New Foreign Qualification Requirement

Colorado now requires all charitable organizations registered or preparing to register to solicit charitable contributions in Colorado that are incorporated in a state other than Colorado to obtain a Statement of Foreign Entity Authority (foreign qualification to transact business or conduct activities in the state). This foreign qualification must be in place before the organization’s charitable solicitation registration or renewal will be approved. While this requirement has been statutorily required for many years (see CO Rev. Stat. § 7-90-801(5)), Colorado is only now beginning to actively enforce it.

If the organization is legally formed in a jurisdiction other than Colorado and is currently registered—or plans to register—to solicit charitable contributions in the state, it must complete the foreign qualification process first. 

New Registered Agent Requirement 

As a prerequisite for obtaining a foreign qualification, Colorado requires the appointment of a registered agent with a physical address in Colorado.  The registered agent may be an individual Colorado resident or a commercial registered agent service.

Certificate of Good Standing 

Although Colorado’s foreign qualification filing process does not require submission of a Certificate of Good Standing (also called a Certificate of Existence), all organizations must be in good standing in their home state to obtain a foreign qualification in Colorado. Good standing means (1) the organization has met its state filing obligations (such as filing of annual reports) in its state of incorporation and (2) the organization’s state of incorporation has not suspended, dissolved, or revoked the organization’s legal status. Accordingly, the organization should take steps to confirm that its home-state status is current and in good standing.

Ongoing Foreign Qualification Compliance: Colorado Periodic Report (annual report)

Once an organization is qualified to transact business in Colorado as a foreign entity, it must file ongoing Periodic Reports with the Secretary of State. This Periodic Report must be filed annually, in addition to the charitable registration renewal. 

State Filing Fees (current published amounts)

Colorado assesses the following filing fees for these required filings:

• Statement of Foreign Entity Authority (foreign qualification – one-time filing fee): $100 
• Periodic Report (annual filing fee): $25 

In practical terms, organizations should treat Colorado charitable solicitation compliance as a two-part filing process: obtain (and maintain) foreign qualification first (including maintaining a registered agent in the state), then proceed with charitable solicitation registration or renewal. Organizations registered to solicit in Colorado should review their current compliance status in the state and be prepared to meet any additional foreign qualification requirements to remain compliant.

The post Colorado Begins Enforcing Foreign Qualification Requirement for Nonprofits Soliciting in the State appeared first on Perlman & Perlman.

Note 
This blog post has been updated from its original publication due to a bill (HB 177) enacted on May 27, 2025, which extends the effective date of Delaware’s new DBA registration system.

Delaware recently enacted legislation revising the process for registering trade names within the state. Beginning February 2, 2026, registration of trade names (i.e., DBAs or “doing business as” names) must be registered statewide with the Division of Revenue. This new process replaces the current framework in which registration and payment of fees are required on a per-county basis.

Any organizations or businesses that have previously filed DBAs in Delaware must re-register their trade names through Delaware’s new online-only registration system. We anticipate that Delaware will announce a re-registration period before the new registration process goes into effect.

DBAs are names that a business or organization uses to identify itself. Note that a trade name or DBA is different from a trademark, which is used to identify a good or service the organization offers. However, a name used as a DBA could also function as the organization’s trademark.

Key Updates

• DBA filings in Delaware will now be handled by the Division of Revenue at the state level.
• Delaware will begin administering its new statewide DBA registry on February 2, 2026.
• Any corporation incorporated in Delaware that wants to register a Delaware DBA or has previously registered a DBA in Delaware but does not actually conduct business in Delaware must obtain a special Trade Name Only business license from the Division of Revenue.
  

  
  The Trade Name Only license fee is $25 and must be renewed annually by December 31 (or can be renewed for three years for 3x the license fee). Note that a certificate of good standing is also required to obtain the Trade Name Only license.

• Trade names in Delaware do not require renewal as long as they are utilized by a business or organization possessing an active business license or trade name only license. If the requisite license is not maintained for three or more years, the trade name will revert to the available pool, and the business or organization will be notified.
• For additional information, Delaware has published a Trade Names FAQ.
• Beginning on February 2, 2025, you can visit https://onestop.delaware.gov/ to re-register your DBAs.

The post Delaware DBAs Must be Re-Registered Under a New State-Level Registration System appeared first on Perlman & Perlman.

What is the solicitation of funds for charitable purposes?

Charitable fundraising is the act of asking for a gift, which may be in the form of cash or non-cash items, to benefit a charitable organization or charitable purpose. Although there is no standard definition of charitable purpose among the states that regulate charitable fundraising activities, it typically encompasses benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare, advocacy, public health, environmental conservation, civic, or other charitable objectives.

It’s important to understand that the act of soliciting (i.e., asking for a gift) triggers the applicable regulations. Solicitations can occur in any form where a request is made for a gift to support a charitable organization or purpose. Examples include, but are not limited to telephone, face-to-face interaction, websites, online platforms, emails, direct mail, tickets for fundraising events, purchase of goods to benefit a charitable organization, raffles, bingo, sweepstakes, auctions, television or radio ads, and social media.

Who is subject to the charitable solicitation rules?

