Online Compendium of Federal and State Regulations for U.S. Nonprofit Organizations
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Online Compendium of Federal and State Regulations for U.S. Nonprofit Organizations Current Controversies: Out-of-State Solicitation and Regulation |
This text is a dynamic collection of news items, historical references, discourses, and commentaries on the subject of charitable solicitation regulation. It will be updated continually as new events unfold, and as the author's understanding of the best possible practices for NPO regulation evolves. Although the author is not presenting a neutral report (he argues for harmonization and minimization of current laws and regulations), he does wish to present an accurate statement with a reasonable degree of balance. Please feel free to send your comments, suggestions, and corrections.
The development of the Internet as a new means for nonprofit organizations to extend their activities outside their home states is rapidly leading us toward a regulatory disaster. Thousands of nonprofit organizations, even some of the smallest, are now using Web pages to promote their activities and fulfill their missions over the entire nation, and some are also using their online presence to solicit donations in support of their work. The apparent cost of a nationwide solicitation campaign has suddenly dropped to a few hundred dollars annually, and nonprofit organizations are taking advantage of this tremendous opportunity. The question arises whether, as a result of these activities, such organizations are now subject to the laws of every jurisdiction in the U.S. that regulates nonprofit organization (NPO) operations, and those regulating charitable solicitations in particular. At least some government regulators have taken the stance that they are. Unfortunately, the current complexity and cost of registering as a charitable soliciting organization, in every jurisdiction that demands it, puts full compliance beyond the means of many NPOs, and probably constitutes an unreasonable burden on most of them. The days when one could justify this burden, by claiming that only very large organizations typically operate nationally, are over.
This combination of a huge burden of regulations, and the new ease of national operations, is likely to lead to a degree of widespread noncompliance and undercompliance that threatens to overwhelm any legitimate regulatory activity. Hardly anyone denies that some regulation of NPO activity is desirable. However, in a remarkably short time, the existing statutes and regulatory structures as they have been applied to date have been rendered inadequate to deal with this new reality. Unless significant changes are made to this regulatory environment, the ultimate outcome may be a set of laws and regulations that are arbitrarily complied with and apparently arbitrarily enforced.
The seriousness of these issues is widely recognized. There is clear movement in both the private sector and among government regulators to devise and implement new mechanisms that can ameliorate the burden of current regulations and that can cope with the impending explosion of small nonprofit organizations functioning on a national level. Although much of the past and present activity has focused on postal mail as the main mechanism for interstate solicitations, noone can afford to ignore the impending prevalence of solicitations presented through the Internet.
This document provides a fairly complete presentation of the issues associated with regulating "foreign" charitable solicitors (i.e. those based outside the regulating jurisdiction), a summary of current developments in this area, and a set of potential outcomes. It presents arguments in support of minimizing and harmonizing state laws and regulations. This text is not a call for the abolition of regulation, but aims only to explore the available options for maintaining appropriate oversight while minimizing the burden faced both by nationally-operating nonprofit organizations and government regulators. The discussion sections refer to Internet-based solicitations somewhat more than postal mailings, since this new mechanism is not only likely to render postal mailings into a drop in the ocean of charitable solicitations very shortly, but has exacerbated the flaws and limits of the existing regulatory system.
The only reason for a nonprofit organization not to operate nationally is because its mission specifically restricts it to a limited geographical location, or because it doesn't have sufficient financial or personnel resources. However, the instant an organization places a Web page online (which requires minimal resources) it is operating nationally, since residents of every jurisdiction in the U.S. can access that page. Even the tiniest organization can afford a nationwide mass email campaign, since these are conducted without incurring postal fees or printing costs. When the Web page or email includes an appeal for donations, the organization is potentially subject to the most complex and burdensome segment of NPO regulations: those controlling charitable solicitations.
The question of which jurisdictions have the legal right to regulate charitable solicitations is contentious, and is currently being challenged in federal court. In U.S. law, unless a right is specifically and exclusively claimed by a superior jurisdiction, smaller jurisdictions within it may expand on the laws and regulations of their superior jurisdiction. At this time, no government jurisdiction has claimed that its encompassed jurisdictions do not have the right to regulate charitable solicitations. The result is that such laws are promulgated at the national, state, county, and municipal levels. At this time, approximately 40 states and a handful of cities and counties do so, each requiring the ongoing submission of paperwork and fees from NPOs. Some regulators have indicated that they consider solicitations conducted online to be subject to the regulations of any jurisdiction whose residents are presented with these solicitations, which is essentially every jurisdiction in the world when a publicly accessible Web page is used.
