Many states’ charitable solicitation statutes require nonprofits to include disclosure language on charitable solicitation materials. These state-specific disclosure obligations provide key information to donors, essentially as a consumer protection measure. Disclosures help donors understand which nonprofit organization will receive the charitable funds, along with the status of the nonprofit’s charitable solicitation registration and IRS qualification, tax-deductibility of contributions, and purpose of the solicited donations. Reference to the organization’s charitable solicitation registration can provide donors with access to publicly available corporate and financial records, since organizations often register and provide annual compliance reporting to such agencies. Each state’s separate disclosure requirements vary considerably, which requires diligence for all charities and especially for organizations that carry out fundraising activities in multiple states.
Why Disclosure Requirements?
Mandatory fundraising disclosures protect both charitable organizations and donors. Disclosures benefit charitable organizations by promoting donor trust. Donors are assured of accountability and financial stewardship of charitable assets by nonprofit leadership’s compliance and state regulator oversight. This accountability factor may further increase the effectiveness of fundraising appeals, hopefully with evident financial fruitfulness.
For donors, the benefits may be even more apparent. Fundraising disclosures help donors discern the legitimacy of charitable solicitations and protect the public from unscrupulous fundraising schemes. Donors may have greater confidence in giving to charitable organizations when seeing a disclosure because they can more easily access charitable organization’s financial accounting, including its actual investment in charitable programming.
When are Disclosures Required?
Although the majority of states do not require charities to include verbose disclosure statements on their solicitation materials, specific language is most often necessary. For some states, the additional information is limited to the charity’s legal name and address, which is likely to be included on the solicitation materials regardless of legal compliance aspects.
For other states, however, specific and detailed language is required, and nonprofits must be aware of and include the precise language in their fundraising materials. Notably, some states limit disclosure requirements to charities that use a “professional fundraiser,” meaning that charities that carry out fundraising campaigns independently need not adhere to these additional requirements. The definition of “professional fundraiser” is also state-specific, which means that additional due diligence and attentiveness may be warranted.
What Must Be Disclosed?
State-specific disclosure requirements vary in length and content, as demonstrated in two state examples with corresponding sample language below:
ILLINOIS:
Disclosures are only required for solicitations made by professional fundraisers and solicitors and must include the following statement: “Contracts and reports regarding the charity are on file with the Illinois Attorney General” (225 ILCS 460/17). The statement must also unambiguously state that the solicitation is being made by a paid professional fundraiser with the professional fundraiser’s name, and in some instances, the paid professional fundraiser must disclose the percentage of charitable contributions received and retained by the fundraiser.
MINNESOTA:
Contemporaneously with any written solicitation, a charity must disclose: (1) the name, city and state of the charitable organization seeking such solicitation; (2) the tax deductibility of the contribution; and (3) a description of the charitable program for which the solicitation campaign is being carried out. (Minn. Stat. § 309.556)
As is evidenced by the above sample language, state-specific disclosure requirements often overlap and are similar in nature. However, some states do require a greater degree of specificity, even including certain typeface and font size. Accordingly, for multi-state or national fundraising campaigns, nonprofits may condense or consolidate the required disclosures on charitable solicitation materials, but close consideration to each state’s requirements is advised to avoid penalties.
Keep in mind too that certain states do not require any charitable registration. Other states may require registration, but do not have solicitation disclosure requirements. Of note too, charitable solicitation registration requirements are often triggered by a specific nonprofit’s operations within the state, amount of contributions received annually, or amount of assets held in the state. Thus it is critically important to be attentive to specific states’ registration, reporting, and disclosure requirements, along with resulting implications for state-specific legal compliance.
Consequences for Noncompliance
Leaders of charitable organizations that solicit donations should also be aware that many of the states with mandatory disclosures have statutory penalties for noncompliance. These penalties range from cease-and-desist orders to revocation or suspension of a charitable organization’s registration. In certain situations, hefty monetary fines may ensue. State enforcement agencies (typically a state Attorney General’s office) hold broad government power that can be wielded against noncompliant charities, such as through court action and other adverse consequences. Compliance is therefore critical, both for donor confidence and unimpeded operations.
Final Considerations
As nonprofit leaders navigate their next fundraising campaign, they should consider what disclosures are required and how best to communicate them. Correspondingly, legal counsel should be consulted to help evaluate how this important compliance obligation may apply to specific fundraising activities, to draft compliant fundraising disclosure statements that embrace all state laws applicable to targeted fundraising appeals, and to identify the extent of multi-state charitable solicitation registrations warranted too.
