The Law of Fundraising. Bruce R. Hopkins

3.22 Unified Registration

        § 3.23 Other Laws

        § 3.24 Prospect of Law Changes

Chapter 3 summarizes the states' charitable solicitation acts. The chapter explains how fundraising for charitable purposes in the United States is a heavily regulated activity. This regulation comes in many forms and is manifested at the federal, state, and local levels. Nearly all the states regulate charitable fundraising—although the extent and intensity of enforcement vary greatly—and do so principally by means of statutes termed charitable solicitation acts.

      These laws are often intricate. In addition to their complexity, there is a considerable absence of uniformity, although the states are making some progress toward uniform reporting. This combination of intricacy and nonconformity makes this a body of law with which it is difficult to comply, particularly in the case of a charitable organization that has a multistate fundraising program—a problem aggravated by a disparity in regulations, rules, and forms. There are, nonetheless, some relatively common features of these laws.

§ 3.1 SUMMARY

      About 47 states have a form of statutory regulation of charitable fundraising occurring within their jurisdiction. More than 30 states have adopted what may be termed comprehensive charitable solicitation acts. The remaining states (including the District of Columbia) have elected to regulate fundraising for charitable purposes by means of differing approaches.

      The various state charitable solicitation acts are, to substantially understate the situation, diverse. The content of these laws is so disparate that any implication that it is possible to neatly generalize about their assorted terms, requirements, limitations, exceptions, and prohibitions would be misleading. Of even greater variance are the requirements imposed by the many regulations, rules, and forms promulgated to accompany and amplify the state statutes. Nonetheless, some basic commonalities can be found in the comprehensive charitable solicitation acts.

      The fundamental features of many of these fundraising regulation laws are a series of definitions, registration or similar requirements for charitable organizations, annual reporting requirements for charitable organizations, exemption of certain charitable organizations from all or a portion of the statutory requirements, registration and reporting requirements for professional fundraisers, registration and reporting requirements for professional solicitors, requirements with respect to the conduct of charitable sales promotions, record-keeping and public information requirements, requirements regarding the contents of contracts involving fundraising charitable organizations, disclosure requirements, a range of prohibited acts, registered agent requirements, rules pertaining to reciprocal agreements, investigatory and injunctive authority vested in enforcement officials, civil and criminal penalties, and other sanctions.

§ 3.2 DEFINITIONS

      Many of the states' charitable solicitation acts contain a glossary of the important terms used in these laws.

(a) Charitable

The function of the states' solicitation statutes is to regulate the process of fundraising for charitable purposes. Thus, the definition of the word charitable is a major factor in establishing the parameters of these laws.¹ The meaning of charitable in this context is usually considerably broader than the meaning used in the federal tax setting.²

      In general, the law of charity emanates from the English common-law treatment of the term, derived largely from the law pertaining to trusts and property. The meaning of the term charitable under the law of the United States has been—and continues to be—developed largely through interpretations, by the courts and the IRS, of the meaning of the term for purposes of the federal tax exemption and the federal income, estate, and gift tax deductions. State law evolves in a similar fashion, although the term charitable is, as noted, more expansive when used for purposes of the states' charitable solicitation acts.

The word charitable, as employed in the state charitable solicitation act context, is broad and sufficiently encompassing to embrace all categories of organizations that are regarded as charitable entities for federal tax exemption and deduction purposes.³ Therefore, the range of the term encompasses churches, and conventions, associations, integrated auxiliaries, and similar organizations of churches; other religious organizations; schools, colleges, universities, libraries, and museums; other educational organizations; hospitals, hospital systems, clinics, homes for the aged, other health care providers and medical research organizations; other health care organizations; publicly supported organizations of all types; and certain organizations that are supportive of public charities.⁴

The states, however, in defining the term charitable for purposes of regulating charitable fundraising, often additionally sweep within the ambit of these laws some or all of the following purposes: philanthropic, benevolent, eleemosynary, public interest, social service, social advocacy, humane, voluntary, cultural, environmental, artistic, welfare, patriotic, and recreational. Thus, for example, some states' charitable solicitation acts reach fundraising by organizations that are classified as social welfare organizations for federal tax purposes.⁵

Some states' laws expressly incorporate within the reach of a charitable solicitation statute one or more purposes that otherwise would not be covered under the most expansive definition of charitable. Thus, a statute may include within its purview solicitations for police, law enforcement, legal defense, or labor purposes. This phenomenon may also be reflected in a statute's exemptions, such as a law exempting unions from the registration requirement imposed on charitable organizations.

Some solicitations by nonprofit organizations for contributions lie outside the range of a state's charitable solicitation act because the gifts are not to be used for charitable purposes. An illustration of this is solicitations of contributions by political organizations or for political campaign purposes.⁶ For the most part, these unreached solicitations are implicit in a reading of the statute on its face. Sometimes, however, a statute expressly recognizes this fact by means of an exclusion;⁷ about 10 of these laws are expressly not applicable to solicitations for political purposes.

Some fundraising is undertaken for the benefit of a named individual. It is common for this type of solicitation to be excluded from one or more aspects of regulation. Also, although state regulators disagree on the point, a respectable argument can be made that fundraising for the benefit of one individual is not fundraising for a charitable objective because of the private benefit inherent in the effort. (For federal income tax purposes, an organization benefiting only one individual cannot be a charitable entity.)⁸

No court opinion generally delineates the ultimate scope of these laws, from the standpoint of the boundaries of the term charitable.⁹ In general, the government officials interpreting these statutes accord the concept of charitable great latitude when determining their jurisdiction over fundraising regulation matters.

(b)