The regulations controlling NPOs that conduct charitable solicitation campaigns includes initial registration, annual reporting, requirements for what must be or must not be stated on the solicitation, reporting major campaigns in advance, reporting when a professional solicitor or fundraising consultant is engaged, and more. Professional solicitors are subject to additional requirements, including that they obtain large bonds. A detailed study of the regulatory components and costs associated with nationwide solicitation campaigns has been presented elsewhere. This study concluded that the annual cost for small organizations was as high as $25,000, and could run to $150,000 and more for large NPOs. This cost is only for the fees and efforts required to comply with government regulations, and are in addition to the direct costs of the solicitation campaign. The absolute minimum annual cost, observed for hiring a legal services provider only to perform the required annual registrations, is approximately $8,000 annually. In contrast, developing a Web page and posting it on the Internet costs small NPOs as little as $200 annually, and the only significant cost for email solicitation campaigns is the price of the address list. Clearly, the cost of complying with government regulations can be the major expense for NPOs conducing solicitation campaigns online.
Historically, only larger NPOs have been able to conduct solicitation campaigns that extend nationally. Charitable solicitation regulators have had the resources to examine only a small fraction of even these activities, instead relying on complaints from the general public to trigger investigations. The failure of NPOs to adhere to solicitation regulations is rarely the source of public complaints. Instead, fraud is the single most common problem encountered. Further offenses are then invoked by regulators when the illicit operator has, in addition to fraud, failed to adhere to the solicitation regulations, leading to increased fines and other penalties. There is no evidence that major solicitation fraud cases have been revealed or prevented because of charitable solicitation laws.
However, there is no doubt that fraudulent charitable solicitations are sometimes conducted, nor that government has an interest in preventing them and punishing offenders. Fraudulent solicitors are certainly uncovered intermittently, and the frequency with which such operators target the elderly is particularly offensive. However, many have argued that anti-fraud laws are already sufficient to control such activities, particularly since in practice regulators rarely initiate investigations except in response to public complaints. Regulators in turn argue that once a fraudulent solicitor has been reported it is too late to collect information on its activities, since such operations are too easy to pack up and move, and therefore it is more effective to demand registration broadly in advance. The burden on legitimate charitable operations has been considered by regulators (and the courts thus far) to be minimal compared to the benefits.
Unfortunately, that burden is only minimal with regard to solicitations by an organization within a single regulating jurisdiction. When such regulations are multiplied across the entire U.S., the burden becomes huge. While this regulatory environment might have been justifiable when only large organizations could afford to conduct such mass mail operations, and therefore could also be presumed to be able to afford to comply with regulations, this is no longer the case. The existence of tens of thousands of small NPOs that are eager to use the Internet to extend their activities nationally, including their charitable solicitations, has recently pushed regulators to consider how the current system might be altered to more fairly handle this new influx while still providing adequate oversight to protect the public. The fact that existing registration activities are duplicated across the 39 major jurisdictions that regulate charitable solicitations shows that there are obvious measures that regulators can take to streamline their operations while lessening the burden on NPOs. It is clearly a waste for NPOs to submit 39 near-identical registration packages with several dozen pages each, and have 39 offices each process and store these materials. Regulators are starting to explore innovative new mechanisms to address these inefficiencies.
While it is reasonable to expect changes within the next few years, in the interim there is likely to be a huge amount of noncompliance and undercompliance with solicitation regulations by small organizations that either can't afford to ascertain (much less comply with) the full set of jurisdictions' regulations, or that decide their own activities do not fit within the realm of those that regulators control, since they are conducted entirely online and between states. The form any new regulatory system might take is being discussed by regulators right now, and therefore NPOs must take action immediately if they are to have a say in the development of this system.
This section is not yet complete. The author has performed a preliminary study that examines whether NPOs that solicit nationwide typically register with state regulators, how many of these organizations there are, what enforcement of regulations is performed, and how fundraising using the Internet fits into all this.
One of the most common questions heard these days concerns whether the law as commonly understood requires that an NPO soliciting online (e.g. on a Web page) register in every state that demands registration from organizations soliciting within its jurisdiction. The short answer is yes. The laws of those state that requires registration can be read to mean that solicitations carried through the Internet and presented to people in a particular state are subject to regulation by that state. Even more critically, many regulatory agencies (commonly, but not universally, the state Attorney General's office) have indicated that they will interpret the state law that way, and will enforce the registration requirements upon those soliciting online, even if the organization is located outside their jurisdiction.
