The Law of Fundraising. Bruce R. Hopkins

2.2 Methods of Fundraising (a) Annual Giving Programs (b) Special-Purpose Programs (c) Estate Planning Programs (d) Reasonable Costs of Fundraising (i) Direct-Mail Acquisition (ii) Direct-Mail Renewal (iii) Special Events and Benefits (iv) Corporations and Foundations (v) Planned Giving (vi) Capital Campaigns

        § 2.3 Role of a Fundraising Professional (a) Types of Professional Fundraisers (b) Professional Associations (c) Accreditation and Certification (d) Standards of Conduct and Professional Practice

        § 2.4 Role of an Accountant (a) Generally Accepted Accounting Principles (b) Financial Reporting Requirements (c) Financial Management

        § 2.5 Role of a Lawyer

        § 2.6 Viewpoint of Regulators

        § 2.7 Viewpoint of a Regulated Professional

        § 2.8 Coping with Regulation: A System for the Fundraising Charity (a) Monitoring of Compliance Requirements (b) Public Relations (c) Record Keeping and Financial Data

      Chapter 2 describes the anatomy of charitable fundraising. The chapter summarizes the various methods of fundraising, the different roles of a fundraising professional, and the role of nonprofit accountants and lawyers. The chapter also describes various viewpoints of regulators and includes descriptions of certain factual aspects of fundraising for charity, including the types of organizations encompassed by the various laws and the rules of those individuals who are, along with the charities themselves, enmeshed in this regulatory process.

Certain basic factual aspects of fundraising for charity warrant summary before an analysis of federal and state governmental regulation of this type of fundraising.¹ These aspects include the types of organizations encompassed by the various laws, the many fundraising techniques, and the roles of those individuals (other than the regulators) who are, along with the charitable organizations themselves, enmeshed in this regulatory process: the fundraising professionals, the lawyers, and the accountants.

§ 2.1 SCOPE OF TERM CHARITABLE ORGANIZATION

      The many laws governing the process of soliciting gifts for charitable purposes principally apply, of course, to charitable organizations and those who raise funds for them. Thus, it is necessary to understand the scope of the term charitable organization as it is employed in these laws.

The term charitable organization as used in the state charitable solicitation acts has a meaning considerably broader than that traditionally employed under state law and under the federal tax law.² Therefore, the soliciting organizations encompassed by the federal definition of what is charitable must comply with the requirements of federal regulation governing fundraising for charity as well as those of the various states (unless exempted). Some organizations, however, are tax exempt under federal law for reasons other than advancement of charitable purposes but are still obligated to comply with the panoply of state and local charitable solicitation laws.

The federal tax law definition of the term charitable is based on the English common law and charitable trust law precepts. The federal income tax regulations recognize this fact by stating that the term is used in its “generally accepted legal sense.”³ At the same time, court decisions continue to expand the concept of charity by introducing additional applications of the term.⁴ As one court observed, evolutions in the definition of the word charitable are “wrought by changes in moral and ethical precepts generally held, or by changes in relative values assigned to different and sometimes competing and even conflicting interests of society.”⁵

For the most part, the institutions and other organizations that are subject to these laws are those that have their federal tax status based on their classification as charitable organizations. These are the entities categorized as charitable, religious, educational, scientific, or literary, or certain organizations that are engaged in fostering national or international amateur sports competition.⁶ Each of these terms is defined in the federal tax law.

The term charitable in the federal income tax setting embraces a variety of purposes and activities. These include the relief of the poor and distressed or of the underprivileged,⁷ the advancement of religion,⁸ the advancement of education or science,⁹ the lessening of the burdens of government,¹⁰ community beautification and maintenance,¹¹ the promotion of health,¹² the promotion of social welfare,¹³ the promotion of environmental conservancy,¹⁴ the advancement of patriotism,¹⁵ the care of orphans,¹⁶ the maintenance of public confidence in the legal system,¹⁷ facilitating student and cultural exchanges,¹⁸