Everyone likes giving to a good cause. But how do you separate the “good” from the “not-so-good?”
Part of a donor’s decision to give comes from their positive intuition about your organization and its people. However, good vibes only get you so far!
One clear way to demonstrate your worth is to stay compliant. Compliance isn’t all that sexy, but it’ll help you secure donations and inspire confidence in your donors.
What is Compliance?
Nonprofits are highly regulated at the federal and state levels, and for good reason. Governments want to make sure the funds you raise actually go to the charitable mission you set out to do. At the same time, the state and IRS want to make sure the citizens you solicit funds from are protected from illegitimate or sketchy organizations.
Compliance is staying on the right side of state and IRS requirements by keeping good records and keeping current with required registrations.
Let’s take an example. Most donors are familiar with the term “501(c)(3).” If an organization has its 501(c)(3) status, generally, donors can make a gift and get a tax deduction at the end of the year.
Many nonprofit leaders think that being 501(c)(3) tax exempt is all there is to it. In reality, it’s not.
Forty-four states regulate charitable solicitation (a.k.a. fundraising) inside their borders. Forty-one of them require your nonprofit to file a separate registration before you even ask for a donation. Chances are, your charity operates and solicits in one or more of these states, and so you have to pay attention to applicable registration requirements.
Penalties for noncompliance, whether intentional or not, can be several thousand dollars in state fees, or you could lose your right to fundraise in a state altogether. If you solicit funds in a state, be sure you understand your state’s requirements.
Why is Compliance Important?
Besides avoiding state penalties, think of who really matters: your donors. Help them know that you’re one of the good guys.
Most states have a database where donors can search for your organization before they give. They can see if you have registered or not. If your charity is delinquent, your donors can see that too.
They may even ask you directly! Individual donors, corporations, and foundations (who give grant funding) very often ask for proof of registration with your state, along with your IRS Determination Letter. Without either, you’ll walk out of the room with your tail between your legs!
Compliant organizations make much of their program, financial, and leadership information public. As a donor, it is reassuring to know that the charity you wish to support plays by the rules, and as a charity, it’s good to show your supporters you have nothing to hide.
So, show some #donorlove – stay compliant. You’ll make their decision to give much easier.
Written by James Gilmer
James is a compliance specialist for Harbor Compliance, which establishes 501(c) nonprofits and helps them stay compliant. Harbor Compliance assists charities in every state and several countries abroad. James serves on the Board for two nonprofits in Lancaster, Pennsylvania.