However, there have been no examples of state regulators demanding registration from an NPO located outside its jurisdiction based solely upon the existence of a request for donations on a Web page. This is not because the regulators generally believe that registration requirements don't apply to this activity. The primary reason why there has not yet been any enforcement is because Internet-based solicitations are so new that it's not necessarily clear yet what all the relevant issues may be. Because regulators tend to set precedents by their actions, and are held accountable for them in court, they are initially being cautious. This will not last.
Regardless of whether you believe it is fair, right or legal, it is only a matter of time before the states start enforcing registration requirements upon NPOs that solicit online. However, as described elsewhere in this document, the current court challenges to the rights claimed by states to regulate out-of-state solicitors, and ongoing consideration of shared registration mechanisms by regulators and others, may significantly affect the outcome of the inevitable uproar.
Some related issues are presented by this author and others as part of the NPO-FAQ:
There are two recently decided federal district court cases that directly addressed state regulation of foreign solicitors, one in Utah (ATA v. Giani) and one in Florida (ACFRFR v. Pinellas County). In each case, the court upheld the governing jurisdiction's regulations. The Utah case is currently under appeal and the Florida one is expected to be appealed. In addition, a new case has recently been entered into federal district court in Connecticut (ACFRFR v. Shiffrin). These three cases are described in moderate detail below under "Court Cases," and links to the complete court decisions are provided there.
To the author's knowledge, there is no federal or state legislation currently under development or debate that specifically addresses the issues of regulating out-of-jurisdiction NPO charitable solicitations or other operations.
The federal requirements for public access to tax-exempt organizations' application for tax-exempt status, annual informational returns, and most accompanying materials, was significantly expanded when the Taxpayer Bill of Rights 2 (TBOR2) became law in 1996. On October 21, 1998, the "Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999" (Public Law 105-277) expanded these public access requirements to private foundations. Federal law 26 USC 6104(d) now states that 501(c) and 501(d) tax-exempt organizations must not only provide public access to these materials at their offices, but also must provide copies upon request in person immediately or by mail within 30 days upon request. However, an exception was made for organizations that make these materials "widely available." The new requirements will go into effect on the 60th day after the Secretary of the Treasury issues the regulations that define "widely available," which are expected to be released in January 1999. However, Congress, in the legislative history of TBOR2, indicated that organizations would comply voluntarily with the public inspection provisions prior to the issuance of such regulations.
The proposed IRS regulations define "widely available" to include publication of the material on the Internet (further discussed in the IRS training document, "Disclosure of Information Returns and Exemption Applications"). Tax-exempt organizations that publish their Application for Exemption and annual tax returns online in a format acceptable to the IRS (which will include PDF-format at least), will be exempted from having to provide copies of those materials upon request.
The implications for state registration and reporting are significant. Submission of their annual federal tax return is one of the most important components of the state registration and reporting requirements for NPOs. If an NPO maintains copies of its tax returns online, then it is feasible for them to submit to state regulators only the Internet address of these forms, rather than paper copies. State regulators might retain that address only, or obtain an electronic copy of the online document for local storage by the state. This would reduce paper handling and storage requirements by approximately 15-30 pages per registrant. Another appealing scenario would be enabled if the IRS allowed HTML-format as an acceptable manner for presenting tax returns online. In this case, NPOs might complete an online form that would transmit their tax return data to the states, in lieu of submitting printed copies or posting electronic replicas of the paper forms online. As described below, the ongoing Electronic Filing Pilot Project is an exploration of just this type of plan. If NPOs further supplement their federal tax returns with the additional information required by states, all online, the processing and storage burden for state regulators might be just a fraction of their present load.
The regulatory burden faced by NPOs could be decreased under the circumstances described above insofar as they might not need to submit copies of their federal forms by postal mail to each regulating state. More importantly, if the paperwork handling required by regulators was significantly decreased, it might be expected that registration fees would also significantly decrease, since federal appeals courts have held (with exceptions) that such fees may only cover the costs reasonably incurred by the regulators. The cost reduction for regulators might be especially large if they shared information processing and storage resources.
On December 2-3, 1998, the Technology Task Force of the National Association of State Charities Officials (NASCO) held a meeting at which various topics related to NPO reporting and registration were discussed. Harriet Bograd (of the Nonprofit Coordinating Committee of New York, and administrator of the cyber-accountability mail list) attended this meeting and reported the following:
NASCO/MFP Unified Registration Form
NASCO and the Multi-State Filer Project (MFP) have completed a new version of the Unified Registration Form, which is now accepted in 32 states. Leith Alvaro and Bob Tigner of the MFP project are now working with NASCO on developing a Unified Reporting Form for annual reporting by charities. The new registration package should already be available at a variety of distribution sites, and should soon be on the Web. [12/29/98, ed. It is available online now.]
