1. 1 Fundraising Regulations ________ _____________ ______________ ________________ Insert Replication Partner Logo

2. 2 What are we doing? “Far too many charities have broken the understood covenant between the taxpayers and nonprofits– that charities are to benefit the public good, not fill the pockets of private individuals.” --Senator Charles Grassley, then Chairman of the Senate Finance Committee, now ranking Republican on the Finance Committee, at the June 22, 2004 Hearing on Charity Oversight and Reform

3. 3 Purpose of Today Discuss legal and ethical issues in charitable fundraising Provide you with a checklist Minimum legal requirements to stay in compliance

4. 4 About Your Organization Board of directors Members Staff members Volunteers Internal training program

5. 5 Regulations State Requirements Maryland Charitable Solicitations Act Federal Requirements Federal Charitable Solicitation Requirements Special Topics

6. 6 Overall Confidence In Charitable Organizations, 2002-2008 A Great Deal A Fair Amount Not Too Much None September 200213%47%26%11% August 200312%47%27%10% October 200318%45%27%7% January 200413%49%25%9% August 200415%50%25%7% July 200515%49%24%8% July 200620%49%20%9% March 200816%48%25%9% CONFIDENCE IN CHARITABLE ORGANIZATIONS, 2006 June 2008, PAUL C. LIGHT

7. 7 Pension Protection Act of 2006 Annual reporting by nonprofits not filing 990 Tighten rules for gifts of façade easements New rules for donor advised funds and supporting organizations Requires cancelled check or receipt for ALL donations Limits deductions for donation of “fractional interests” in artwork Excise tax exemption for blood collector organizations

8. 8 Pension Protection Act of 2006 (2) Limits donations of clothing and household items, must be good or better condition Tightens requirements for credit counseling agencies Increases penalties for valuation misstatements Doubles penalties for “excess benefit transactions” Limits deductions for donations of stuffed trophy animals—lesser of taxidermy cost or value 990-T disclosure (UBIT)

9. 9 State Requirements Insert Replication Partner Logo

10. 10 State Requirements Incorporation General corporate law principles Specific corporate requirements and what is not required Specialized record-keeping requirements

11. 11 Incorporation Not required to obtain Tax-Exempt status from the IRS Advantages of incorporation Protection from liability Recognition by the State

12. 12 General Corporate Law Principles Legal Differences between Nonprofits and Corporations: Stockholders Vs. Members Powers of Members Board of Directors Responsible for Governance Duty of Care and Duty of Loyalty In limited cases they may be liable Maryland law does not require Opening meetings (Annual, Board or Committee) to the public Employee access to financial records

13. 13 Specialized Record-keeping Requirements IRS requires that nonprofits keep sample copies of all fundraising materials including: Dues statements Fundraising solicitations Tickets Receipts Evidence of payment Ad copies TV/radio scripts or transcripts Other evidence of any on-air solicitations (if applicable) And more!

14. 14 Specialized Record-keeping Requirements

15. 15 Specialized Record-keeping Requirements

16. 16 Maryland Charitable Solicitations Act Insert Replication Partner Logo

17. 17 Maryland Charitable Solicitations Act Requirements Key concepts and terms Registration requirements Documents and materials which must be available upon request Point of solicitation disclosures Working with a professional solicitor Honesty in fundraising

18. 18 Key Concepts and Terms Charitable contribution Charitable organization Charitable solicitation Charitable representatives Fundraising counsel Professional solicitor Associate solicitor

19. 19 Registration Requirements Fundraising notice registration Even if an organization is not required to register, they must still file a “Exempt Organization Fundraising Notice” with the Secretary of State’s office

20. 20 Registration Requirements (Cont.) Organizations are exempt from registration and disclosure requirements. An exempt organization does not engage professional solicitor and either: Solicit for a named individual and the gross amount is delivered to that individual; Is exempt from federal tax and is a religious organization, the parent or a school affiliated with a religious organization; Solicit contributions only from members (students, former students, parents of students or former students, staff, of a school, college or university); Do not receive more than $25,000 in charitable contributions for the year in which registration would be required; or, Only receives contributions from for-profit corporations and private foundations.

