Fundraising Registration Penalties for Non-compliance

Non-compliance has been all over the news lately from the Donald Trump Foundation not being registered to solicit contributions to 7 West Virginia residents operating a fraudulent charity that netted them millions of dollars by using state-issued gaming licenses of two nonprofit organizations to divert money into corporate accounts.

If you’re looking to avoid the paperwork and not register your charity on the hope that your organization does not need to because you are exempt, that you do not hold any events outside your home state, or that all our money is used for mostly programs you may want to think again. You can no longer plead ignorance about state registration.  It’s in the nightly news, it’s in your inbox and even talked about in every industry seminar, webinar and podcast.

The Consequences

The civil penalties associated with failure to register typically mean fines for the organization itself. They can often be fairly substantial taking quite a bite out of your group’s yearly revenue. Often, as in the State of Maryland, fines of $5,000 or more can be imposed for every single violation, so each time your group held an event and you weren’t registered, you may be adding to your tally.   If a court determines that your nonprofit failed to register, it can order that it make restitution thus forcing you to return the donations received while in default.

The fines aren’t the only problem with a failure to register. If you knowingly fail to comply with the state’s charitable registration act, you could be facing up to felony charges just for failing to comply. This can extend to anyone on the directorial board who knew registration was required, and could mean extensive personal fines or even jail time for you and your board members. Not to mention the loss of credibility with the public as some states publish a list of offenders, so your organization could end up in the news defending itself against the claims of non-compliance.

The penalties for filing inaccurate IRS forms against your nonprofit can be to $20 per day up to the lesser of $10,000 or 5% of your annual gross receipts, penalties against the individual responding to any informational deficit request from the IRS in time can be up to $10 per day up to a maximum of $5,000, and possible loss of tax exemption.

Some Examples

A sampling of several state websites on the issue of non-compliance found that  South Carolina states in their FAQ’s section, “If a charitable organization solicits contributions without being registered, submits false information to the Secretary of State, is delinquent in a filing or violates any other provision of the “Solicitation of Charitable Funds Act,” the Secretary of State may assess an administrative fine of up to $2,000 for each separate violation. It is extremely important that charitable organizations submit all forms and documents in a timely manner to avoid the assessment of administrative fines.”

Other states like Illinois conclude that your organization has been soliciting in their state the entire time your organization has been in business and will assess late fees for up to three years and require the submission of the missed annual reports to your existing charity.  They will impose a $200 late registration fee and will require the annual filing for those years which they assumed you missed which results in a $100 late fee for each of those three years.  The consequence can be up to $500 in late annual report fees and the late registration fee. 225ILCS 460/2 h.

Minnesota states that failure to comply may be a violation of Minnesota law and as such can result in “civil penalties, attorney’s fees, [and] costs.”  Failure to file annual reports puts an organization in default in Minnesota so that they cannot solicit again until they are up to date on all filings, have paid a $50 fee, and file a new registration.

In New York, there are two overlapping categories of registration — one for soliciting from New York State residents (7-A), and the other for doing business in New York State (EPTL) — that are filed on the same forms. Monetary penalties for failing to register under 7-A are $1000 per violation and up to $100 per day of noncompliance. For EPTL it is up to $10 per day with a $1,000 max. Penalties are combined for those organizations subject to both rules.

Washington State  code 19.09.271-279 penalizes non-filers after five days’ notice by publishing a press release on internet and newspapers of a notice of the charity’s unregistered status. Knowingly giving false information in your filing is punishable as a misdemeanor under RCW Title 9A Chapter 20.

The Good News

We spoke with the charity offices of 11 states that require state registration to find out their approach to noncompliance. All said that they do not generally issue penalties for initial registrations in order to encourage compliance but added that the charity should show good faith and send in the registration form with all attachments as soon as possible. Note, this generosity is reserved for charities that register proactively. A charity that the state discovers is not in compliance is likely to receive penalties.

Once registering, the charity should also make sure that the application package is complete, signed and accurate. In a case where there has been solicitation prior to registration, a couple of the states require filing up to 3-4 years of registration forms and fees to cover the solicitation period.

As you might expect, the states could not absolutely rule out penalties, which would be incurred for extenuating circumstances, such as other compliance issues. Organizations with larger revenues and/or long-term solicitation may receive some more scrutiny, so applications should be triple checked for completion and accuracy.

Let’s Review

As you can tell, there is a difference in what we found on the state websites and in their solicitation regulations and when we spoke with them.  The regulations are in place for the serious of offenders but the states really just would like the nonprofits to comply voluntarily.

Regardless of penalties, you should file where required. Penalties grow steeper for willful violations of the law. Also, when you file, your information must be accurate. The biggest penalties are reserved for those who knowingly file incorrect or incomplete information because accurate information protects states and their residents from fraud. The bottom line is that charities need to know what the state registration requirements are, how they apply to their organization, and how to follow them.

Your Resources

No charity ever feels like they have enough resources but it is not worth the risk of losing your reputation or the possibly of your board being fined over the cost of not registering.  No one wants to go to that meeting.  There are many resources out there that can help you register depending on your budget.

If you get the right person on the phone with the states, they will help you through the process but that is a long and arduous task.  You will need to fill out the application or registration for each state separately and supply each with various attachments. You will also have to look up each state’s requirements one by one as each state requires a little something different.

Hiring a professional to perform the task for you is expensive and you still have to gather all the information and review all the paperwork for each state that you are registering in, so why not save the money.  Ultimately, you are still responsible for those state registrations.

Our Solution

Use our affordable form-fill software that will help you through the process of registration and renewal easily and affordably.  We have the most up to date forms, attachments and instructions available in one place with an added benefit of saving the information from year to year making renewal or expansion easier.  You are able to add additional states as needed if you want to hold an event in a new state or expand your programs somewhere new.

This can be done in a few simple steps:

  1. The compliance wizard will help you determine where you need to register or renew
  2. Answer the basic information and state specific questions
  3. Print the completed forms and attachments, sign and send

Please contact us with any comments, questions or concerns at (800) 780-6027 or