Electronic Filing Pilot Project
State charities offices in New Hampshire, New Mexico, and Oregon (and possibly others) are collaborating with Cliff Landesman and the Multi-State Filer Project in a pilot project for electronic filing of Form 990 to the states. Cliff already has a working demonstration of this project on the Web at the Form 990 Web Site <www.form990.org> - groups can already use this site to prepare a Form 990 and print it out, and New Hampshire has already succeeded in downloading some Form 990's from this site on a trial basis.
By next fall's NASCO meeting, they hope to have the site working to transmit Form 990's to one or more state offices. Cliff Landesman is also exploring the possibility of linking his site to popular Form 990 preparation software packages, so that tax professionals and others who use these packages can transmit Form 990 automatically to www.form990.org.
Promoting Electronic Filing of Form 990 with the IRS
PRI/Guidestar has set up a Washington office, staffed by attorneys Linda Sundro and Elise Lin, to promote electronic filing of Form 990. PRI is developing a proposal to serve as an intermediary between users of tax preparation software and the IRS. The PRI project would encourage software companies to include electronic filing procedures in their Form 990 packages. It would also assist the IRS in preparing to receive the electronically filed returns.
Advantages: electronic filing would greatly reduce the costs and increase the speed and accuracy of 990 data on the Web. The data would be much easier to use for searches, sorts, and analysis.
Disadvantage: It is unclear how soon the IRS will be ready to accept electronic filing of Form 990 (IRS has set a target of having 80% of all tax forms filed electronically by 2007). Also, we don't know what percentage of nonprofits will participate if electronic filing is not mandatory.
Satisfy Other State Filing Requirements on the Web
At the meeting, Bob Tigner reminded the group that charities that report to many states would still have a heavy filing burden even if they could electronically file Form 990 in one place for the IRS and for all the states. In addition to Form 990, charities must mail checks, signature pages, copies of audits, bylaws, contracts with professional fund-raisers, reports on individual fund-raising campaigns, etc.
At least some of the state charities officials at the meeting were open to thinking about the possibility of developing a parallel "widely available" exception for at least some of these other forms. For example, if a group posts its audited financial statement on its own Web site or on the Guidestar Directory, some state officials would like to be able to waive the requirement that the group mail the audited financial statement to each state. There was also interest in learning more about the use of electronic signatures and electronic bill payment to make the reporting system truly paperless. The IRS is already conducting pilot projects, called "e-file," for paperless filing for Form 1040.
Images of Form 990 Coming to the Web in 1999
The IRS has been scanning the 1997 Form 990's of 501(c)(3) organizations, and sending them on CD-ROM's to the National Center for Charitable Statistics (NCCS) and Philanthropic Research Institute (PRI/Guidestar). (The IRS first removes any lists of donors, since these are not open to public inspection). PRI/Guidestar plans to post these images on the Web on a new "Form 990 Reporting Site" before the end of 1999, hopefully sooner. These will be printable "PDF" files, which can be read and printed with a free program called "Acrobat Reader" which is included in many Web browsers. When the system is working smoothly, they hope to get each Form 990 on the Web about 100 days after the IRS first receives it. NCCS and PRI/Guidestar have a five-year contract to continue receiving and posting the Form 990's.
Because these will be scanned images rather than digitized data, it will only be possible to do limited searches or analyses of the information in these returns. But it will allow anyone in the world to print out a copy of any return and study it. This site is intended eventually to satisfy the "widely available" provision of the new IRS disclosure regulations.
Buzz Schmidt of PRI/Guidestar and Linda Lampkin of NCCS emphasized that their Form 990 Reporting Site will offer the Form 990 in context. If a group has submitted information to the Guidestar Directory on its mission, accomplishments, newsletter, audit, etc., these will be offered to the reader on the same menu as the Form 990.
Digitizing Form 990 Data
PRI/Guidestar is also committed to "digitizing" the data from Form 990's from 1997 onward. They have a subcontractor which gets the CD-ROM's and keypunches all the data. Some of the digitized data will then appear on the Guidestar Web site, and NCCS will make all of the data available in database form to the IRS, researchers, state charities offices, and state nonprofit associations. It is hoped that the digitized data will be available 120 days after the Form 990 is submitted to the IRS.
This is another great step forward. Drawbacks: This will be a very expensive project, and when data is keypunched there is a risk that new errors will be introduced.
Using Computers and the Web in State Charities Offices
Several state charities offices have made progress in updating their computer systems and improving the use of databases. Several states type data from Form 990's and post it on the Web or publish it in books. Others use databases and automated mailings to manage registration and reporting. A few states use computers to help identify situations that require further investigation. Many state charities offices use Web sites to distribute forms, rules, educational materials, and/or press releases about their work.
