Articles
Educational Organizations Must Comply With State Solicitation Laws
by Tracy L. Boak, Of Counsel, Perlman & Perlman, LLP
Soliciting contributions from alumni, family, friends, and other supporters has long been an educational institution’s preferred means of supplementing tuition and other revenues. It increases the organization’s ability to offer scholarships, financial aid, and a broad range of programs and services to support its mission. In today’s economy, educational institutions increasingly rely upon charitable contributions to maintain core programs. With an increase in fundraising activities and the scope of outreach, it is crucial that educational institutions and their affiliated associations are aware of how state charitable solicitation laws govern their fundraising activities.
Educational institutions are considered to be charitable organizations under the various state solicitation laws and thus their fundraising activities are regulated by state charity officials. The regulations usually include registration, record-keeping and disclosure requirements, as well as guidelines for acceptable fundraising practices. For those organizations that are required to register, this generally consists of the filing of statements and periodic financial reporting for each state in which the solicitations are made. This information is made available to the public as a means of consumer protection against deceptive fundraising practice. At the moment, there are forty states and the District of Columbia that require some form of registration pursuant to their respective charitable solicitation law.
While registration requirements vary from state to state, the process typically consists of filing a registration statement, providing a copy of the organization’s IRS Form 990 and financial statements (which, depending on the amount of gross contributions, may need to be audited). Educational institutions that are asking for donations from alumni or others from around the country will be subject to the applicable laws in each state where their donors reside and, unless otherwise exempt, will be required to comply with the registration requirements of each state. As such, educational institutions that solicit nationwide may need to register in multiple states.
Each state’s registration form is different and there is no one single form that, alone, can be filed in all forty states. Educational institutions that use the services of an outside fundraising professional should also be aware that there may be additional filing requirements as a result.
Each of the states’ laws provides for various exemptions from the registration requirements, many of which include an educational exemption. Since the application of the exemption varies from state to state, however, an educational institution should not assume that it is exempt even where an educational exemption exists. For example, most states only exempt those educational institutions physically located in the state. The exemption then typically applies to organizations which limit their solicitations to those directly connected to the institution, such as alumni, faculty, trustees, or students and their families. If they solicit anyone outside this circle, such as “friends” of the institution, corporate sponsors, or members of the local community, the exemption falls away.
Educational institutions frequently assume that if they are exempt, so are their auxiliary organizations, including foundations, alumni associations or booster associations. This is not the case, however, and a separate analysis of the compliance obligations of each related entity is crucial. It is important to understand that any kind of fundraising activity targeting anyone within a given state will trigger the state charitable solicitation law, and unless the institution or affiliate falls within an exemption, it will be required to be registered.
The consequences of failing to register as required can be grave. State regulators are increasing their efforts in seeking compliance by unregistered organizations. An organization that fails to register or otherwise comply with solicitation laws may face hefty fines and be ordered to cease all solicitation activity in a given state. As such, educational institutions must carefully review their solicitation activity and related compliance obligations. For all states where it is not registered, the institution should evaluate what actions need to be taken to ensure that they are in compliance with all state solicitation laws and if uncertain, seek legal counsel.
Tracy Boak is an attorney with the law firm of Perlman & Perlman, LLP, which provides legal services to nonprofit organizations, fundraising professionals, corporate partners, and social enterprises. Prior to joining Perlman & Perlman, Ms. Boak was the Director of the Pennsylvania Bureau of Charitable Organizations and President of the National Association of State Charity Officials. She can be reached at 212 889-0575 or by e-mail at tboak@perlmanandperlman.com
Perlman & Perlman offers a dedicated charitable registration and compliance service. For more information, visit our Nonprofit Fundraising and Compliance web page: http://www.perlmanandperlman.com/practice_areas/nonprofit_fundraising_registrations_compliance.shtml
|
|
