Nonprofit Hospitals

About 15 states exempt nonprofit hospitals from registration.  As a general matter, the exemption will apply to a nonprofit, charitable hospital regardless of where the hospital is licensed.  However, a number of states limit the hospital exemption to only those hospitals licensed within the state.  Additionally, in some states, the exemption is not available to hospitals that engage the services of a professional fundraiser.  Hospital foundations are exempt in only three states. 

Educational Institutions

About 33 states exempt educational institutions from registration.  Many offer a fairly broad scope of exemption that would apply to most colleges or universities accredited by a recognized regional or national accrediting body.  However, a number of states limit the exemption to those educational institutions which (a) are operating within the state only; (b) confine their solicitations to alumni, faculty, trustees, or the student membership and their families (meaning that universities that solicit contributions from foundations or corporations to support academic research, athletics, or other programs would not qualify for the exemption); or (c) qualify as a religious organization or are controlled or supervised by a religious organization.   

Religious Organizations

Most states exempt or exclude religious organizations from their charitable solicitation registration and reporting requirements. The scope of that exemption varies widely among states, both in how religious organizations are defined and in how those definitions are interpreted and applied. For some, the religious exemption provisions are broadly constructed, and exempt any “duly organized religious corporation, religious institution or religious society,” leaving the organization to determine if it falls within the exemption.  Other provisions are more narrowly drafted or applied, exempting only those organizations that are not required to file Form 990 with the IRS. These primarily include churches,¹ their integrated auxiliaries,² and ecclesiastical or denominational organizations.  Additionally, the exemption may be further limited to religious organizations that do not use the services of a professional fundraiser.  

Generally religious organizations that are required to file Form 990 with the IRS, will be exempt in some, but not all, states.  Many of those describe their mission as both religious and charitable, as together these constitute an expression of their religious faith and values.  Charitable services may include the provision of food, shelter, education, and medical support to vulnerable populations.  Oftentimes, religious organizations incorporate prayer and religious instruction into their programmatic work and require their employees to agree to an organizational statement of faith.  

Confirming Exemption from Registration

While a few states have a formal exemption review and approval process which includes submission of exemption forms and supporting documentation, a number of states have no formal process.  For these states, organizations may simply submit a letter advising the state of its own determination of exemption.  

A number of other states will consider hospitals, educational institutions, and religious organizations exempt based on their own determination, and may or may not require submission of a confirmation letter. It may be prudent, however, for organizations to submit a letter and have it noted in the state’s files even when not required. Doing so may help facilitate discussion with any professional fundraiser, fundraising consultant, or commercial co-venturer engaged by the organization, which must ensure that their charity clients or partners are properly registered or otherwise exempt from registering and may even insist upon receiving evidence of such registration or exemption in order to protect their own compliance obligations.  Further, funders and even individual donors may base contribution decisions on an organization’s compliance with registration requirements.  

Implications of New California Law Governing Charitable Fundraising Platforms on Hospitals, Educational Institutions, and Religious Organizations

We recently became aware of a number of nonprofit hospitals that were blocked from receiving donations through Facebook and other online fundraising platforms as a result of the platform’s implementation of a new “good standing” requirement which is part of California’s recently enacted law governing charitable solicitation, known as Assembly Bill 488 (AB 488).  Online fundraising platforms must block organizations that have a delinquent status with certain state and federal regulatory agencies from receiving donations through their platform.  The issue occurred even though the blocked hospitals met the statutory requirements for exemption from registration in California. A charitable organization’s failure to be in good standing in California has implications far beyond that state because platforms will generally block all online donations made to delinquent organizations from donors located anywhere, not just donations made by California residents.  

To learn more about California’s new “good standing” requirement, how it affects exempt organizations, and steps your organization can take to avoid or resolve a “good standing” issue, read Has Your Organization Been Blocked by Charitable Fundraising Platforms?

1 The term “church” includes churches, temples, mosques, and other houses of worship.

2 See https://www.irs.gov/charities-non-profits/churches-religious-organizations/integrated-auxiliary-of-a-church-defined.

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Justice Kennedy, writing for Justices Ginsburg, Breyer, and Sotomayor, upheld the constitutionality of the UT affirmative action program, and reiterated the factors educational institutions should consider when implementing a race-conscious admissions program.

The Court assessed UT’s race-conscious admissions program against the “controlling principles” it set out in a prior decision on the program. Those principles include:

1. A demonstration that the purpose or interest in implementing the race-conscious admissions program is both constitutionally permissible and substantial; and
2. The race-conscious admissions program must be narrowly tailored to achieve the institution’s goals.

The Court noted that a goal of attaining “diversity” writ large would be insufficient on its own, but a program that encourages the promotion of “cross-racial understanding, helps to break down racial stereotypes, and enables students to better understand persons of different races” and “better prepares students for an increasingly diverse workforce and society” passes constitutional muster. Certain types of race-conscious programs, such as those that seek to admit a particular number or quota of minority students, remain prohibited.

Educational institutions that want to create a similar admissions program should note the way in which UT implemented its program. As required by prior Supreme Court decisions, UT only considered race within a holistic review of an applicant’s file, while also taking into consideration numerous factors such as test scores, high school grades, essays, letters of recommendation, artwork, writing samples, and the applicant’s potential contribution to UT’s student body through extracurricular activities, community service, and other special circumstances. The UT race-conscious admissions program created several tiers of review which provided each applicant a score, and established cut-off scores for admission, whereby every applicant whose score exceeded the cut-off was admitted, regardless of race.

Looking to the future it appears unlikely that the Court will place greater restrictions on race-conscious admissions programs. There are currently five Justices (assuming Justice Kagan participates in future cases) who support the inclusion of race as a factor in admissions programs and therefore enough support to ensure its survival in the near-term.

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