The “persons” (which can include an individual, organization, trust, foundation, group, association, entity, partnership, corporation, society, or any combination thereof) soliciting charitable contributions can generally be classified into four types: charitable organizations, professional fundraisers, professional fundraising counsels, and commercial co-venturers.

Charitable Organizations
A charitable organization is one that is established for a charitable purpose. Whether an organization has tax-exempt status or may receive tax-deductible contributions is a completely separate question from whether it is considered to be a charitable organization under state law. So, although “charitable organizations” certainly include 501(c)(3) tax-exempt organizations recognized as charitable by the IRS, it may also include other Section 501(c) organizations, other nonprofit organizations defined by state law, or, in some states, even for-profit entities. In essence, the important consideration is whether an organization engages in the solicitation of contributions to support a charitable purpose.

In some states, depending on the amount of total contributions or the nature of their activities, charities such as religious or educational institutions, hospitals, and membership organizations may be exempt from registration. Additionally, organizations that solely solicit via the Internet (and do not engage in any targeted activity directed to any state) may not be required to register in any state—other than in the state in which they are domiciled.

There are forty-one states plus the District of Columbia that mandate charitable organizations to register if they want to request donations from residents. The registration involves submitting a state registration form, providing a copy of the organization’s IRS Form 990 (if applicable), financial statements (which may need to be audited, depending on the organization’s annual revenue), copies of contracts with fundraisers and commercial co-venturers, and a filing fee. Additional documentation that might be required during the initial registration process includes a copy of the organization’s charter, bylaws, and IRS determination letter (if the organization qualifies for tax-exempt status).

Professional Fundraisers
A professional fundraiser (PFR), also known as a professional solicitor, paid solicitor, or commercial fundraiser, is a hired individual or firm that solicits contributions on behalf of a charitable organization in exchange for compensation. They may also have custody and control over the contributions received and play a role in managing fundraising campaigns. Professional fundraisers can include telemarketers, door-to-door solicitors, and others who solicit donations in person.

In forty-three states, PFRs are required to register, post a surety bond, file contracts with their nonprofit clients, and submit campaign financial reports. Additionally, many states require professional fundraisers to disclose their status as a paid solicitor before requesting a contribution.

Professional Fundraising Counsels
A professional fundraising counsel (FRC) is a paid entity that provides planning, consultation, advice, and design of solicitation materials on behalf of a charitable organization. They do not directly make solicitations. Generally, if an FRC is compensated based on a percentage of the funds raised or has control of contributions, it will be considered a PFR. Examples of FRCs include strategic consultants, direct mail consultants, and fundraising event planners.

Currently, thirty states require FRCs to register and file contracts. Some states also require them to post bonds and file campaign financial reports.

Commercial Co-venturers
A commercial co-venturer (CCV) is a for-profit entity that doesn’t typically raise funds but instead promotes that the purchase or use of its goods or services will support a charitable organization or charitable purpose. A typical example of a CCV is a retail store that pledges to donate a percentage of the purchase price or a specific amount per unit sold to a charitable organization.

Currently, up to seven states require some combination of registration, contract filing, posting of a bond, and/or filing of a campaign financial report. Additionally, around twenty other states regulate this activity by mandating specific contract terms or point-of-sale disclosures but do not require registration or contract filing by the CCV. Some states also require the charitable organization benefiting from the CCV promotion to file and/or report the CCV contract.

What about Internet solicitations?

Most state statutes require registration for internet solicitations that reach residents of the state. However, for a state to impose its regulations on an entity’s online solicitation activities, the entity must have “minimum contacts” with that state. States recognize that enforcing registration requirements for every internet solicitation is nearly impossible. In 2001, the National Association of State Charity Officials (NASCO) issued guidelines called the Charleston Principles. These principles are not binding laws, but NASCO encourages state charity regulators to use them as practical guidelines for applying their state laws to online fundraising activities.

The principles apply to any of the regulated entities that solicit contributions via the Internet (i.e., charities, PFRs, FRCs, and CCVs) and summarize the application of state registration and reporting regimes as follows:

Entities domiciled in a state are those whose main place of business is in the state. According to the Principles, having a physical presence in the state, like a branch or regional office, can also indicate state jurisdiction. 

Out-of-state entities that engage in non-internet activities requiring registration in the state (e.g., direct mail or inbound telephone solicitation) fall under state jurisdiction.

Out-of-state entities that solicit through an interactive or non-interactive website and either (a) specifically target individuals in the state or (b) receive regular contributions from the state on a ‘repeated and ongoing’  or ‘substantial” basis by the website solicitation.

The definition of ‘repeated and ongoing’ or ‘substantial’ contributions is left to individual states by the Principles. Currently, Colorado, Mississippi, and Tennessee have formally adopted numerical thresholds by regulation. In Colorado, an entity is considered to have received ‘repeated and ongoing’ or ‘substantial’ contributions if it gets at least fifty online contributions, or the lesser of $25,000 or 1% of its total contributions, in online contributions during a fiscal year. In Mississippi, an entity receives ‘repeated and ongoing’ or ‘substantial’ contributions if it receives at least twenty-five contributions or $25,000 in online contributions in a year. In Tennessee, an entity receives ‘repeated and ongoing or ‘substantial’ contributions if it receives at least one hundred contributions or $25,000 in online contributions in a year.

