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.

Unfortunately, a charitable organization’s failure to be in good standing in California has implications far beyond the State. Charitable fundraising platforms will generally block all donations made to any organization that is not in good standing, not just those made by California residents. In many cases, the first time the organization became aware that they had a delinquency issue that needed to be resolved was when they received a notice sent by a fundraising platform informing them that they are not in good standing in California.  Unfortunately, many of these charities learned the hard way that resolution is neither quick nor easy, resulting in significant loss of donations, not to mention the expenses incurred when getting back into good standing.   Given the significant amount of fundraising now taking place through online fundraising platforms, it is paramount that charities ensure that they are in good standing pursuant to California’s new law.

How to Comply with California’s New “Good Standing” Requirement

Under AB 488, a charitable fundraising platform or platform charity may only “solicit, permit, or otherwise enable solicitations, or receive, control, or distribute funds from donations for recipient charitable organizations or other charitable organizations in good standing.” 

For a summary of the key provisions and definitions of “charitable fundraising platform” and “platform charity,” see California Enacts New Law to Regulate Charitable Fundraising Platforms. 

For a summary of the California Attorney General’s notice advising which provisions of AB 488 go into effect on January 1, 2023, and which were delayed due to pending issuance of implementing regulation, read Key Provisions of California Assembly Bill 488 Regulating Charitable Fundraising Platforms Take Effect January 1, 2023. According to the notice, the “good standing” requirement went into effect on January 1, 2023.

To comply with California’s “good standing” requirement, fundraising platforms and platform charities receiving funds through the platform must ensure that, with respect to each recipient organization: (1) the organization’s federal tax-exempt status has not been revoked by the Internal Revenue Service (“IRS”); (2) the organization’s tax-exempt status in California has not been revoked by the California Franchise Tax Board; and (3) the organization is not prohibited from soliciting or operating in the State by the California Attorney General.  

The California Department of Justice (“DOJ”) published a notice which includes links to the three lists that charitable fundraising platforms and platform charities must check for compliance with this requirement.

1. The IRS’s Tax-Exempt Organization Search Tool
2. California Attorney General’s list of charities that may not operate or solicit in the State
3. California Franchise Tax Board’s Revoked Exempt Organizations List

Note that “good standing” does not necessarily mean that every recipient charitable organization included by a fundraising platform or platform charity must be registered to solicit in California.  For example, a small, local community organization based in another state that does not engage in solicitation in California, and generally does not receive donations from residents of California, including through fundraising platforms, would generally not be required to register in California due to lack of a sufficient jurisdictional nexus.  

Key Reasons that Organizations Fall Out of Good Standing

Common reasons that have caused organizations to fall out of good standing in California, and thereby get blocked by fundraising platforms, include the following:

1. The organization was late in registering or renewing registration with the California Attorney General’s office, typically due to late completion of the organization’s IRS Form 990 or audited financial statement, which triggers delinquent status. 
2. The organization filed its registration renewal paperwork but was sent a notice that the submission was incomplete, but the notice was not received.  
3. The organization may have been mailed letters from the California Attorney General’s office advising them to register, but those letters were either lost in the mail, went to an incorrect address, or otherwise did not make their way to the right person. Failure to respond by registering (or seeking confirmation of exemption, if applicable, or otherwise establishing with the office that the organization is not required to register) automatically results in a delinquent registration status.  The initial letter from the AG advising the organization that it may be required to register may have been triggered by some common scenarios:
   
   
   1. The organization incorporated in the State of California, which, due to coordination between the California Secretary of State’s office and the Attorney General’s office, automatically triggers a letter advising the organization to register with the Attorney General’s Registry of Charitable Trusts. This letter may have gotten lost in the mail, or it failed to elicit a timely response.  
   2. A professional fundraiser or fundraising consultant of the organization listed the charity as a client in its California registration filings, triggering the letter.  Since the charity historically had not solicited contributions in California and did not understand the scope of its fundraiser’s services to include California, it may have chosen to ignore the letter.

Note: These misplaced or lost deficiency letters issued by the AG’s office are generally accessible by searching the California AG’s Online Registry Search Tool.

4. The organization may have qualified to do business in California in the past, by employing individuals residing in the State.  (Note that whether an organization is required to qualify to do business in California is a specific, fact-driven analysis). Once qualified to do business in the State, the organization is unaware that it is subject to annual reporting obligations with the California Franchise Tax Board, thus causing an inadvertent delinquency when such filings are not submitted. 
5. The organization may have had its 501(c)(3) tax-exempt status revoked by the IRS.  This often affects smaller organizations, particularly ones solely operated by volunteers, who were unaware that the organization had an annual IRS Form 990 filing obligation.  Failure to file the IRS Form 990 for three consecutive years leads to automatic revocation of federal tax-exempt status as soon as the third annual filing deadline passes.

In a number of cases, the charity at issue may be eligible for a statutory exemption from registration in California due to its status as a hospital, educational institution, or religious organization.  While California’s statute does not explicitly require such organizations to confirm their exemption from registration, as a matter of practice, the California Attorney General does require these organizations to confirm their exemption. For more information on registration exemptions, read Are Hospitals, Educational Institutions, and Religious Organizations Exempt from Charitable Solicitation Registration?

The documents and information that must be submitted to confirm an organization’s exemption from registration are outlined in California’s initial registration form instructions, and the AG’s office must issue a letter or notice confirming the organization’s exemption.  If California issued a letter advising the exempt organization that it may be required to register, and the letter goes unanswered, even if the organization would otherwise qualify for exemption, the organization will be put on the California AG’s May Not Operate or Solicit List. 

Obstacles to Establishing Good Standing (and How to Get Back into Fundraising Platforms’ Databases)

Many charities have found that the process to reinstate good standing is slow and painful. There are multiple steps to address deficiencies, delays in regulatory agencies’ processing of documents, and challenges to communicating an organization’s unique circumstances to the regulatory agencies. 

When a charity’s registration with California Attorney General’s office has expired, it must submit its renewal paperwork by US mail, landing the submission in an enormous pile of papers that the state is months behind in processing.  Even if an online process is available, the Attorney General’s time to review and final approval could be 90 days or more.

Similarly, the process for reinstatement with the Franchise Tax Board or IRS is cumbersome and time-consuming, involving back filings and reinstatement forms/applications.

Finally, charities should be aware that platforms may require blocked organizations who have resolved delinquency issues to take special steps to reactivate donations through the platform.  A number of platforms have issued public guidance on how they are addressing AB 488 compliance, including Meta and Bonterra. Complying with the platform’s process for reinstatement further delays a charity’s ability to fundraise on that platform.  The May Not Operate or Solicit List is only updated by the AG’s office once a month, thus further delaying the reinstatement process after organizations have resolved their delinquency.

Final Regulations are Still Pending that May Affect Implementation of the Good Standing Requirement

On November 17, 2023, the California Attorney General’s office issued a third set of Proposed Regulations to implement the provisions of AB 488, which include modifications to the procedures relating to “good standing”. The comment period ended on January 2, 2024.  We have been advised that final regulations are expected to be released in the next few months, which could cause some fundraising platforms to revise their procedures. Our firm is watching the status of the regulations. Stay tuned for further updates. 

A Final Note

We leave organizations with a final word of advice – Make sure your organization is not delinquent in California!  Given the broad, practical implications that failure to be in good standing creates, including the blocking of online donations received from any state through any charitable fundraising platform, organizations should make sure they closely monitor the applicable registration and filing deadlines to ensure they will not fall out of good standing in California. 

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