Monthly Archives: August 2017

What is Religious Exemption?

There is an old joke about an IRS auditor who calls a clergyman to confirm a large donation from a parishioner and asks, “Did Mr. Thompson donate $10,000?” The clergyman thinks a moment and replies with a smile, “He certainly will!”

The interesting thing is that while that donation is tax-deductible for Mr. Thompson, like other nonprofit organizations, the church doesn’t have to pay taxes on it, but unlike other charities, it has even less responsibility for reporting it.

So, what is religious exemption? For charities this is a big question because exemption can mean tax exemption, exemption from financial reporting, and exemption from state charitable solicitation registration in many cases.

Let’s talk about tax exemption and exemption from financial reporting to break it all up. Later we will get into religious exemption from charity registration.

Why is there a special classification for religion?

Churches are protected from government interference by the First Amendment to the Constitution. Therefore, the degree to which an organization is associated with the direct practice of religion determines their level of accountability (reporting) to the IRS and subsequently to the states.

The IRS categorizes religious charities accordingly: churches, their integrated auxiliaries, religious organizations, and other. Each type as defined by the IRS determines what level of reporting they need to do. In general, churches and their integrated auxiliaries (per the IRS) are treated differently from “religious organizations” as follows:

  1. “Church” (used as an overarching term to indicate any similar place of worship, such as a synagogue or mosque) – The IRS gives 14 attributes of a church, primarily among which is being a legally recognized organization and having a congregation and an ordained clergy (see the IRS Tax Guide for Religious Organizations Glossary);
  2. “Integrated auxiliary” is a 501(c)(3) nonprofit and public charity that is associated with a church or denomination and is internally funded, though missionary groups and youth groups do not usually need to meet this last criteria. Churches and Integrated Auxiliaries (including the definition of a missionary group) are further defined in the Code of Federal Regulations, 26 CFR Section 1.6033-2(g) & 2(h);
  3. “Religious organizations” — according to the IRS, these can include nondenominational ministries, interdenominational and ecumenical (encompassing multiple Christian faiths) organizations, and groups whose purpose is for the study or advancement of religion; and
  4. Other — If the activity of the organization is primarily secular in function when performed by other groups, the charity may not fit in the religious exemption. 7.26.2.2.1 (03-30-1999)

The biggest difference is that because of the need for the separation between church and state, churches and their integrated auxiliaries don’t have to file a Form 990, while religious organizations do. The other end of that separation is that religious organizations can do some, not substantial, issue based lobbying while churches cannot. Page 10 of the IRS Webinar on Churches and Religious Organizations: Do’s and Don’ts has a chart to help you see where you might fit by what is required of you.

It is important to know where your organization falls on this spectrum to know what is required of you at the federal level. Next, we will delve into how it affects state compliance.

This information is not intended as legal advice or instruction.

State Charity Registration Exemptions

You have started your nonprofit and you have applied to the IRS for a federal exemption, but wait, that does not mean you are exempt from filing state taxes, paying local sales taxes or registering your charity in each state.  Approximately 40 states require you to file a state charity registration application, several require you to apply for a corporate license and some you will need state tax exemptions.

These application processes are completely different than Federal tax exemption.  The state charity registration is your organization notifying the state that you will be soliciting its residents for donations.  The application that you provide to them is there way of assuring transparency to their citizens.   Looking for an exemption from filing a state charity registration application? Well, good luck!!  Those laws have more loop holes than an amusement park.

One hundred percent of all states offer some type of exemption but qualifying for that exemption and keeping it is a different story. Each state law has its own definitions and requirements for those exemptions. Some states only require an initial letter notifying them that your organization believes it is exempt while others require you to file an application for approval to the state charity office and a few require annual notifications.  In those states the fees are reduced for the exemption not the required paperwork.

Here are some common state exemptions:

Revenue <$25,000 (can vary from $5,000 to $50,000)

Religious Organizations or their affiliated groups

Educational Institutions or their supporting groups

Membership Organizations – Fraternal, Social, alumni, or professional

Veteran’s Organizations including Police, Fire and Rescue Groups

Political Party or Candidates for Office

Donations for a Specified Individual

Hospitals

Some other not so common state exemptions:

Childcare Providers

Adoption Agencies

Clinics

Boys and Girls Clubs

Less than 10, 35 or 100 Donors per Year

As noted before, and will be discussed in our next post on the common exemptions, each of these exemptions have their own requirements designated by the state where you are soliciting donations.  They are not only determined by the state where you are physically located but in each state where you are soliciting donations.  You may be exempt in your home state but not in others; as well as your organization could be exempt in foreign states but not your state of origination.