What are the disclosures that need to be made at the point of solicitation?

Some states require organizations to include specific disclosure statements on all written materials when soliciting donations. These disclosures must include information about how to obtain additional details about the organization and provide contact information for certain states. The requirements apply to charitable organizations and professional fundraisers. 

The disclosure notice should be included on all printed solicitations, as well as written confirmations, receipts, and contribution reminders. Examples of printed solicitations typically include direct mail, fliers, or newsletter solicitations. However, written solicitations can also include emails or requests for donations on an organization’s website, such as a donate button or a link to donate.

Despite seeming burdensome, these disclosures can guide potential donors to a specific representative within the organization or to the organization’s website for more information.

The post The What, Who, and How of Charitable Fundraising Compliance Registration and Reporting Requirements appeared first on Perlman & Perlman.

Who is affected by the regulations? 

Charitable Fundraising Platforms (“Platforms”)

Charitable fundraising platforms include any person or entity that uses the internet to provide an internet website, service, or other platform to persons in California, and performs, permits, or otherwise enables acts of solicitation to occur.  The broad definition includes not only technology platforms specifically designed to facilitate online charitable donations, but also applies to many online retail websites and mobile apps that facilitate cause marketing promotions, invite customers to donate at checkout, or offer to make a donation in exchange for a free action taken online. 

Read this article to learn about the limited exceptions to the definition of “charitable fundraising platform,” and how the new law applies to platforms that meet the definition of more than one regulated fundraising category.  

Note that certain requirements vary based on the Solicitation Type(s) conducted on a platform.

Platform Charitable Organizations (“Platform Charities”)

Platform charities receive donations on platforms that are recommended or advised to be granted to another charitable organization.  

Recipient Charitable Organizations (“Recipient Charities”)

Recipient charities are those that are listed within a platform as a potential recipient of donations generated through the platform, and include donations received directly from the platform, or as a recommended donation or grant from a platform charity.

Persons Who are Sent Funds in Peer-to-Peer Charitable Fundraising 

A person may be required to register as a trustee with the California Attorney General’s office if they are sent funds from a platform as part of a charitable peer-to-peer fundraising campaign and cannot send the funds to the recipient charity within 10 business days of their receipt of the funds.

What do the regulations cover? 

The following is a high-level overview of the requirements covered by the Regulations, organized by date. For a more detailed summary, please see the article California Issues Final Regulations Governing Charitable Fundraising Platforms.

Effective March 26, 2024

Definitions (Section 314)

The definitions provide additional clarification to terms defined in the statute and create names for the different Solicitation Types described in the statute. 

Good Standing of Charities (Section 316)

The Regulations provide new procedures for implementing the “good standing” requirement, which affects when platforms can and cannot send funds to a recipient charity. 

Solicitation Disclosures (Section 317)

The Regulations expand on the disclosure requirements, particularly in peer-to-peer fundraising, and clarify that information on fees can be included in a hyperlink. 

Donations Held by Platform Users in Peer-to-Peer Fundraising (Section 323)

Persons conducting peer-to-peer fundraising campaigns that are sent donated funds from the platform or platform charity must send the donated funds to the recipient charity within 10 business days after receipt of the funds, or else register as a trustee with the California Attorney General’s office.

Effective June 12, 2024

Registration and filing requirements (Section 315)

The new registration and filing requirements applicable to charitable fundraising platforms become operative on June 12, 2024, and must be filed online.  

Effective January 1, 2025

Charity consent for solicitations (Section 318)

The regulations outline certain details that must be included in any agreement entered into between a platform or platform charity and recipient charity. 

Tax donation receipts (Section 319)

The regulation specifies that “prompt” issuance of tax donation receipts means no later than five (5) business days after the donation is made. 

Sending of donations to charities (Section 320)

The time in which platforms must disburse donations to recipient charities varies based on the Solicitation Type at issue, and whether the recipient charity consented or not to being included on the platform. 

Accounting of donations to charities (Section 321)

Certain information about the donations, including fees, and the activities that generated the donation, must be provided by platforms to recipient charities with the donated funds.

Information for Donors Regarding Donations Sent (Section 322)

Platforms must allow donors/users to find out whether their donations (or donations generated by their purchases or other activity) reached the recipient charity or alternative charity. 

Want to know more?

Previous articles covering the new California law governing charitable fundraising platforms provide additional information on its requirements. 

California Enacts New Law to Regulate Charitable Fundraising Platforms

Key Provisions of California Assembly Bill 488 Regulating Charitable Fundraising Platforms Take Effect January 1, 2023

How Does California’s New Fundraising Platform Law Affect Cause Marketing?

Has Your Organization been Blocked by Charitable Fundraising Platforms? It is likely due to California’s new “Good Standing” requirement.

This article is for informational purposes only and is not intended to be an exhaustive summary of the new requirements.  Any persons or entities affected by the new law and regulations should consult with their legal counsel to ensure full compliance with the new requirements.

The post California Issues Final Regulations Governing Charitable Fundraising Platforms appeared first on Perlman & Perlman.

