Charity Registration and Taxes

(INN Executive Director and CEO Sue Cross offers this advice.)

If you are actively seeking donations in any way in a state, you need to make sure you meet its charity registration requirements. Whether through Twitter, an online donation button, events, phone or mail outreach, if you are soliciting gifts, 41 of the 50 states require you to be registered.

For more information:

Guidestar on State Charity Registration

National Council of Nonprofits has a terrific section to walk you through this.

State by state links are available from the National Association of State Charity Officials and a Harbor Compliance state requirements grid

If you are fiscally sponsored, your registration probably is covered by your fiscal sponsor. Check where your sponsor is registered.

Many nonprofit news organizations depend upon receiving a federal tax exemption through fiscal sponsorship or directly from the Internal Revenue Service under Section 501(c)(3) of the Internal Revenue Code. Because the IRS does not recognize journalism itself as a purpose for tax exemption, a newsroom seeking 501(c)(3) status should seek help from an attorney familiar with IRS rules.

The IRS Form 990, which nonprofits must file annually if they raise over $25,000, asks two questions about your compliance with registration laws in states where you solicit. The 990 is signed by an officer under penalty of perjury. CPAs filing your state 990 often file your own state registration as well, for the state where you’re based. Check if that is part of their service.

If you are national and accept gifts from the public, INN strongly recommends registration in all states that require it. If you are specific to one state or location and don’t actively seek donors in other states, you should consult with your attorney specializing in nonprofit law. Even passive solicitation in some states can require registration. And if your aunt six states away hits your DONATE button, you should be registered in her state. Again, consult with your attorney specializing in nonprofit law.

Charity registration costs vary, but they can be a significant budget item.

For many nonprofits, it is most cost-effective to outsource this to a specialized service because each state has slightly different forms and deadlines for both registration and then annual reporting. Outsourcing firms charge several thousand dollars a year on top of the actual registration fees, but that outsourcing cost may well be cheaper than the salary you’d burn doing it yourself, and it is a major bureaucratic headache to track various state deadlines and forms. There are a number of online do-it-yourself services. However, for multistate registrations, you risk costly fees if you miss deadlines, so DIYers should make sure they have someone clearly assigned to track and handle this who has the bandwidth to stay on top of it year-round.

Some firms and links:

Labyrinth. Established firm. INN has used them and found them reliable, but it pays to cost-compare and shop.

Charity Compliance Solutions. Competitive, good client service. INN recommends CCS, and the INN Services web page explains how to get a group discount.

Affinity. This offers several levels of help. Have heard their service levels can help control costs, but INN has no direct experience with the company.

Harbor Compliance. Large firm with informative marketing materials.

For DIYers:

NOLO, the online legal resource, offers a $125 annual subscription product for DIYers. We haven’t seen any reviews of it.