If you have any comments, questions or concerns, please contact us at 800-780-6027 or support@simplecharityregistration.com for more detailed answers.

 

Trusted Nonprofit Resources

National Association of State Charity Officials (NASCO)

The National Association of State Charity Officials (NASCO) is an association of state offices charged with oversight of charitable organizations and charitable solicitation in the United States.  They have taken a leadership role in promoting uniform state charity registration and filing requirements, amicus briefs, and multistate lawsuits targeting fundraising deception. NASCO members have also participated in drafting the Uniform Law Commission’s Oversight of Charitable Assets Act which is a model for state solicitation law and jurisdictional guidelines for state regulation of charitable solicitation on the Internet.

National Council of Nonprofits (Council of Nonprofits) 

The National Council of Nonprofits (Council of Nonprofits) is a trusted resource and advocate for America’s charitable nonprofits. Through their powerful network of State Associations and the nation’s largest network of nonprofits they serve as a central coordinator and mobilizer to help nonprofits achieve greater collective impact in local communities across the country. They identify emerging trends, share proven practices, and promote solutions that benefit charitable nonprofits and the communities they serve.

Association of Fundraising Professionals (AFP)

The Association of Fundraising Professionals (AFP) represents more than 30,000 members in over 230 chapters throughout the world, working to advance philanthropy through advocacy, research, education and certification programs.  The association fosters development and growth of fundraising professionals and promotes high ethical standards in the fundraising profession.

National Association of Attorney Generals (NAAG)

The National Association of Attorneys General (NAAG) was founded in 1907 to help attorneys general fulfill the responsibilities of their office and to assist in the delivery of high-quality legal services to the states and territorial jurisdictions. The Association’s members are the attorneys general of the 50 states and the District of Columbia and the chief legal officers of the Commonwealths of Puerto Rico (Secretary of Justice) and the Northern Mariana Islands, and the territories of American Samoa, Guam, and the Virgin Islands.

Your Local State Charity Office

We have a blog devoted with a list of the State Charity offices!! Almost all states have an association devoted to nonprofit assistance no matter where your organization is in its life-cycle. Whether you just need a form or something more complex they will most likely have the answer. Most state associations offer online training, research and local events that you can attend to get more familiar with your fellow non-profiteer!

GuideStar 

GuideStar encourages nonprofits to share information about their organizations openly and completely. They combine the information that nonprofits supply them with data from several other sources to provide information that advances transparency, enables users to make better decisions, and encourages charitable giving.

Please contact us with any comments, questions or concerns at (800)780-6027 or support@SimpleCharityRegstration.com.

 

3 Factors Affecting Your Nonprofit Registration Timeline

One of the most frequently asked questions we get in our support email is “How long will it take to get my charity registered”.  That depends on 3 factors: organizational paperwork preparedness, number of states registering, and the state office for which you are registering.

Prior to beginning the process you should have all of the following paperwork/information in hand to facilitate completing the questions that are required to fill in the forms. If you look at the left-hand side on the SimpleCharityRegistration.com website the navigation bar divides the questions by topic.  The sections will give you a sense of the types of required information you will need. You can even click on the sections ahead before entering information to see what you will need next.

Organizational Paperwork

In addition to the 990, 990-EZ, 990-PF or other financial reporting you will need:

  • Info on the origins of the charity, such as formation date and state, 501(c) designation and date or application date, organization type, purpose, mission, etc.
  • if this is an initial registration in states, you will also need to attach the articles of incorporation and by-laws
  • list of sources of government grants
  • personnel — list of board members with addresses (usually a business address other than the charity), key employees and their salaries and positions, and information about whether any of these people have connections to other related organizations or have any interaction with government agencies or courts
  • list of any paid professional fundraisers used by your charity along with their contracts and terms
  • a list of chapters, branches or offices of the organization
  • a list of resident agents for the states required as explained on the right side of the Resident Agent page

Most of these items are for answering the questionnaire, but some, like the articles of incorporation and by-laws, will need to be copied and attached to the registration form upon submission.

For the data entry, depending on the size of your organization, you should allow a few days just in case you need to contact other administrators in your office for missing information. The next step is proofing and putting the packages together. Add some signatures and stamps and you are on your way.