CALIFORNIA

Due to recent changes in California’s law, charities that are delinquent with the California Attorney General (AG), California Franchise Tax Board (FTB) or the Internal Revenue Service (IRS) are effectively being shut out of charitable fundraising platforms, including, but not limited to, Facebook and Blackbaud.  The law prohibits fundraising platforms from allowing charities that are delinquent with any of these agencies to fundraise or receive donations in California via their platform. This effectively shuts down a significant amount of online fundraising activities not just in California, but in all states, due to platforms’ compliance with the California law.  Moreover, since the agencies may take three to six months or even longer to process and confirm the correction of the delinquencies, this change is seriously impacting many charities’ ability to fundraise for an extended period of time.  

Delinquencies with the AG’s Registry of Charities and Fundraisers typically occur when a charity’s registration has expired and it has not submitted renewal documents, or because a deficiency has been identified upon the state’s review of the renewal registration.  In either instance, the delinquency status is effective immediately. The AG has changed its procedure and is no longer sending notices of deficiency with time to cure. Similarly, missed filings with the FTB will cause a charity to be included on its revocation list, which requires the platforms to shut down online solicitation or receipt of donations for the charity in California. 

It is imperative that all filing requirements in California are timely, complete, and accurately met.  If your organization is a California charitable corporation, or conducting operations in the State, it must submit annual filings with the FTB in addition to the annual filings with the AG’s Registry of Charities and Fundraisers.  All charities which solicit contributions in California, unless exempt, have an annual registration requirement with the AG. 

For more information on the California law, please see Has Your Organization Been Blocked by Charitable Fundraising Platforms? It is likely due to California’s new “Good Standing” requirement.

TENNESSEE

Effective July 1, 2024, charities soliciting in Tennessee must file a copy of any applicable commercial co-venturer agreement, along with a state form, at least five (5) business days before the promotion begins in the state.  Applicable commercial co-venturer agreements include those in which the territory of the promotion includes Tennessee.  

UTAH

Following a recent change to Utah’s Charitable Solicitation Law, effective May 1, 2024, charitable organizations will no longer be required to submit an annual registration with the Utah Division of Consumer Protection.  To this end, we have been notified by the Consumer Protection Division that as of March 29, 2024, it is no longer accepting registrations from charitable organizations.  With the elimination of this charitable registration requirement, Utah has also eliminated the requirement to pre-notify the state about charitable sales promotions taking place in Utah.  

The changes in Utah law also require Utah nonprofit corporations or foreign nonprofit corporations doing business in Utah to file their most recent Form 990 as part of their annual corporate registration filing process, unless the organization is exempt from filing a 990 with the IRS. This change will take effect in January 2025 and the Division will promulgate new Administrative Rules reflecting this change. 

Please see our recently updated charts

Charitable Solicitation Registration and/or Filing Requirements

Charity State Registration, Reporting and Contract Filing Obligations Relating to Commercial Co-venturer (CCV) Promotions

The post Charitable Registration Filing Updates for California, Tennessee, and Utah appeared first on Perlman & Perlman.

You can find an overview of the new requirements in my previous article. 

What businesses and activities are affected?

Companies conducting the following online activities to raise funds for charitable causes are subject to the law: 

• Online charitable sales promotions benefiting 7+ charities per year. 

Prior to the enactment of the new law, companies engaging in charitable sales promotions in California (whether in-store or online) were regulated as a “commercial co-venturer” under the law governing charitable solicitation activities.¹ These companies were required to either register with the California Attorney General’s office, or alternatively, comply with certain requirements, including (1) entering into a written agreement with the charity, signed by two officers of the charity; (2) transferring funds to the charity every 90 days throughout the campaign; and (3) providing a written accounting to the charity in connection with each transfer of funds (note that if these requirements were followed, registration was not required).  

These longstanding requirements still apply to all charitable sales promotions conducted in brick-and-mortar stores, or to online charitable sales promotions directed at California residents and which benefit six or fewer charities each year.  However, any company engaging in online charitable sales promotions benefiting 7+ charities per calendar year must comply with the new requirements applicable to charitable fundraising platforms. 

• Inviting customers to donate online at checkout.

Companies inviting customers to donate online during the checkout process are subject to the new law. In the past, customer donation campaigns, whether conducted online or in-stores, were not generally subject to specific regulatory requirements.  These campaigns are typically conducted by businesses on a voluntary and uncompensated basis and can raise significant funds for many charitable organizations.  Despite the lack of any compensation or profit from the campaign, the new law nevertheless covers businesses conducting these types of campaigns online.  As such, any retail business inviting its customers to donate while checking out on its e-commerce site will be considered a charitable fundraising platform.    

Read the excellent articles on point-of-sale fundraising, thanks to our friends at Engage for Good. 

• Inviting the public to take certain actions online to generate donations.  

Several companies have developed online platforms, including mobile apps, that engage the public to take various actions that support positive social impact.  The campaigns conducted on these platforms are often sponsored by companies seeking to engage with customers, the broader public, or even their own employees.  Online users may be invited to take an action that triggers a donation which is often paid for by a sponsoring for-profit business to a charity.  For example, donations might be triggered by taking a free online survey or playing a game on a mobile app.  Employees of a company may be invited to make a donation online that will be matched by their employer. Companies operating platforms that engage the public in taking actions online to generate charitable donations are now subject to the charitable fundraising platform regulations. These rules apply even if online charitable activations are just one feature out of many within a technology platform, or an activation is only conducted for a short time period.