Next fall's NASCO meeting will include a two-hour session on uses of technology. The NASCO technology Task Force hopes to be able to offer a hands-on demonstration of how a state charities office can use electronic filing. They also hope to be able to make recommendations about the minimum hardware and software requirements needed to make good use of technology in a small state charities office.
Turnkey Database Systems for Nonprofit Associations and State Charities Offices
NCCS is developing a "turnkey" database system based in Microsoft Access which allows state nonprofit associations to track membership, events, and to analyze information about the nonprofit sector in its state. Each state association would receive the program pre-loaded with all available IRS data about nonprofits in that state. In the future it might also include the Form 990 data digitized by PRI/Guidestar.
At the Task Force meeting, the NCCS representatives (Linda Lampkin, Tom Pollak, and Marie Gantz) offered to adapt this software package for use by state charities offices.
Form 990 in 2000
Bill Levis and Russy Sumariwalla are working with the National Center for Charitable Statistics and Baruch College on a project to improve the completeness and accuracy of Form 990s. They are working on collaborative efforts with accountants, fund-raising professionals, state nonprofit associations, and others.
There are myriad possible outcomes if state legislators and regulators decide to make changes in the current regulatory system that controls nonprofit organization activities. In this section, some possible changes and potential outcomes are presented.
The section starts with the set of consequentially arranged conditions that the author believes is very likely to result in fair and adequate regulation that is at least as effective as the current system, and (unlike the current system) will be able to handle fairly the burden of tens of thousands of small NPOs operating nationally through the Internet. Some other possible outcomes are subsequently examined. The "attractive outcome" scenario given below is certainly not the only one that will result in more harmonized and less burdensome regulations while maintaining adequate oversight, and it is heavily weighted with the author's (hopefully not unreasonable) opinions. Many aspects of the described scenario are already in evidence or under consideration by state regulators. The analyses in this section are intended to illustrate that there are viable alternatives to the current system, and to suggest some likely components of such alternatives.
The most risky outcome for both regulators and NPOs is the status quo, since the current regulatory system was not designed to cope with the challenges raised by Internet solicitations. If state regulators insist on requiring registration for charitable solicitors regardless of their size or the solicitation mechanism used, widespread under-compliance and non-compliance is almost inevitable. Furthermore, if federal courts decide that the present regulatory system constitutes an unreasonable burden upon NPOs and obstacle to free speech, which is very possible given that there are clearly far less burdensome alternatives, the states may be ordered to cease all enforcement. It is obviously in the best interests of regulators, NPOs, and the public to significantly improve the current regulatory system, and soon.
Incidentally, although it's reasonable to argue that Web page solicitations are distinct from traditional postal mailings because they are passive (the viewer must actively seek out the page), the use of email for solicitations follows the postal mail analogy more closely. It is typical for people to refer to using the "Internet" for charitable solicitations without distinguishing usages that are passive vs. active. It may be that future court cases will establish that registration as a charitable solicitor is only required for organizations that use active mechanisms. The negative impact of such a decision on nonprofit organizations would probably not be great, since most recipients dislike unsolicited email even more than unsolicited postal mail, and therefore blind emailings are not likely to ever be a popular fundraising mechanism. Instead, NPOs are much more likely to use email to send messages (including appeals) to people who are members of the organization, or who have indicated they wish to receive news and other mailings from the organization. Some state's laws specifically exempt such mailings from regulation as charitable solicitations.
In the absence of a uniform solicitation law, NPOs may be faced with a regulatory environment that is intrinsically burdensome beyond constitutional limits. While the "attractive scenario" discussed above emphasized the likely costs decrease for regulators and NPOs should a common regulatory system be developed, free speech of NPOs is just as threatened by the burden of insuring that all NPO operations meet the laws of every government agency that claims jurisdiction over them. Indeed, one possible outcome of the current court cases challenging out-of-jurisdiction NPO regulations is their outright abolishment.
In the absence of a uniform law, it may be possible for NPOs to comply with regulations through the development of a "superset" body of regulations. As long as the existing regulations do not conflict, then it might be possible to describe a combined superset that meets the requirements of every state. This is similar to how the Unified Registration Statement was created. The primary disadvantage to this outcome is that it would not decrease the regulatory burden faced by NPOs, and would essentially establish a "worst of all worlds" scenario, where the most unreasonable and excessive of every jurisdiction's laws and regulations are combined. A much more productive approach is to trim the amount of regulation to the minimum reasonable common ground. If any state wished to implement regulations exceeding that minimum, these might only apply to organizations based within that state.
