The Law of Fundraising. Bruce R. Hopkins
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solicitor, paid solicitor, or professional fundraiser.
The confusion in the law in this area, regarding the appropriate line of demarcation between the terms professional fundraiser and professional solicitor, is seen in use of the prevailing definition of the term professional solicitor in defining the term professional fundraiser. One law defines a professional solicitor as a commercial fundraiser for charitable purposes, while another law terms what is generally known as a professional solicitor as a paid fundraiser. The law in a state dubs what is usually defined as a professional solicitor a professional fundraiser and separately defines the term professional solicitor.
(i) Fundraising
Given the uncertainties surrounding the foregoing definitions, it is not surprising that the term fundraising can be confusing. Nowhere is this confusion more evident than in the definition of the phrase fundraising activities employed by the IRS in its instructions accompanying the annual information return.34 Thus, the IRS's fundamental definition of fundraising is that it consists of “activities undertaken to induce potential donors to contribute money, securities, services, materials, facilities, other assets, or time.” The inclusion of time and services in this definition of fundraising is perplexing. For example, a request of someone to serve on a board of directors or otherwise as a volunteer (a gift of time and services) is hardly fundraising. A key component of the word fundraising is fund.
The IRS's position is that fundraising activities include “publicizing and conducting fundraising campaigns; maintaining donor mailing lists; conducting fundraising events; preparing and distributing fundraising manuals, instructions, and other materials; professional fundraising services; and conducting other activities involved with soliciting contributions from individuals, foundations, governments, and others.” However, the maintenance of a donor mailing list can be thought of as an administrative or other management function; the preparation and distribution of fundraising materials can be regarded as an educational undertaking. The references to foundations and governments invoke the solicitation of grants as the equivalent of solicitation of contributions. The catchall phrase about activities involved with the solicitation of contributions is rather sweeping.
The IRS's view is that fundraising does not include gaming; the conduct of a trade or business that is regularly carried on; and activities that are substantially related to the accomplishment of the organization's exempt purpose (other than by raising funds). The parenthetical phrase is not needed inasmuch as programs and fundraising are discrete and different activities.
(j) Commercial Coventurer
Commercial coventuring occurs when a for-profit, commercial business enterprise announces to the public that a portion (a specific amount or a specific percentage) of the purchase price of a product or service will, during a stated period, be paid to one or more named charitable organizations. This arrangement usually results in a charitable contribution by the business enterprise, the amount of which is determined by and depends on consumer response to the promotion. (There is no charitable deduction for participating consumers.) This venture produces gift revenue to the beneficiary charity or charities and positive community awareness for the business sponsor.
A traditional definition of the term commercial coventurer (the for-profit business enterprise) is any person who for profit is regularly and primarily engaged in trade or commerce, other than in connection with the raising of funds or any other thing of value for a charitable organization, and who advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.
It has become common to define a commercial coventure as a charitable sales promotion. This approach defines the promotion as an advertising or sales campaign, conducted by a commercial coventurer, which represents that the purchase or use of goods or services offered by the commercial coventurer shall benefit, in whole or in part, a charitable organization or charitable purpose. In this setting, the term commercial coventurer is defined as a person who for profit is regularly and primarily engaged in trade or commerce, other than in connection with soliciting for charitable organizations or purposes, and who conducts a charitable sales promotion. These definitions, or versions closely akin to them, are used in about a dozen states.
The term commercial coventure is, in several respects, unfortunate. The word coventure suggests that the charitable organization involved is engaged in some form of a joint venture with the participating business enterprise. Also, the term implies that the beneficiary charitable organization is embroiled in some undertaking that is commercial. Both connotations have potential adverse consequences in law, in the tax-exemption setting, and in the unrelated business income setting.
(k) Administrative Agency
The enumeration of definitions in a charitable solicitation act often includes reference to the state agency, department, or official with the responsibility for administration and enforcement of the statute. Predominantly, the administrative and enforcement authority is in the office of the state's attorney general. In many states, however, the authority is in the department of state.
Otherwise, there is little commonality regarding the location of the regulatory authority in this area. In several states, the emphasis is on consumer protection; thus, the authority is in a department of consumer protection, department of agriculture and consumer services, department of commerce and consumer affairs, a division of consumer protection within the department of commerce, and the like. In a few states, the orientation is regulation of business activity; in this case, the authority is in a department of economic development, a department of business regulation, a department of regulation and licensing, or the like.
In some states, the authority to enforce the charitable solicitation act is vested in the attorney general, with the administrative or regulatory authority lodged in another department or agency of the government.
§ 3.3 PREAPPROVAL
A fundamental requirement of nearly every state charitable solicitation act is that a charitable organization (as defined in that law and not exempted from the obligation)35 that intends to solicit—by any means—contributions from persons in that state must first apply for and acquire permission to undertake the solicitation. This permission, which must be secured by both domestic (in-state) and foreign (out-of-state) charitable organizations, is characterized as a registration in most states. In other states, it is cast as an application for a license, a filing of a statement, a filing for a certificate, a filing for a permit, or a filing of a solicitation notice.36 Some states with a form of statutory law on this point do not have any registration or similar requirement for charitable entities.
Typical wording of a provision of this nature is that every charitable organization that intends to solicit contributions within the jurisdiction, or have funds solicited on its behalf, must, prior to any solicitation, file a registration statement.
If the application for this permission is successful, the result is authorization to conduct the solicitation. Application for the registration, license, or other permit is most frequently made to the office of the attorney general or the secretary of state.
Generally, the law requires a principal officer of the charitable organization to certify the accuracy of and to execute the registration statement, license, application, or the like.
The statute usually enumerates the categories of information, about the charitable organization and the solicitation, that must be in the registration statement or other application. These categories of information most frequently are