In addition, charitable fundraising platforms sometimes partner with a “platform charity” to facilitate the receipt of donations, which are then granted to various other designated charities (defined as “recipient charitable organizations” in the new law). Charities playing this role are defined and regulated as “platform charities,” and therefore are subject to many of the same requirements as charitable fundraising platforms.  

What new requirements apply to charitable fundraising platforms?

Charitable fundraising platforms must comply with several new requirements, including (1) annual registration and reporting; (2) required disclosures; (3) obtaining written consent of charity beneficiaries (except in limited circumstances when such consent is not required; (4) soliciting or receiving funds only for charities in good standing; (5) segregation of funds; (6) prompt distribution of donations/grants; and (7) accounting of fees.  

The new requirements are more fully summarized in this previously published article. Additional updates regarding which provisions of the new law are effective as of January 1, 2023, and which ones are delayed, are summarized in this article.  

What should companies and charities do now? 

Here are a few practical tips for companies and charities engaging in online charitable campaigns to think about during the campaign pre-launch period to help ensure compliance with the new requirements.

• Identify which online campaigns and activations are subject to the new regulations.
• Communicate with your partner in advance of the launch to acknowledge the impact of the new law and ensure alignment around the compliance requirements.
• Review sample campaign pages to ensure that the disclosures are properly displayed on the website or within the mobile app.  
• If the campaign is powered by a third-party platform through which users will engage in the campaign activation, ensure that the platform is fully aware of the new requirements, and is able to comply with all aspects of the new platform law, including properly displaying the required disclosures, ensuring that the platform charity operates in compliance with the good standing requirements, and scheduling timely donation and grant disbursements. 
• Monitor for updates on the final regulations and related registration forms, which will be released later this year. Keep your eye out for the next article once the regulations and forms are finalized. To be sure you are notified, please subscribe to our blog.

1 A commercial coventurer is defined as “any person who, for profit, is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds, assets, or property for charitable organizations or charitable purposes, and who represents to the public that the purchase or use of any goods, services, entertainment, or any other thing of value will benefit a charitable organization or will be used for a charitable purpose.”

The post How Does California’s New Fundraising Platform Law Affect Cause Marketing? appeared first on Perlman & Perlman.

What is a whistleblower policy?

A whistleblower policy is an organizational policy that encourages workers to report suspected illegal or improper activity within the organization while protecting workers from retaliation for making such reports.

Is our nonprofit required to have a whistleblower policy?

New York nonprofits that have at least twenty employees and annual revenues of $1 million or more are required to have a whistleblower policy under Section 715-b of the New York Not-for-Profit Corporation Law.

Keep in mind that whistleblowers have significant protections under other federal, state, and local laws, even if those laws do not explicitly require adoption of a whistleblower policy. For example, Section 1107 of the American Competitiveness and Corporate Accountability Act of 2002 (more commonly known as the Sarbanes-Oxley Act) makes it a crime to intentionally retaliate against any individual, “including interference with the[ir] lawful employment or livelihood,”  for providing law enforcement with truthful information relating to the commission or possible commission of any federal offense. Many states and municipalities have other laws that protect whistleblowers from retaliation.

A whistleblower policy helps to educate management and workers about these legal protections. It is a helpful tool in promoting a culture of lawfulness and integrity. By explicitly stating management’s commitment to protect whistleblowers from retaliation and laying out a process for reporting illegal or improper activity, a whistleblower policy encourages workers to communicate their concerns to the employer in good faith without fear of reprisal. Adopting a whistleblower policy is a recommended best practice for nonprofit employers.

What are the key changes to New York’s whistleblower protections?

Effective January 26, 2022, New York amended Section 740 of the New York Labor Law, which protects workers who engage in whistleblowing activity from retaliation by their employers.¹ The amendments expanded the classes of protected workers, the types of protected whistleblower actions, the types of employment-related actions that are considered illegal retaliation, the time frame for individuals to file a retaliation claim, and the potential penalties for employers who do retaliate against whistleblowers. Below is a summary of some of the key changes.

1. Protected Individuals. The prior law appeared to protect current employees only. The amended law protects current employees, former employees, and independent contractors from retaliation for whistleblowing activity.

2. Protected Actions. Under the prior law, whistleblower protections only applied to disclosures or threats of disclosure that involved an actual violation of a law, rule, or regulation and presented a substantial danger to the public health or safety or constituted health care fraud. There were many types of illegal activities that did not fit within this standard, leaving employees who reported such activities at risk of retaliation. The prior law also stipulated that whistleblower protections did not apply if an employee disclosed an illegal activity, policy, or practice to a public body without first notifying the employer and giving the employer a reasonable opportunity to correct the problem.