One of the most expensive aspects of nationwide solicitation is paying staff or outside contractors to complete forms and provide reports to every jurisdiction that regulations charitable solicitations. There can be no doubt that requiring NPOs to report to only one authority would significantly ease that burden, but it would also relieve the burden on government regulatory agencies that are currently duplicating each other's efforts. This duplication could be ended if either a cooperative registration office was established, or if states agreed to share their registration information routinely and require charitable solicitors to register only in their home state.
The scenario in which each state is responsible for the registration of charitable solicitors only within its jurisdiction is attractive because it appeals to those who resist any change that suggests an attack on state sovereignty. Each state would continue to maintain a registration and record keeping operation, which would be focused on organizations located within their jurisdiction. However, there are three flaws to this method and argument. The first is that duplicating a filing staff and archive is more expensive than establishing a shared resource. Second, the shared resource would belong to and be controlled by the states. It would not be federally operated. The third flaw is that not all states currently regulate charitable solicitations at all, and therefore in the absence of any changes, there would be no authority maintaining registration and records in those states for local organizations. If a shared facility were established, the cost per state might be sufficiently low that even states that don't currently regulate would participate.
If jurisdictions smaller than states are entitled to regulate charitable solicitations, the potential outcome is disastrous. The result could easily be the inability of any charity or other nonprofit organization to conduct nationwide solicitation campaigns. The only reason this hasn't happened already is that few jurisdictions smaller than states have chosen to involve themselves with such regulation.
Given this serious threat to free speech, it might surprise some to learn that many state regulatory agencies have explicitly supported the regulatory activities of smaller jurisdictions. This is most clearly evidenced by the number of attorneys general who support Pinellas County, Florida, in the current court case challenging its regulations. The reason for this support is that if any U.S. jurisdiction, regardless of size, is restricted from regulating outside solicitors, the same arguments might be successfully applied to the states themselves, resulting in their complete inability to regulate out-of-state solicitors.
This outcome is unlikely on two grounds. First, one of the key bases upon which regulations by jurisdictions smaller than states could be ruled unconstitutional as that if every such jurisdiction regulated, the sum would constitute an unreasonable burden on free speech. It is not at all clear that the same would be considered true if only states were allowed to regulate. Second, even if states were restricted completely from regulating solicitations by out-of-state organization, they could establish a regulatory system that would be perfectly adequate. The solution would be a Uniform Solicitations Act that the states could jointly develop (as they did in 1986), which all the states would legislate, and which would apply to charitable solicitors based within their jurisdictions for all those organization's activities, both in-state and out. The practical result of this cooperation would be that states get back the ability to regulate out-of-state solicitors. If lack of cooperation leads to lack of oversight, then it is unlikely that the courts will have much sympathy for those responsible.
Although the arguments presented above suggest that regulation by states of domestic NPOs would be permissible, this is not necessarily so. The Supreme Court established in three major rulings in the 1980's that regulators could not restrict charitable solicitations by imposing rules about how much of the funds raised could be used to pay for the solicitation effort itself, nor could they require the solicitor declare those amounts to potential donors. Given that they typically included protected political speech, it deemed charitable solicitations to be worthy of the highest first amendment protection. Later Supreme Court cases established that the location and manner of solicitation activities could be controlled, but only to prevent disruption of other activities sharing the same space or forum. It is not at all clear that regulators have the right to regulate fully protected free speech activities (which the Supreme Court has declared this to be), when those activities are conducted entirely by mail, in which no such disruption can occur. When the currently active court cases finally reach the Supreme Court, it may decide that any prior restraint of charitable solicitation activity is unconstitutional. It is likely such a decision, while having a dramatic effect on the nonprofit sector, would not be terribly traumatic to regulators, as many people believe existing fraud laws are sufficient to identify and successfully prosecute charitable solicitors that act in ways contrary to the public good.
In Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620 (1980), the Supreme Court referred to Schneider v. New Jersey, 308 U.S. 147 (1939), which said:
Frauds may be denounced as offenses and punished by law. Trespasses may similarly be forbidden. If it is said that these means are less efficient and convenient than ... [deciding in advance] what information may be disseminated from house to house, and who may impart that information, the answer is that considerations of this sort do not empower a municipality to abridge freedom of speech and press.
The use of the Internet for nonprofit activities has further clarified the problems with the existence of any prior state registration requirements. The Supreme Court would certainly consider that registration fees and paperwork efforts cost more than many small nonprofit organizations can afford, as it stated in Jones v. City of Opilika, 319 U.S. 105, "Freedom of speech, freedom of the press, freedom of religion are available to all, not merely to those who can pay their own way."