21. 21 Registration Requirements (Cont.) Charitable organizations that must register: Organizations before they begin soliciting in the state Have contributions solicited on its behalf in the state Solicits contributions outside the state but is based in Maryland Registration includes Copy of 990 Audit by an independent CPA (>$200,000) Review by CPA ($100,000 – $200,000)

22. 22 Registration Requirements (Cont.) After registration organizations must submit annual reports to the Secretary of State’s office Annual Fees are as follows: < $25,000 with no professional solicitor: free < $25,000 with professional solicitor: $50.00 $25,000 – 50,000: $50 $50,001 - $75,000: $75 $75,001 - $100,000: $100 $100,001+: $200

23. 23 Registration Requirements (Cont.) Charitable representatives Must register, pay a fee and submit a bond to the secretary of state Exempt organizations must file a “fundraising notice” Special Rules: Federated fundraising Consolidated registration

24. 24 Documents and Materials Availability Under MD law, you must produce the following documents within 30 days and mail it at no charge: A current financial statement which must include: The organizations name, address and phone number Amount of total revenues Total revenues from charitable contributions Amount and percentage of revenues used in the past year for:  Management and general expenses  Fundraising expenses  Program services If registered with SOS a statement confirming registration Statement of programs and uses for which funds are requested

25. 25 Point of Solicitation Disclosures Maryland law requires that written charitable solicitations, and receipts for a charitable contribution, must contain: A statement that a copy of the nonprofits current financial statement is available upon request; The name of the nonprofit, and the address and telephone number where requests for the financial statement should be sent; A statement that documents and information submitted to the state under the Maryland charitable solicitations act are available from the Secretary of State for the cost of copying and postage.

26. 26 Sample State of Maryland Disclosure Statement "A copy of our current financial statement is available upon request by contacting [name of organization] at [address and telephone number of organization]. Documents and information submitted to the state of Maryland under the Maryland Charitable Solicitations Act are available from the office of the Secretary of State, 16 Francis St., Annapolis, MD 21401 for the cost of copying and postage."

27. 27 Point of Solicitation Disclosures When is a disclosure required? “Written solicitations” A disclosure is not required for: Accredited schools Colleges or universities to students, former students, parents of students or former students, board members and staff Advisable to always make a disclosure Must be conspicuous

28. 28 Point of Solicitation Disclosures (Cont.) Legal requirements which may affect soliciting: CAN Spam Act of 2003 FTC Telemarketing Sales Rule Junk Fax Prevention Act of 2005 Limited applicability to nonprofits

29. 29 Point of Solicitation Disclosure (Cont.) Special rules when awarding prizes: Mandated disclosures must be made on the first page of the written solicitation: Manufacturer suggested retail price Conditions which must be met Donor cannot be required to make a purchase Information on chance drawings Special rules for vending machines, canisters and other collection devices

30. 30 Working with a Professional Solicitor Regulatory requirements: Regarding filing of papers to the Secretary of State Regarding what the solicitor must keep In addition there are special disclosure rules for the solicitor including: Disclosure of identity Disclosure or organizations finances Written receipts Written authorization upon request

31. 31 Honesty in Fundraising Maryland state law has additional provisions on solicitations including in the following matters: Representation of purpose of solicitation Usage of funds from solicitations False or misleading promotions Consent of charities False representation

32. 32 Federal Requirements Insert Replication Partner Logo

33. 33 Federal Requirements Federal tax documents which must be made public Methods of making documents available Penalties for noncompliance Multiple requests and harassment campaigns

34. 34 Federal Tax Document Availability The following documents should be available to the public The Form 990 for the previous 3 years The Form 990-T Original application for tax exempt status with all materials submitted in support (1023 or 1024) IRS determination letter for tax-exempt status

35. 35 Making Documents Available Must be available upon request at: The principal office Regional offices under certain conditions 3 or more FT employees (or PT equivalent) Does not include a service delivery site that doesn't include an office for extra management staff other then those managing that site. At a “reasonable location” if no office exists In person requests vs. in writing

36. 36 Making Documents Available (Cont.) Payment for copies Disclosure of reason for request Avoid providing copies by putting this information on the internet: Provide URL to the requestor It only excuses the organization from providing copies, not from making the documents public Posting must be in PDF form

37. 37 Penalties for Noncompliance Federal law provides penalty for noncompliance “Willful failure” to allow inspection or provide copies: $5,000 plus $20 for every day you fail to provide the forms Maximum penalty of $10,000

38. 38 Multiple Requests and Harassment An organization does not have to respond to: Multiple requests from the same individual or address Two requests within thirty days Four requests within a year Requests that are part of a harassment campaign Organizations must apply to IRS to determine if harassment is occurring