The amended law changes these standards. An employer may not retaliate against a protected individual for doing any of the following:

• Disclosing or threatening to disclose to a supervisor or public body an activity, policy, or practice of the employer that the individual “reasonably believes” violates a law, rule, or regulation or poses a substantial and specific danger to the public health or safety;
• Providing information to, or testifying before, any public body conducting an investigation into any such activity, policy, or practice by the employer; or
• Objecting to, or refusing to participate in any such activity, policy, or practice.
• Protected individuals also need only make a “good faith effort” to report the activity, policy, or practice to the employer prior to notifying a public body. No employer notification is required at all when:
  • There is an imminent and serious danger to the public health or safety;
  • The whistleblower reasonably believes that reporting to the supervisor would result in a destruction of evidence or other concealment of the activity, policy, or practice;
  • The activity, policy, or practice could reasonably be expected to lead to endangering the welfare of a minor;
  • The whistleblower reasonably believes that reporting to the supervisor would result in physical harm to the whistleblower or any other person; or
  • The whistleblower reasonably believes that the supervisor is already aware of the activity, policy, or practice and will not correct it. 

3. Prohibited Retaliation. The amended law expands the definition of unlawful retaliation to mean any adverse action taken by an employer or the employer’s agent “to discharge, threaten, penalize, or in any other manner discriminate against” a protected individual who engages in protected whistleblowing activity. This includes:

• Actual or threatened adverse employment actions against a protected individual in the terms and conditions of employment, including but not limited to discharge, suspension, or demotion;
• Actions or threats to take actions that would adversely impact a former employee’s current or future employment; or
• Contacting or threatening to contact United States immigration authorities or otherwise reporting or threatening to report a protected individual’s suspected citizenship or immigration status or the suspected citizenship or immigration status of a protected individual’s family or household member. 

4. Increased Filing Time, Right to Jury Trial, and Penalties for Retaliation Claims. The statute of limitations for filing a retaliation claim under Section 740 is increased from one year to two years. Parties are entitled to a jury trial. A successful retaliation claim against an employer may result in any of the following penalties:

• An injunction against the employer;
• Reinstatement of the whistleblower to their same position or an equivalent position, or front pay in lieu of reinstatement;
• Reinstatement of full fringe benefits and seniority rights;
• Compensation for lost wages, benefits, and other remuneration;
• Payment by the employer of reasonable costs, disbursements, and attorneys’ fees;
• A civil penalty for the employer of up to $10,000; and/or
• Payment of punitive damages by the employer, if the violation was willful, malicious, or wanton. 

5. Employer Notice Requirement. Employers are required to inform protected individuals of their protections, rights, and obligations under the law by posting a notice “conspicuously in easily accessible and well-lighted places customarily frequented by employees and applicants for employment.” The New York State Department of Labor has issued a model notice that employers can post. Employers must also provide an electronic copy of the whistleblower notice to protected individuals via email and/or posting on their website.

1 In 2022, New York also amended Section 741 of the Labor Law, which applies to whistleblower complaints against health care employers.

The post Updated Whistleblower Protections in New York – Is Your Nonprofit Compliant? appeared first on Perlman & Perlman.

Current Trends and Issues in Charitable Regulation

Regulators
Conference panels presented by various state regulators covered ongoing trends and issues. Public trust of the charitable sector was a topic of general concern, based on surveys indicating a decrease in the trust in the nonprofit sector.  The regulators noted that they play an important role in enhancing trust by providing meaningful oversight of the sector.

Noteworthy topics included the importance of Board governance and oversight, particularly in monitoring the organization’s finances. The panelists noted a rise in for-profit entities soliciting in-kind disaster relief, particularly those that do not have a nonprofit partner. This trend has been largely observed in connection with the rise of natural disasters and the war in Ukraine.   Regulators are also troubled by the balloon and bust of opioid-crisis relief organizations. This is threatening given the importance these organizations play in their local communities. Such failures have been attributed to their overly rapid growth.

Several state regulators noted an increase in mergers and acquisitions filings of hospitals. Approval of these transactions generally turns on the question of whether the transaction is in the best interest of the community. As for charity care, regulators noted that nonprofit hospitals have a duty to provide subsidized care to patients in need, something they say they have seen too little of.

A notable increase of fraud, committed in the name of charities or directed at charities, is also of concern. It is reported that there has been a rise of bad actors using the name and information of known and respected charities to commit fraud.  One typical scheme is the impersonation of regulators claiming that registration fees are past due. Charities that receive such calls are admonished to use best efforts to confirm the identity of caller.

NASCO puts out an annual report detailing trends on state regulation and enforcement.

Nonprofit Sector and Practitioner Panelists
In the afternoon, other stakeholders in the charitable sector spoke on the trends they have observed during the past year. Jan Masaoka, CEO of the California Association of Nonprofits, discussed the Association’s concerns with donor-advised funds (DAFs) arising from the delay in time between donor benefit (i.e., the donor’s tax-deduction) and the donation reaching its target community. Erin Bradrick, Principal of NEO Law Group, spoke on the growth of fiscal sponsorships and the lack of sector education and oversight that exists. She observed that Decentralized Autonomous Organizations (DAOs) have the theoretical ability to seek 501(c)(3) status without having a governing body (the core distinguishing characteristic of DAOs).  Ms. Bradrick also noted an upward trend in the politicization of issues directly tied to key nonprofit areas, which have created a tension between state and federal law., naming the recent cannabis and abortion access laws as prime examples.

