporation • Not required to obtain Tax-Exempt status from the IRS • Advantages of incorporation • Protection from liability • Recognition by the State

12. 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

13. 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!

14. Specialized Record-keeping Requirements Specialized Record-keeping Requirements

15. Specialized Record-keeping Requirements Specialized Record-keeping Requirements

16. Insert Replication Partner Logo Maryland Charitable Solicitations Act

17. 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

18. Key Concepts and Terms • Charitable contribution • Charitable organization • Charitable solicitation • Charitable representatives • Fundraising counsel • Professional solicitor • Associate solicitor

19. 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

20. 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.

21. Registration Requirements (Cont.) • 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)

22. Registration Requirements (Cont.) • 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

23. Registration Requirements (Cont.) • 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

24. 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

25. 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.

26. 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."

27. 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

28. 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

29. 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

30. 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

31. 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

32. Insert Replication Partner Logo State Requirements Around the US

33. State Charitable Solicitations Requirements You’ll want to be aware of the following: • Key concepts and terms • Registration requirements • May be required even if no solicitation • Out of state solicitation • Documents and materials which must be available upon request • Point of solicitation disclosures • Working with a professional solicitor • Honesty in fundraising

34. State Requirements • Fees, thresholds for registration, definitions for registration differ • Direct solicitation • Foundation fundraising covered by some states • Some states, but not all, accept the Uniform Registration Statement (URS) • www.multistatefiling.org • Some states require additional supplementary information for the URS • Online solicitation covered by a few states

35. Fundraising and the Internet • State charitable solicitation laws • Uniform charities registration form • Fundraising appeal on the internet • Solutions • Disclaimer language • Multi-state registration

36. State Charitable Solicitations Requirements You’ll want to be aware of the following: • Rules about charitable gaming • Rules about raffles of real and personal property • Special rules when awarding prizes • Special rules for vending machines, canisters and other collection devices

37. State Requirements • Registration for fundraising and solicitation • www.multistatefiling.org • www.nasconet.org • Nonprofit Fundraising Registration: The 50 State Guide by Stephen Fishman (NOLO Press) 2010

38. Insert Replication Partner Logo Federal Requirements

39. 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

40. 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)

41. Insert Replication Partner Logo Federal Disclosure Requirements for Soliciting Contributions

42. Federal Charitable Solicitations Requirements • Deductibility of contributions under IRS code • The quid pro quo rule • Substantiation of charitable contributions

43. 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

44. 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

45. 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

46. 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.

47. Quid Pro Quo Rule (Cont.) • 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

48. Quid Pro Quo Rule (Cont.) • 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.

49. Quid Pro Quo Rule (Cont.) • The low cost item exception: • Full amount may be tax-deductible if: • The amount of the contribution was more then $49.50, and the benefits consist of token items with the organizations name and the cost of the token was less then $9.90 (2012) • The “insubstantial” value 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 $99 in 2012, whichever is less.

50. Quid Pro Quo Rule (Cont.) • PENALTIES ARE SUBSTANTIAL!!! • A charity can be assessed a fine of $10 per contribution, with a maximum penalty of $5000 per event