Fundraising Across State Lines: What Nonprofits Need to Know About Multi-State Charitable Solicitation Registrations

From the legal perspective, nonprofit fundraising typically requires an initial “charitable solicitation registration” (CSR) form filed with the state Attorney General’s office or similar state agency, along with subsequent years’ financial reports, for each state in which a nonprofit is active.  Leaders of nonprofits operating in multiple states may ask:  What, more registrations?!  Aren’t our IRS tax-exemption filings and secretary of state annual reports enough?   Sorry – the answer is no (or at least, probably not).

Each state in which a nonprofit engages in fundraising has its own rules for mandatory CSRs.  Most states require an initial CSR, but with varied threshold financial and charitable activity standards.      

Schedule B Disclosures: Donor Victory Against California AG and New Congressional Bill Providing Donor Protection

Must nonprofits disclose their Form 990 “Schedule B” list of major donors?  In round three of Americans for Prosperity Foundation’s (AFP) litigation against the California Attorney General, AFP’s answer was a resounding no!  On April 21, 2016, federal trial court Judge Manuel Real ruled that such requirement “chills the exercise of [AFP’s] donors’ First Amendment freedoms to speak anonymously and to engage in expressive association.” And just a week later in our nation’s capital, the House Ways and Means Committee approved H.R.5053, a bill designed to similarly relieve nonprofits of their corresponding IRS reporting obligation.  This is great news for AFP and other nonprofits alike, as donor privacy and related First Amendment rights are increasingly being challenged.

Background -  Schedule Bs, the IRS, and State AGs

In Schedule B, a part of the IRS Form 990, nonprofits must list donors’ names, addresses, and amounts given, for all donors who contribute more than $5000 or 2 percent of all donations (whichever is higher) in a tax year.  This mandatory reporting has long been a mainstay within the IRS context, as a measure for nonprofit accountability and particularly to guard against improper donor control in violation of well established “public benefit” requirements.  While Form 990s are subject to public disclosure, the IRS is legally obligated to keep Schedule B information confidential.  Both federal civil and criminal sanctions are available for improper disclosure, and nonprofits may legally redact such information in their publicly available Form 990s. 

Enter California Attorney General Kamala Harris.  Until 2013, and consistent with most other states, the California AG’s office had never required Schedule B donor information as part of state filings related to charitable solicitation activity.  But in 2013, the California AG changed its policy and began demanding copies of Schedule B, even though no confidentiality protections exist similar to those applicable to the IRS under federal law.  Instead, under this new policy, nonprofits that fail to comply with such disclosure requirements are effectively deprived of the ability to raise money in California. 

Update on California Mandatory Donor Disclosure Litigation

Another blow to charitable organizations’ First Amendment rights took place when the federal Ninth Circuit Court of Appeals ruled on December 29, 2015, that the California Attorney General’s mandatory donor disclosure requirements are constitutional “as applied” within the context of state charitable solicitation filing requirements.

The APF litigation follows on the heels of a similar loss by the Center for Competitive Politics (CCP).  In the CCP case, the Ninth Circuit ruled that compelled disclosure of donor information by itself is insufficient to constitute a First Amendment injury compelling enough to foreclose such governmental intrusion.  The U.S. Supreme Court denied certiorari in November 2015.  APF (along with its companion plaintiff Thomas More Law Center) asserted a similar First Amendment claim based on evidence showing that such mandatory disclosures actually chill speech and result in donor harassment.   This increased level of harm is apparently constitutionally insufficient as well, at least according to the Ninth Circuit. 

Background

Both cases began when the organizations challenged the California Attorney General (AG)’s demand to submit their IRS Form 990 Schedule B as part of their annual AG reports, in connection with their charitable solicitation activity in California.  The AG’s demand resulted from a 2013 change in its policy; consistent with most other states, the California AG’s office had never before required such disclosures.  Form 990’s Schedule B requires nonprofits to list major donors’ names, addresses, and amounts given.  The IRS collects this information but is legally required to keep it confidential.  Both civil and criminal sanctions are available for improper disclosure of such information, and nonprofits may legally redact such information in their publicly available Form 990s.