Here are some of the ways you can help promote the harmonization and minimization of the regulatory burden faced by NPOs, while still ensuring adequate and reasonable regulation to support the public interest.
This list is probably not exhaustive. If you are aware of other organizations or projects working specifically to harmonize and minimize the regulatory burden on NPOs, please inform the author so they can be added here.
The National Association of State Charities Officials (NASCO) is an association of representatives from the state government agencies that develop and enforce regulations to control nonprofit organization operations, such as charitable solicitations. It is closely associated with the National Association of Attorneys General (NAAG). NASCO is involved with the Multi-State Filer Project and the Electronic Filing Pilot Project.
NASCO has formed a Technology Task Force, chaired by Dan Moore. A report by Harriet Bograd from a Dec. 2-3, 1998 meeting of this group is given above under "Other Activities and Projects."
The mission of the National Association of Attorneys General (NAAG) is to facilitate interaction among Attorneys General as peers, and to facilitate the enhanced performance of Attorneys General and their staffs. NAAG fosters an environment of cooperative leadership, helping Attorneys General respond effectively individually and collectively to emerging state and federal issues. The Association's 56 members are the Attorneys General of the 50 states and the chief legal officers of the District of Columbia (Corporation Counsel), the Commonwealths of Puerto Rico (Secretary of Justice) and the Northern Mariana Islands, and the territories of American Samoa, Guam, and the Virgin Islands. The U.S. Attorney General is an honorary member.
NAAG participates in efforts to harmonize and minimize state regulation of NPO activities primarily by supporting NASCO projects.
The Multi-State Filer Project <mfpdc@aol.com> is a project developed in association with NASCO, which aims to ameliorate the burden of nonprofit organization registration and reporting to states by developing unified forms that are accepted by state agencies in lieu of their own state-specific one. To this end, it has developed and released the Unified Registration Form (version 2.00), which is accepted by 32 of the 39 major jurisdictions that currently require registration of charitable soliciting organizations. The MFP is also developing a unified annual reporting form, which may be used to submit the (primarily financial) information that is commonly required after the initial registration.
The Electronic Filing Pilot Project promotes the use of online submission and retrieval of Form 990 information using the Web as an alternative to paper filing. The Form 990 Web Site has been created as a demonstration of how this might work, and currently allows the submission and retrieval of Form 990 data, as well as HTML-format templates that nonprofit organizations may use to present their Form 990 information online at their own Web site. For more information, contact Cliff Landesman <cland@netbox.com> or visit the Form 990 Web Site.
American Charities for Reasonable Fundraising Regulation (ACFRFR) was specifically established to challenge in court the most excessive, costly, and otherwise unreasonable laws and regulations that government authorities have imposed on charitable solicitors.
This organization (together with the National Federation of Nonprofits) challenged in federal district court the Pinellas County, Florida, law requiring organizations based outside the county to register there before conducting charitable solicitations presented to the county's residents. Although ACFRFR lost this case, it is being appealed.
ACFRFR is also developing a challenge to charitable solicitation laws in Connecticut.
Some news reports:
The National Federation of Nonprofits is an advocate coalition for nonprofit groups that focuses on postal, regulatory, legislative and accountability issues. Although it has primarily been active in the area of postal regulations, it also works to promote NPO perspectives with regard to charitable solicitation regulations in general, accounting rules, and accountability standards.
This organization is working with American Charities for Reasonable Fundraising Regulation to challenge in federal district court the Pinellas County, Florida, law requiring out-of-jurisdiction organizations to register there before conducting charitable solicitations presented to residents of that jurisdiction.
National Federation of Nonprofits
815 15th St., NW, Suite 822
Washington, DC 20005-2201
202-628-4380, fax 202-628-4383
The National Center for Charitable Statistics (NCCS) is a national repository of data on the nonprofit sector in the United States. Its mission is to develop and disseminate high quality data on nonprofit organizations and their activities. NCCS is a program of the Urban Institute's Center on Nonprofits and Philanthropy. Access to NCCS databases is free only to selected individuals and organizations.
NCCS is working to improve the quality and breadth of existing databases, by:
Philanthropic Research, Inc.'s operating programs involve gathering and disseminating information. PRI has a large scale data acquisition program both with the IRS and individual charities. The centerpiece of PRI's presence in the philanthropic marketplace is its GuideStar Web site, which offers a free searchable database of reports on the finances and programs of more than 600,000 nonprofit organizations, current news on philanthropy, features and informational articles, a forum, and links to other sites concerned with philanthropy.
