State Registration Requirements and Considerations

Jacklyn Olinger, Manley Burke, jacklyn.olinger@manleyburke.com

As foundation executives in the Greek community are aware, both federal and state authorities are becoming increasingly focused on proper registration. Nearly all states require that a charity register if either (i) it is physically present in the state (e.g., maintains an office, owns or leases real estate or conducts program activities in the state), or (ii) solicits funds in the state (direct mail solicitations, telephone solicitations, e-mail solicitations or in-person solicitations). Moreover, the new Form 990 requires reporting organizations to identify in which states it is “required” to file its Form 990. The old Form 990 simply asked where the reporting organization actually filed its Form 990. The threat posed by this increased focus is enhanced by the IRS’ stated goal of increased sharing of information between state and federal taxing authorities.

Violation of registration requirements can be embarrassing, costly and result in increased scrutiny from both federal and state regulators. None of these are good outcomes. Despite the importance of registration and the serious consequences of failure to do so, many Greek foundations have not taken the steps necessary to comply with registration requirements.  This is likely due in large part to the perception that the process is overwhelming and costly.

The remainder of this article provides some information that will help foundation executives gain a better understanding of the registration requirements and considerations that should be taken into account when undertaking the registration process.

Each State Has Its Own Requirements

Unfortunately, the registration process is not as simple as filling out one standard form and mailing it to each of the forty states requiring registration.  The Multi-State Filer Project was organized by the National Association of State Charities Officials and the National Association of Attorneys General, with a goal of standardizing, simplifying, and economizing compliance under the states’ solicitation laws.  One of the major products from the Multi-State Filer Project is the Unified Registration Statement (“URS”).

Thirty-five of the forty states requiring registration accept the URS in lieu of its state specific form. However, many of those states require state-specific supplements to be filed along with the URS. In addition, each state requires that some or all of the following supporting documents be attached to the registration form: Articles of Incorporation, Bylaws, IRS Form 990, audited financial statements, IRS determination letter, IRS Form 1023 (Application for Exemption), conflict of interest policy and contracts with fundraising professionals. While the Multi-State Filer Project has made some progress in simplifying the registration process, there are still many state specific requirements that must be taken into consideration.

Timing Can Be Important

It is best to file registration forms as soon as possible after the foundation’s Form 990 and audited financial statements have been prepared. Many states have renewal and financial reporting due dates which coincide with the Internal Revenue Service’s filing deadline for the Form 990. So, if the state registration forms are filed using financial information that is not from the foundation’s most recently ended fiscal year, the renewals and financial reports will come due very soon after the initial registration is filed in some states. In other words, using financial information that is not from the most recently ended fiscal year will cause the foundation to have a “short” initial registration period.

Impact on Relationships with Professional Fundraisers and Consultants

One of the questions on the URS requires the foundation to list all of the outside fundraising professionals that it uses. This includes professional fundraisers, paid solicitors, fund raising counsels and commercial co-venturers. Many states require the foundation to attach copies of contracts with such fundraising professionals. If a fundraising professional engaged by the foundation is not properly registered this can cause problems for both the fundraiser and the foundation. The states will be put on notice that the fundraiser is not registered, which can result in the imposition of fines. The foundation may be at risk as well because, in many states, it is unlawful for a charitable organization to engage the services of an unregistered fundraiser.

Moreover, many states have specific requirements for contracts between charitable organizations and professional fundraisers. If the foundation attaches a copy of a contract to its registration form which does not comply with a state’s requirements, both the foundation and the fundraiser will be at risk of penalties for entering into a contract which does not meet the state’s requirements. So, as part of the registration process the foundation must coordinate with its fundraising professionals to ensure that they are properly registered and that the contract complies with each state’s requirements.

Penalties and Late Fees for Prior Years

One of the questions on the URS asks whether the foundation has previously solicited funds in any state. Presumably, the foundation will have solicited funds in many, if not all, states. Because the foundation is not registered, this means that it is in violation of many states’ charitable solicitation statutes and is subject to penalties and late fees. As a result, the foundation should attach an explanatory statement describing why the foundation was soliciting without registering.  Such a statement should help mitigate the imposition of penalties and late fees in many states, but unfortunately, some states will not accept the explanation and will impose penalties and/or late fees.

We Need A Registered Agent?

Colorado, Illinois and Michigan require the foundation to appoint a statutory agent to receive service of process in order to register as a charitable organization. Both the District of Columbia and North Dakota require the appointment of a statutory agent when applying for a certificate of authority to do business (a pre-requisite to registration as a charitable organization in those states). If the foundation does not have an individual or entity available to serve as registered agent in any or all of these states, a commercial registered agent can be hired for a fee.

As part of Fraternal Law Partners’ commitment to the fraternal community, it offers nationwide registration services to NICF member organizations for an annual flat fee, per organization, not including out-of-pocket filing fees, late fees and penalties.  In addition to controlling costs, Fraternal Law Partners’ has streamlined the nationwide registration process to minimize the burden on foundation staff.