NFT and Cryptocurrency
Sara Hall, Chief Legal Officer and General Counsel of ALSAC, Andrea Kramer, Partner of McDermott, Will & Emory, Ruth Madrigal, Principal of the Exempt Organizations Group at KPMG, and Beth Short, Director of Outreach and Education, Charitable Law Section of the Ohio Attorney General’s Office, discussed cryptocurrencies, NFTs, and other emerging forms of donation.  The panel noted that these forms are not suitable for all organizations, as there is significant risk and several complex issues to consider in accepting donations of cryptocurrency.

It was noted that organizations that decide to accept NFT or cryptocurrency donations should ensure they have a detailed donation acceptance policy and procedure in place.  The policy should include how the organization will protect the security of the crypto wallets through which they accept the donation, how to appraise the cryptocurrency or NFT, and whether to use an intermediary service like a Donor Advised Fund (DAF). Including the development department on any decision on acceptance of these donations is critical.

Now and Next in Charitable Giving
In her keynote address, Dr. Una Osili, Associate Dean for Research and International Programs at the Indiana University Lilly Family School of Philanthropy, made a deep dive into the data to identify donor trends. Among those Dr. Osili highlighted are that giving is at an all-time high, that individuals remain the largest group of donors, and that fewer households are donating. She also pointed to a downturn in religious donations, historically the largest generator of donations, and an upturn in donations to racial identity and environmental groups. Donors are moving from a trend of making passive donations to getting more involved in the causes they support through active engagement and education.

Dr. Osili ended by sharing some of her key findings, notably that giving is the great equalizer. Adjusted for gross income, charitable giving is the same across all groups. Technology, specifically crowdfunding websites and social media, has become one of the strongest vehicles for attracting donations, making up 40% of all giving. Finally, charities should start thinking of the value of donating one’s testimonial and network of connection, not just time and gifts. For more information, visit the Indiana University website at Generosity for Life.

Establishing a Healthy Board
Dr. Gerri King, President of Human Dynamics Associates, taught board mediation and communication techniques. Her talk centered on the five states of group development: Forming, Storming, Norming, Performing and Adjourning. Dr. King explained that at each stage, there are unique challenges affecting Board dynamics, and that any change to the make-up of the Board can be a setback.

Dr. King emphasized the importance of creating a no blame, no gossip environment among the team and the organization, noting that although it sounds simple, it can be intensely difficult to achieve. The benefits, as she noted, are indispensable., creating higher accountability, cohesion, trust and efficiency.

Update on the California Charitable Fundraising Platform Law
Brian Armstrong, Deputy Attorney General of the California Attorney General’s Office, discussed Assembly Bill 488, which is set to take effect on January 1, 2023. This is the first law in the U.S. specifically designed to regulate online charitable fundraising platforms, including through a new registration and reporting requirement, specific required public disclosures, and other provisions designed to safeguard charitable donations received through these platforms.

The proposed regulation is currently in the “review of public comments” stage. Armstrong indicated that a second, 15-day period for public comments will open up again once the review is complete, but did not specify when that would be.  During the follow-up Q&A, our team learned that the registration portion of the law is not likely to go into effect on January 1, 2023. Still pending would be final regulations and the development of the new registration forms. However, the AG’s office intends to begin enforcement of those portions of the law which are not dependent upon the passage of final regulations (e.g., the disclosure requirements).

Charitable fundraising platforms and platform charities should take time to carefully review their current platform disclosures (including disclosures made throughout the user/donor flow, as well as the platform Terms of Use) and ensure they are in compliance with these new requirements.  For more details on the legislation, please read California Enacts New Law to Regulate Charitable Fundraising Platforms by firm partner Karen Wu.

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Any responsible business must stay within the law when conducting revenue-generating activities. For nonprofits, this means taking steps to ensure that its fundraising activities are compliant with all applicable laws and regulations. This is prudent from a business perspective, especially because charitable fundraising is the activity that most state charity regulatory agencies across the country focus their oversight efforts.

Although many of the fundraising compliance requirements arise from state charitable solicitation laws, federal tax law compliance must also be addressed, given its role in determining the tax-deductibility of donations and to ensure that nonprofits aren’t inadvertently treating revenues from commercial business activities as charitable sponsorships, and thereby improperly avoiding payment of unrelated business income tax (UBIT).

What should an organization do to assess its overall fundraising compliance? Following are ten steps nonprofit organizations can take to ensure their fundraising activities are legally compliant.

1. Review your organization’s state charitable registration compliance.

• Generally, if a charitable organization is engaged in the solicitation of funds for charitable purposes, there are state rules that require registration, reporting and disclosures by the charitable organization or someone fundraising on its behalf. Forty-four (44) states and the District of Columbia have laws that regulate fundraising activities, with the specific rules and requirements varying from state to state. Most charitable organizations must register in about thirty-eight (38) states.  Click here for a chart of states that require charitable organizations to register.
• Review and confirm that all fundraising contracts that need to be filed as part of the organization’s registration file are being submitted in the correct states. This includes contracts with professional fundraisers, fundraising counsels, and commercial co-venturers.

