Online Fundraising – What Could Go Wrong?

These days, nonprofits of all sizes use the web to attract donors and to compete for scare funds. Certainly, the level online playing field has helped smaller organizations tremendously.

Whether your fundraising activities are as simple as having a “Donate Now” button on your website, or as conflagrant as the #IceBucketChallenge, there are certain rules and regulations to follow before you start.

In “legalese,” you must ensure your organization is sufficiently registered with the appropriate authorities in any state it solicits funds.

Currently, forty-four states and DC have charitable solicitation laws, and most of them have a registration requirement. In particular, understanding online fundraising requirements can be extremely daunting, especially for small organizations.

When your organization fundraises online, such as having a “Donate Now” button, or fundraising using email blasts, you could trigger the need to register in one or more states.

Why is this so important?

First, online fundraising in many states is considered to be “soliciting its citizens.” As a result, the state wants to know that legitimate, registered organizations are conducting these activities.

Second, the IRS asks for this information on your annual 990 filing. Improperly filing your 990 can result in revocation of your hard-earned tax-exempt status!

Lastly, prospective donors want to give money to compliant, reputable organizations. Many states allow donors to search for your organization, and to see whether you’ve properly registered.

What if I don’t?

Failure to register can lead to penalties for your organization, which vary greatly by state. So, while it seems easy enough to set up a website and watch the funds flow in, your organization cannot afford to be noncompliant.

What can I do?

You can start with these three options:

1) Read up on state requirements. Each state is different, so learn specific requirements, and how to file. Then, decide what your organization should do.

2) Register in every state. If you plan to fundraise online, be proactive and register in each state that requires it. This can be a costly, time-consuming process.

3) Accept donations from certain states only. For smaller organizations, it may make sense to register in a few states at a time, thereby saving money. However, your solicitation activities would have to be confined to those states.

The Bottom Line

Your nonprofit should be using the web to its fullest capabilities; that is, to market and to broadcast your mission. If not, then you are behind the times.

If you’re also fundraising online, you have access to otherwise unknown donors. However, you have a number of state charitable solicitation requirements to meet before you start asking for their contributions. Failure to do so can land your organization in hot water.

Research your state’s requirements, review your activities, and take the appropriate action to fill any gaps. Your organization, your donors, and your community will thank you!

Online Fundraising – What Could Go Wrong?