such as:
Are donors protected and is philanthropy nurtured?
Are funds used to support those purposes for which they are solicited?
Are the regulations fair to all nonprofit organizations?
Can the regulations be evaluated for effectiveness?
Often, regulations are a reaction to a perceived form and level of abuse. The perception may be correct or incorrect; that is not the issue. The issue is that the enacted regulation rarely benefits from the type of exchanges described previously. Less or more regulation is not important; better regulation is.60
§ 2.8 COPING WITH REGULATION: A SYSTEM FOR THE FUNDRAISING CHARITY
(a) Monitoring of Compliance Requirements
An organization that is subject to a substantial number of the charitable solicitation laws—and that undertakes to register and report under them—should design a system by which it can remain abreast of its varied compliance responsibilities.
The state charitable solicitation laws are published as part of each state's code of statutes. County, city, and town ordinances are similarly published. Other “law” with respect to these statutes and ordinances will appear as administrative regulations and rules, administrative and court decisions, and instructions with regard to applications and report forms.
Therefore, the first step is to ascertain which of the 51 jurisdictions (50 states and the District of Columbia) do not have some form of a charitable solicitation act. At the present, there are three of these jurisdictions: Delaware, Montana, and Wyoming.
The second step is to identify the municipal ordinances that are applicable. No one has identified them all, but assuredly there are several in each state.61 (Probably the most well known and stringently enforced of these ordinances is the one in effect in the city of Los Angeles.)
The third step is to identify the jurisdictions in which, for one reason or another, the organization voluntarily refrains from conducting a solicitation.
The fourth step is to identify the status of the organization's compliance with the applicable solicitation laws. A typical evaluation would utilize the six items in this analysis of jurisdictions:
1 States in which the organization is registered.
2 States in which the organization is exempt from one or more requirements.
3 States in which the organization is pursuing initial registration.
4 States in which the organization does not know its status but is investigating its status.
5 States in which the organization is registered but where one or more questions are being raised that may lead to revocation or modification of the registration.
6 States in which the organization is registered but is operating under some type of conditional, temporary, or probationary status.
The fifth step is to identify any jurisdictions in which the organization has been prohibited from soliciting contributions.
The sixth step is to make an inventory of due dates for filing renewals of registration and reports.
The seventh step (an ongoing one) is to persist in all reasonable endeavors to remedy the organization's difficulties as reflected in the fourth (items 5 and 6) and fifth steps.
Any professional fundraiser or professional solicitor retained by a charitable organization has independent registration and reporting responsibilities. Therefore, the organization's compliance efforts should be carefully coordinated with those of its fundraiser(s), solicitor(s), or both.
(b) Public Relations
To responsibly, accurately, and promptly respond to inquiries from the general public, an organization should be prepared to disseminate an annual report upon request. (This may also be sent to others, without waiting for a request, such as members, donors, community leaders, and other organizations.) A form letter from the organization's president or executive director may be effectively used to transmit the report.
With today's heavy emphasis on the issue of fundraising costs, the annual report or like document should discuss the organization's fundraising program and costs.
(c) Record Keeping and Financial Data
A principal focus of this field of government regulation is fundraising costs. Therefore, management should make a substantial effort to accurately ascertain and record both direct and indirect fundraising costs. This process will require careful analysis of individuals' activities (so as to isolate the portion of their compensation and related expenses that is attributable to fundraising) and careful allocation of expenditures (where an outlay is partially for fundraising and partially for something else, such as program activities).
Fundraising costs must be reflected in the annual information return filed by tax-exempt organizations with the IRS.62 Although percentage limitations on fundraising costs are unconstitutional,63 some state laws require disclosure of these costs in a variety of ways.64
In any event, most organizations wish to be able to consider their fundraising costs “reasonable,” particularly in response to inquiries from donors or the media. Therefore, a fundraising organization should be prepared to demonstrate the reasonableness of its fundraising costs.65
NOTES
1 1. There are, of course, other forms of fundraising, such as fundraising for political parties and candidates; federal government regulation of these forms of fundraising is summarized in § 6.15.
2 2. See § 3.1.
3 3. Reg. § 1.501(c)(3)-1(d)(2).
4 4. See Tax-Exempt Organizations, § 6.3(c), Chapter 7.
5 5. Green v. Connally, 330 F. Supp. 1150, 1159 (D.D.C. 1971), aff'd sub nom. Coit v. Green, 404 U.S. 997 (1971).
6 6. IRC §§ 501(c)(3) and 170(c)(2). The first of these provisions is the basis for federal tax-exempt status; the second is the basis for eligibility for donee status for purposes of the federal charitable contribution deduction. (Most organizations that engage in fundraising are able to offer their donors