39. 39 Federal Disclosure Requirements for Soliciting Contributions Insert Replication Partner Logo

40. 40 Federal Charitable Solicitations Requirements Deductibility of contributions under IRS code The quid pro quo rule Substantiation of charitable contributions

41. 41 Deductibility of Contributions In general Section 170 of the IRS code Organizations to which Charitable Contributions are allowed: A governmental entity if "for exclusively public purposes;" Certain “corporations, trust, or community chest, fund or foundation” A post or organization of war veterans From an individual to a lodge system under conditions A cemetery company

42. 42 Deductibility of Contributions (Cont.) Percentage limitations on contributions Generally, corporations may deduct up to 10% of taxable income Generally, individuals may deduct up to 50% of adjusted gross income NOTE: The precise calculations are somewhat more complicated and the specific provisions of the Internal Revenue Code should be reviewed and donors should be encouraged to talk to tax advisors

43. 43 Quid Pro Quo Rule Assumption of deductibility No expectation of receiving anything More complicated when donor receives or has the right to receive. For example: Dinner or entertainment provided with donation Promotional merchandise Membership benefits

44. 44 Quid Pro Quo Rule (Cont.) Background. 1993 law establishes strict rules. Applies to any contribution over $75 where donor receives something in return. Charity must provide an estimate of “fair market value.” General rule: An organization should NOT state in solicitation materials, catalogs, or tickets that the donor's payment is tax-deductible if the donor is receiving something of value in exchange for the contribution.

45. 45 Quid Pro Quo Rule (Cont.) Defining “fair market value (FMV)” The retail value of the goods or services to the donor Charity must provide a “good faith estimate” based off of “reasonable methodology” Although only required for contributions of $75+, advisable for everything

46. 46 Quid Pro Quo Rule (Cont.) If FMV = cost of ticket. No portion of the contribution is deductible and this should be stated on the ticket. However, it is deductible if the donor refuses the goods or services offered. Refusal must take place at the time of the contribution. Payments for raffle tickets, lottery tickets, bingo cards or other gaming activities are not tax-deductible.

47. 47 Quid Pro Quo Rule (Cont.) The “insubstantial” exception Full amount may be tax-deductible if: The FMV of what the donor receives is less than either 2% of the amount of the contribution or $96 in 2010, whichever is less The amount of the contribution was more then $48.00, the benefits consist of token items with the organizations name and the cost of the token was less then $9.60 (2010)

48. 48 Quid Pro Quo Rule (Cont.) PENALTIES ARE SUBSTANTIAL!!! A charity can be assessed a fine of $10 per contribution, with a maximum penalty of $5000 per event

49. 49 Quid Pro Quo Rule (Cont.) Sample disclosure "Ticket price: $100. For tax purposes only $50 is tax-deductible. The balance of $50 represents the fair market value of the food and entertainment at this event."

50. 50 Quid Pro Quo Rule (Cont.) Deductibility and charity auctions Charity must make a “good faith estimate” This estimate may be done with “any reasonable methodology” Donors must be told that they may only deduct the value of their bid exceeding FMV When the items are unique, FMV may be estimated from similar items in the marketplace

51. 51 Quid Pro Quo Rule (Cont.) Membership benefits. Annual membership for $75 or less may be disregarded if the benefits are "rights or privileges that can be exercised frequently during the membership period." Free admission to an event may also be disregarded, provided that the event is open only to members and cost (excluding allocable overhead) for the event is no more than $9.60 per person in 2010.

52. 52 Quid Pro Quo Rule (Cont.) Membership benefits (cont.) Newsletters may generally be disregarded Two-tiered membership categories: Membership in the higher tier may be disregarded if the benefits are identical to benefits in the lower tier Example: Bronze ($60): free admissions, free parking and gift shop discounts Silver ($200): free parking, gift shop discounts for goods and services, and special commemorative silver bowls (valued at $35)

53. 53 Quid Pro Quo Rule (Cont.) Corporate employee benefits. May be treated the same as an individual benefit. Charity just needs to provide a description of services offered rather then FMV estimate. Matched contribution benefits. Benefits provided to the employee will not effect the employers deductible.

54. 54 Quid Pro Quo Rule (Cont.) An employee makes a $500 contribution to a charity which is then matched by his/her employer with an addition $500. The charity provides the employee with goods/services based on the combined contribution of $1,000, and does not provide any additional benefit to the employer. The receipt given to the employee must include: The amount of the employee's contribution, A description of the goods/services provided, And the organization's good faith estimate of the fair market value of the benefit received. The receipt provided to the employer for the matched payment must list that no good or service was provided to the employer in consideration of its $500 contribution.