The National Conference of Commissioners on Uniform State Laws works to draft uniform and model laws and promotes their enactment by state legislatures. The organization is comprised of more than 300 lawyers, judges, and law professors, appointed by the states as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Since its inception in 1892, the group has promulgated more than 200 acts, among them such bulwarks of state statutory law as the Uniform Commercial Code, the Uniform Probate Code, and the Uniform Partnership Act. The Uniform Unincorporated Nonprofit Association Act was completed and recommended for enactment by all states in 1996. The current drafts of uniform and model acts developed by this organization are available online.
In addition to its many other roles, the American Bar Association (ABA) develops and helps other organizations develop Model Acts for adoption by states. Its Committee on Corporate Laws, under its Section of Business Law, developed the Model Nonprofit Corporation Act. The ABA's publication, "Model Business Corporation Act Annotated," includes the Model Nonprofit Corporation Act. The Model Nonprofit Corporation Act is currently under the purview of the Nonprofit Corporations Committee.
The ABA's Cyberspace Law Committee also examines legal actions that are related to the development of the Internet as a mechanism for charitable solicitation.
The Free Speech Coalition is an umbrella organizations whose members are mostly 501(c)(4) grass roots lobbying organizations. The Free Speech Coalition organization primarily works to challenge laws, regulations, and agencies that restrict nonprofit organization lobbying activities more than the limits set by federal law or the intent of Congress.
This organization is NOT the same Free Speech Coalition as the one that is a lobbying organization for pornographers, and which failed in its 1997 challenge of the Child Pornography Prevention Act of 1996 in the U.S. District Court of California, Northern District (although a Web search for the name will find mostly that one's pages). There are also many other organizations with the phrase "Free Speech Coalition" in their names. Unfortunately, lots of organization use this same euphemism to justify their actual agenda.
Related pages:
This section is not yet written.
Court cases were selected for inclusion in this section on the basis of their likely relevance to the regulation of interstate charitable solicitations, as conducted either by postal mail, telephone, or through the Internet.
News reports:
American Target Advertising filed this lawsuit, claiming that the Utah Charitable Solicitations Act is unconstitutional under the First Amendment (which states the Act must serve a substantial governmental interest, and be narrowly drawn to serve the interest without unnecessarily interfering with First Amendment freedoms), the Commerce Clause (which states that the burden imposed upon interstate commerce by the Act must not be excessive in relation to the putative local benefits, or have the practical effect of controlling professional fund-raisers in other states), and the Due Process Clause of the Fourteenth Amendment (because it constitutes an impermissible extra-territorial exercise of the State's police powers).
The court concluded that the regulation, (1) serves a substantial government interest, (2) is narrowly drawn, to serve the interest without unnecessarily interfering with First Amendment freedoms, (3) does not have the practical effect of controlling professional fund-raisers in other states, and (4) is reasonably necessary to prevent and remedy the effects of fraud, and that any resulting burdens on interstate commerce are minimal by comparison.
The court in its written opinion did not address the issues of whether these conclusions were all true when multiplied across all the regulating states as in the typical case of a nationwide solicitation campaign, or whether the registration requirements have been shown to affect the incidence, discovery, or investigation of charitable solicitation fraud. The case under appeal.
Many of the court documents associated with this case have been published online at this site.
American Charities for Reasonable Fundraising Regulation was established specifically to challenge excessive fundraising laws and regulations. This was their first case to go to trial.
The district court's ruling was in favor of the county and its laws and regulations on every constitutional violation alleged, as follows.
Commerce Clause. Whether states and smaller jurisdictions are permitted to regulate interstate commerce.
Is there direct regulation of interstate commerce?
Is there indirect regulation of interstate commerce?
Is there insufficient nexus with interstate commerce?
Are the regulations unduly burdensome on the free flow of commerce?
Is there an improper requirement for prior approval before engaging in interstate commerce?
Due Process. Whether the government is essentially punishing solicitors for an offense that hasn't been established to exist.
First Amendment. Whether the states infringed on the right to free speech, which charitable solicitation has been determined to be by the Supreme Court.
Is there not a substantial government interest?
Is the law not narrowly tailored? Is it overbroad?
Should the law be void for vagueness?
Is the law unconstitutionally burdensome upon free speech rights?
Does the law constitute prior restraint of speech?
Are there insufficient time limits for government decisionmaking?
Does the government have unbridled discretion?
The complete set of court documents for this case is available at this site online. The case is expected to be appealed.
News reports:
The court has not yet ruled in this case.
Free Speech Coalition: Selected Constitutional Issues and Supporting Cases
| © 1999 Eric Mercer <nporeg@muridae.com> |
Page last updated 15Mar99 |
| Online Compendium of Federal and State Regulations for U.S. Nonprofit Organizations |
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