Number of States

The best part about having an account with SimpleCharityRegistration.com is once all the information is in the software printing and preparing each consecutive state application becomes easier and the next year when it is time to renew you only need to review the prior year’s information and add the current financials and you are on your way to knocking this once burdensome process right out of the park!!

States Where Registering

Depending on the time of year and which states you are registering the time for approval can take a couple of business days up to 6 weeks or more.  Take note of the renewal date for each state when registering as you know that will be the time of year the state offices will be the busiest and your initial registration application may take a little longer.

You may also enjoy our new welcome video and our two-part blog on this topic.

Please contact us with any comments, questions or concerns at (800) 780-6027 or support@SimpleCharityRegstration.com.

Frequently Asked Questions: What is Charity Registration

About the registration process:

What is charitable solicitation registration?

In order for states to provide their constituents with basic information about charities to whom they might donate and protect them and worthy charities from fraudulent ones, most states require charities soliciting in their state to file certain financial, organizational, and governance information.

Are all charities required to register?

Most states have a list of categories of charitable organizations that are exempt from registration. The State Registration Groups page of our questionnaire will help you determine whether or not you are exempt from registration.

When must I register?

Generally, you are not to solicit in a state until you register in the state or are determined exempt, so you should register prior to solicitation in a state. Most states give a 30-day grace period in which you can register after starting soliciting.

In which states am I required to register?

You will need to register in any state in which you solicit, providing that you do not fit in one of their exemption categories. Arizona, Delaware, Idaho, Iowa, Indiana, Montana, Nebraska, South Dakota, Texas, Vermont, and Wyoming all do not require charitable solicitation registration.

What is solicitation?

States have different definitions, but for the most part it means any oral or written request for funds or services with the promise of the donation going to the support of a charitable purpose. See the definition in the Pennsylvania Solicitation of Funds for Charitable Purposes Act as a sample.

Does my website count as solicitation?

The Charleston Principles: Guidelines on Charitable Solicitations Using the Internet suggest that internet representation of a charity qualifies as solicitation in a state if it is sent directly to an individual or entity in the state, if there are regular donations coming from the state, or if there is follow-up with donors in the state either by direct mail, telephone, etc. or via other regular contact (such as newsletters, announcements, press releases, etc.)

What is the typical registration process?

The typical process involves:

  1. Initial registration
  2. Renewal registration and/or annual reporting (financial reporting)
      • this usually occurs at a point in time following the end of your fiscal year or on the anniversary of registration
        • a couple states, Georgia and DC, renew biannually
    • a few states do not require registration registration renewal, but do require annual financial reporting

What if I am not able to renew on time?

There are three options that states use — our questionnaire will walk you through the state processes:

  1. Extension of renewal
  2. No extension of renewal, but extension of annual financial report
  3. No extensions — usually because they have a later due date

I use paid fundraising services. Are there additional requirements?

Two things you will need to keep in mind:

  1. A paid fundraiser must be registered in a state before you can begin a solicitation campaign in that state.
  2. Most states require that contracts with fundraisers and commercial co-ventures usually need to be filed with states prior to solicitation or within 30 days (or at least attached to registration forms)

Are there other requirements?

  1. Many states also require business registration, even if you are registered or exempt from charitable solicitation registration.
  2. Maintain records for no less than 3 years — most states require it

 

About how Simple Charity Registration can help:

How does Simple Charity Registration work?

Our service walks you through a series of questions that will fill in the forms required for the states in which you solicit. It will then produce the form and a checklist and instructions of what you need to do to send in your form. Our How it Works tab will guide you.

Does the charity file the forms or is that part of the service provided by Simple Charity Registration?

The charity files, using the auto-filled forms that appear on the bottom of the left navigation area. There is a checklist attached giving information on where to file, what to attach, and how much to pay, along with additional helpful information.

Is the service fee the same as the state fee? Does the fee include state fees or only the use of the application and printable forms?

Our fee is for our DIY software which streamlines the registration process. State fees are separate and are set by the individual states for either initial registration or renewal/annual reporting.

Our service will help you to determine which type of forms and which states that your organization will need to file your charity compliance documents in as well as help you collect, file and store your organization’s information in an efficient time saving manner.  There are also many resources on our site for your organization to take advantage of and we provide reminder emails for your annual compliance deadlines as well as information on changing state filing requirements.

What if I have questions?

Our Customer Support will be glad to help you with technical questions. We can help with some state specific issues, but we are not legal advisers, so we may refer you to the state websites for help.

Please contact us with any comments, questions or concerns at (800) 780-6027 or support@SimpleCharityRegstration.com.