When are Religious Organizations Exempt from Charitable Registration?

While most nonprofits are required to register in many states to conduct charitable fundraising, religious organizations are generally exempt from the registration requirement.  It’s important to be aware, however, that the scope of the states’ religious exemption varies.  Therefore, religious organizations should carefully review each state’s statutory exemption to determine where they are exempt, and where they are not exempt and therefore may need to register to solicit contributions.          

Overview of Charitable Solicitation Registration & Religious Exemptions

Charitable fundraising activities are primarily regulated at the state level, through the offices of the Attorney General, Departments of State, Consumer Protection and the like. Charitable solicitation regulations were established to protect the public from fraudulent fundraising and assist prospective donors in making well-informed giving decisions.  Each state’s statutory framework typically requires charities to register with the state, disclose information about their finances and fundraisers, and provide certain oral or written disclosures to their prospective donors.  Currently, forty-one (41) states and the District of Columbia require most organizations to register before soliciting charitable contributions in their respective jurisdictions.

Most states exempt or exclude religious organizations from their charitable solicitation registration and reporting requirements. Keep in mind, however, that each state defines the scope of its exemption for religious organizations differently.  As a result, some religious organizations may be required to comply with a state’s registration requirements while others may not.  Several states require that religious organizations make a written request to confirm that they are exempt from the state’s registration requirements, while others consider it a legal determination to be made by the organization, and explicitly advise that they do not provide legal advice or make a formal determination as to whether or not an organization is exempt.

For some states, the religious exemption provisions are broadly constructed, and exempt any “duly organized religious corporation, religious institution or religious society.”  Other exemption provisions are more narrowly drafted, exempting only those religious organizations that are not required to file the Form 990 with the IRS, which primarily includes churches,[1] their integrated auxiliaries[2], and ecclesiastical or denominational organizations.  Churches and other non-990 filers are exempt from registering in all states unless they use the services of a professional fundraiser.

As a general matter, religious organizations that are required to file the Form 990 with the IRS will be exempt in some, but not all, states.  Many religious organizations that are required to file Form 990 describe their mission as both religious and charitable as together these constitute an expression of their religious faith and values.  Direct services for human needs may include the provision of food, shelter, education, and medical support to vulnerable populations.  Oftentimes, they incorporate prayer and religious instruction in their programmatic work, and will require their employees to agree to an organizational statement of faith.

It is worth noting that the laws of a few states continue to include a provision in their religious exemption law which the Supreme Court has declared unconstitutional. These unenforceable provisions limit the scope of the religious exemption to only those religious organizations that are primarily supported by contributions from their members or congregation.[3]

Impact of Religious Exemptions on Fundraising Professionals

Even when a religious organization is exempt from registering in a state to solicit contributions, in most states, when a fundraising professional provides their services to the organization, the fundraiser must be registered with the state.  In a few states, the religious organization’s exemption also extends to the fundraiser’s contract filing and reporting obligations, thereby relieving them of any such filing requirements.

Professional fundraisers (also known as commercial fundraisers or paid solicitors) that directly solicit funds on behalf of charitable organizations are required to register in up to forty-four (44) states.  In addition, they must post surety bonds in each state, file copies of their fundraising contracts, and file annual financial reports relating to each fundraising campaign conducted in the state. There are ten (10) states that extend the religious organization’s exemption to their professional fundraiser’s contract filing and reporting obligations.

Fundraising counsels (also known as fundraising consultants) that help plan, manage, advise, or produce and design solicitation campaigns, but do not directly solicit or have custody or control of contributions, are also required to register in twenty-seven (27) states, file contracts, and in a few states, post bonds.  There are seven (7) states that extend the religious organization’s exemption to their fundraising counsel’s contract filing and reporting obligations.

Fundraising professionals need to understand the scope of a religious organization’s registration or exemption status in those states in which they will be providing fundraising services to the organization.  Not only must they comply with their corresponding filing obligations, but they must also ensure compliance with collateral obligations, such as solicitation disclosures.  Thus, it would be prudent for religious organizations to ensure that they have appropriately assessed their exemptions, have documentation to support the exemption in each applicable state, be registered to solicit where required, and communicate with their fundraising professionals to ensure alignment on the impact of their status as a religious organization on both parties’ filing obligations.

Does a religious organization need to register if it solicits on the internet?

In addition to ascertaining whether a religious organization is exempt from registration based on its religious status, a separate analysis should be undertaken to determine if the organization’s solicitation activity creates a jurisdictional nexus that would trigger a state’s registration requirement.  For example, a website with a donate button that is accessible to residents in all states does not necessarily create a sufficient jurisdictional nexus.  In many cases, it makes sense to undertake a jurisdictional analysis based on the organization’s targeted and/or online fundraising activities before delving into the religious exemption analysis as there may only be a few states where the organization has a jurisdictional nexus based on its fundraising activities.  In such cases, the organization may simply review the applicability of the religious exemption in those relevant states.

For more information on how to assess an organization’s registration requirements based on its online fundraising activities, please read this article.

What are the practical steps for religious organizations to determine their registration requirements?

  1. Assess whether registration is necessary or not based on a jurisdictional analysis, taking into account both traditional forms of fundraising (e.g., direct mail, telemarketing, events) and online fundraising activities.
  2. Review with your legal counsel whether your organization qualifies for the religious exemption in the relevant states.
  3. Apply for religious exemptions where applicable and appropriate.
  • Follow the exemption application procedures in the states that have such procedures in place.
  • For states that take a “self-determination” approach, and will not formally confirm an organization’s qualification for the state’s religious exemption, it may nevertheless be prudent to submit a letter, putting the states on notice of the organization’s position that it is statutorily exempt from registering as a religious organization.

Register in all applicable states where: (1) a registration requirement exists; (2) the organization is soliciting (and the state has jurisdiction over their solicitation activity); and (3) the organization does not qualify for the religious exemption.  Note that charitable solicitation registration must be renewed annually in each applicable state.


 

[1] The term “church” includes churches, temples, mosques, and other houses of worship.

[2] See https://www.irs.gov/charities-non-profits/churches-religious-organizations/integrated-auxiliary-of-a-church-defined.

[3] See Larson v. Valente, 456 U.S. 228 (1981).  States that still include this unconstitutional basis as part of their statutory religious exemption framework include Florida, Louisiana, Mississippi, North Carolina, Pennsylvania, Rhode Island, Tennessee, and Utah. The Supreme Court in Larson declared that such laws are not sufficiently narrowly tailored to further any compelling interest the state may have in protecting its citizens from abusive practices in the solicitation of funds for charity. The Supreme Court further noted that such a provision unconstitutionally gives denominational preference to some types of religious organizations over others.

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