2. Ensure that the organization’s fundraisers are properly registered where applicable.

• About 42 states require professional fundraisers to register, post a surety bond, file contracts with their nonprofit clients, and file campaign financial reports.
• About 28 states require fundraising counsels to register and file contracts.
• Up to 8 states require commercial co-venturers to register and/or file a copy of any commercial co-venture contract and a campaign report per contract.
• Click here for a chart of states where professional fundraisers, fundraising counsels and commercial co-venturers are required to register.

3. Review your fundraising contracts to ensure they include any state-required language as well as other general protections (e.g., termination; indemnification; trademark license and approval rights).

• Click here for more information about professional fundraiser contract provisions.
• Click here for more information about fundraising counsel contract provisions.
• Click here for more information about commercial co-venturer contract provisions.

4. Review corporate sponsorship arrangements for qualification as a qualified sponsorship payment.

• Review the organization’s corporate sponsorship cultivation strategy to ensure that it takes into account potential UBIT implications.

5. Review other fundraising contract templates (e.g., corporate sponsorship agreements, pledge agreements, royalty agreements, etc.) to ensure that they take into account any legal considerations, including donor benefits and gift restrictions.

• Ensure that pledge agreements clearly outline the expectations of the parties with respect to the gift, including the scope of any gift restrictions, and whether the agreement is intended to be legally binding (including on successors and assigns or the donor’s estate).
• Ensure that passive licensing or royalty agreements are properly structured so that the income generated is not subject to UBIT.

6. Review compliance with state solicitation disclosures (in mailings, online, emails, etc.).

• Click here for a summary of state charitable solicitation disclosures for charities and professional fundraisers, and model disclosure statements.
• Click here for more information about advertising disclosure requirements in commercial co-venture promotions.

7. For 501(c)(3) organizations in particular, review donation tax receipts for compliance with federal tax law requirements.

• Make sure the organization complies with the special rules governing quid pro quo donations
• Be aware of special exceptions whereby donations given in exchange for low-cost token items or certain recurring membership benefits may be disregarded.
• Tax-exempt organizations other than 501(c)(3) organizations should ensure that solicitations and donation receipts clearly state that donations are not tax-deductible.

8. Review direct mail solicitation practices to ensure that the communications are truthful, accurate, and not misleading.

• Consider the best practices established by the Better Business Bureau Wise Giving Alliance with respect to accuracy of solicitation materials, specifically Standards 15 and 19.

9. Ensure that special solicitation campaigns are reviewed for compliance (matching gift campaigns, sweepstakes, raffles, etc.).

• Click here for more information regarding legal considerations in matching gift campaigns.
• Note that state and federal laws govern the conduct of sweepstakes, and require specific disclosures to be made. Sweepstakes may also be subject to possible state registration and bonding requirements (although there may be an exclusion for charities if the sweepstakes is not undertaken in connection with the advertising, promotion or sale of consumer products or services).
• Note that charitable raffles are strictly regulated at the state and local level, and are difficult to conduct in multiple jurisdictions. Review the state and local laws of the jurisdiction where any raffle will be undertaken.

10. Ensure that solicitations associated to gifts-in-kind are communicated in a clear and transparent manner, and that the corresponding receipt, valuation and disposition of the gifts-in-kind are properly handled.

• Consider the best practices established by the Accord Network in connection with the receipt and distribution of gifts-in-kind.

A fundraising legal audit is a core component of a comprehensive legal audit for nonprofits, which reviews an organization’s compliance with legal requirements and best practices applicable to tax-exempt organizations across various operational areas. Stay tuned for another blog post coming soon, which will discuss the key components of a comprehensive legal audit!

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Hawaii, which requires companies to file a written consent form at least ten (10) days before a charitable sales promotion begins, has recently begun to enforce its statutory late filing fee of $20 per day (up to $1,000 maximum penalty) for failure to timely file a written consent.  In order for the written consent to be timely filed, it must be “fully executed” by both parties through an electronic approval process. A delay in obtaining either party’s electronic consent can mean late fees will begin to accrue.

While not new, companies should be also be aware that South Carolina regularly imposes administrative fines of $10 per day for late filing of campaign reports, up to a maximum fine of $2,000 per report. Illinois, which requires companies to register under their charitable trust law to conduct charitable sales promotions, has been enforcing its $100 late filing fee for campaign reports.

While California ¹ has the statutory right to impose a late fee of $25/month for registration statements or campaign reports, we have not observed this late fee being regularly imposed.

To avoid incurring late fees and penalties, companies should ensure that they are monitoring their filing deadlines and planning ahead in order to avoid getting hit with significant and unanticipated financial penalties.

For a general overview of the laws regulating commercial co-ventures and charitable sales promotions, please read Do Good And Sell It Well: An Overview Of Cause Marketing Regulation on Engage for Good’s website.

1 Registration in California is not required if certain contract and related compliance requirements are met, including transfers of payments every 90 days. However, note that some companies engaging in online campaigns may need to register as a charitable fundraising platform in California beginning on January 1, 2023. For more information, see the post California Enacts New Law to Regulate Charitable Fundraising Platforms.

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