55. 55 Substantiation of Charitable Contributions Donors must have proof to claim deduction Cancelled check Bank record Receipt from charity Name and address of donor Amount of donation Disclosure statement For donations of $250+, a donor needs written proof from the charity

56. 56 Substantiation of Charitable Contributions (Cont.) Thank you for your contribution of $250 on [date]. You should retain this receipt/letter in your records for tax purposes. As you may be aware, the IRS no longer will accept a canceled check as substantiation of a charitable contribution of $250 or more. [Select one]: (this letter further serves to verify that you did not receive anything of value in exchange for your contribution. Therefore, the entire amount of your donation is tax-deductible) or (this letter further serves to verify that you received described goods or services, which had a fair market value of $_____. therefore, only $xx.Xx of your donation is tax-deductible) or (this letter further serves to verify that the items you received in exchange for your donation were insubstantial under IRS guidelines. Therefore, the entire amount of your donation is tax- deductible.)

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59. 59 Substantiation of Charitable Contributions (Cont.) When contributions are deducted from payroll, two documents are needed Pay stub, W-2 or similar documents Document outlining that the employee did not receive anything for the contribution Each contribution should be considered separately when considering the $250 threshold

60. 60 Substantiation of Charitable Contributions (Cont.) Donations of goods Clothing or household goods must be in “good or better” condition Donor must obtain a receipt of donation Should just mention items donated Donor is responsible for valuing items

61. 61 Substantiation of Charitable Contributions (Cont.) Value of donation $250+ General IRS rules apply $500+ Form 8283 must be filed with return Donations of items worth $5,000+ Form 8283 AND an appraisal from a qualified appraiser Donations of property of $5,000+ Organization must sign part IV of 8283 If the organization sells property within 2 years, they must file a form 8282 with the IRS

62. 62 Substantiation of Charitable Contributions (Cont.) Planes, boats and automobiles Gross proceeds vs. FMV Significant intervening use Material improvement Donor must obtain a “contemporaneous written acknowledgement” with: Donor’s name and SSN or FEIN Vehicle identification number (VIN) One of three statements

63. 63 Substantiation of Charitable Contributions (Cont.) Intellectual property. The lesser of the donor’s “tax basis” in the property or its FMV. Other special cases: Taxidermy property. Facades of historical buildings. Conservation easements. Partial interests in art or other valuable property. Property used by charities for their charitable purposes and subsequently sold.

64. 64 Substantiation of Charitable Contributions (Cont.) Receipts where the donor obtains good or services. Subtract goods or services from value of donation. If a donor made a gift of $275 and in exchange received goods or services valued at $50, then the deductible portion of the gift is only $225 and the receipt requirement is not triggered. However, the donor will still have to have proof to claim the deduction.

65. 65 Special Topics Insert Replication Partner Logo

66. 66 Special Topics Fundraising and the internet State consumer protection laws Direct marketing association – privacy rules

67. 67 Fundraising and the Internet State charitable solicitation laws Uniform charities registration form Fundraising appeal on the internet Solutions Disclaimer language Multi-state registration

68. 68 State Consumer Protection Laws Commercial-nonprofit marketing alliances Consumer protection laws apply to nonprofits as well. A nonprofit is as engaged in advertising as the sponsor. Advertisements may not misrepresent a nonprofits’ stance on a product. Advertisements must avoid expressed or implied claims that advertised product is superior, unless claim is true an substantiated and nonprofit has determined product to be superior.

69. 69 State Consumer Protection Laws (Cont.) Commercial-nonprofit marketing alliances (cont.) Advertisements shouldn't be misleading about the effect of consumers purchasing decisions on charitable contributions by the consumer or commercial sponsor. Nonprofits should avoid entering into exclusive relationships. Where they do, the exclusivity should be clearly and conspicuously disclosed.

70. 70 Direct Marketing Association – Privacy Rules The direct marketing association rules: Companies must disclose when they are sharing consumer's private information (e.g. Names and addresses) with other marketers. Allow consumers the option to not have their information shared. Honor requests to not receive solicitations Participate in DMA's two national name- removal services. DMA’s Mail Preference System DMA’s Email Preference System

71. 71 QUESTIONS??? Insert Replication Partner Logo