Regulation of Fund Raising

I. Overview of Law of Fund Raising


A. This presentation concerns charitable, not political, fund raising.
B. Federal – various statutes and agencies.
C. State – principally, charitable solicitation acts.
D. Local -- ordinances.
E. Watchdog groups (standards, not law).


II. State Law

A. Charitable solicitation acts – contents:

1. Definitions.
2. Registration (preapproval).
3. Reporting.
4. Exemptions.
5. Regulations of professional fund raisers.
6. Regulation of professional solicitors.
7. Regulation of commercial co-ventures.
8. Availability of records.
9. Contracts.
10. Prohibited acts.
11. Regulatory prohibitions.
12. Disclosure statements and legends.
13. Regulatory agency, investigations.
14. Sanctions – injunctions, civil and criminal penalties.

B. Legal issues:

1. Police power of states (Thomas v. Collins, 323 U.S. 516 (1945)).
2. Constitutionality – First Amendment considerations (Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620 (1980)); Secretary of State of Maryland v. Joseph H. Munson Co., Inc., 467 U.S. 947 (1984)); Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781 (1988))
3. Due process rights (Freeman v. Maryland, 380 U.S. 51)).
4. Equal protection rights (Auburn Police Union v. Tierney, 756 F. Supp. 610 (D. Me. 1991), 762 F. Supp. 3 (D. Me. 1991)).
5. Commerce clause (Camps Newfound/Owatonna, Inc. v. Town of Harrison, Maine, 520 U.S. 564 (1997)).
6. Delegation of legislative authority (Gospel Missions of America v. Bennett, 951 F. Supp. 1429 (C. D. Fla. 1997)).
7. Definitions of professional fund raiser and professional solicitor.
8. Application of charitable solicitation acts in nongift situations.
9. Unified registration.
10. Door-to-door advocacy (Watchtower Bible and Tract Society of New York v. Village of Stratton, 536 U.S. 150 (2002)).
11. Fraud (Illinois v. Telemarketing Associates, Inc. (538 U.S. 600 (2003)).
12. Exemptions, such as for religious organizations (Heritage Village Church and Missionary Fellowship, Inc. v. North Carolina, 40 N.C. App. 429 (1979), aff'd, 263 S.E.2d 726 (1980)), colleges and universities, membership groups (Blenski v. State, 245 N.W.2d 906 (Wis. 1976)).
13. Internet fund raising (United States v. Thomas, 74 F.3d 701 (6th Cir. 1996)) – Charleston Principles.

C. Other laws:

1. Gambling/gaming.
2. Insurance (concerning annuities).


III. Federal Law

A. Absence of federal fund raising statute:
1. Failed attempts at legislation.
2. Preemption of state law (cf. Electronic Signature Act).

B. Federal tax law regulation (other than charitable giving law):

1. Unrelated business rules (IRC §§ 511-514):

a. Definition of business (IRC § 513(c)).
b. Regularly carried on test (Reg. § 1.513-1(c)):

i. General application (IRS private letter ruling 200128059).
ii. Matter of preparatory time.

c. Relatedness standard (Reg. § 1.513-1(d)).
d. Exceptions:

i. Businesses conducted by volunteers (IRC § 513(a)(1)).
ii. Sales of gift items (IRC § 513a)(3)):

(a) Thrift stores.
(b) Vehicle donations.

iii. Royalties (IRC § 512(b)(2)).
iv. Other forms of passive income.

2. Corporate sponsorships:

a. Safe harbor rule (IRC § 513(i)).
b. Other tax treatment.
c. Matter of links.

3. Intermediate sanctions (IRC § 4958):

a. Excess benefit transactions in general.
b. Excessive compensation (IRS private letter ruling 200243057).
c. Revenue-sharing transactions.
d. Fund raisers as disqualified persons.

4. Exemption recognition application process (Form 1023).
5. Annual information return (Form 990).
6. Public charity classifications (IRC § 509(a)):

a. Various classifications.
b. Facts-and-circumstances test (Reg. § 1.170A-9(e)(3)).

7. IRS college and university examination guidelines.
8. IRS Implementing Guidelines.
9. Disclosure by noncharitable organizations (IRC § 6113).
10. Use of supporting organizations (IRC § 509(a)(3)).
11. Use of donor-advised funds.

C. Charitable giving law:

1. Charitable deduction rules (e.g., IRC § 170):

a. Determining what is a contribution.
b. Percentage limitations (IRC § 170(b)).
c. Deduction reduction rules (IRC § 170(e)).
d. Appraisal requirements (Reg. § 1.170A-13(c)).
e. Reporting rules (IRC § 6050L).
f. Ban on charitable split-dollar life insurance plans (IRC § 170(f)(10)).

2. Fund raising disclosure by charitable organizations.
3. Charitable gift substantiation requirements (IRC § 170(f)(8)) (Addis v. Commissioner, 118 T.C. 528 (2002), aff'd, 374 F.3d 881 (9th Cir. 2004)).
4. Quid pro quo contribution rules (IRC § 6115).
5. Planned giving vehicles:

a. Charitable remainder trusts (IRC § 664).
b. Pooled income funds (IRC § 642(c)(5)).
c. Charitable gift annuities (IRC § 514(c)(5)).
d. Other approaches.

6. Recently enacted rules:

a. Vehicle contributions (IRC § 170(f)(12)).
b. Intellectual property contributions (IRC §§ 170(e)(1)(B)(iii), 170(m)).
c. Expanded reporting requirements (IRC §§ 170(f)(11)(D), 6050L(a)(2)).

D. Other forms of federal regulation:

1. Postal laws.
2. Antitrust laws.
3. Securities laws.
4. Federal Trade Commission telemarketing rules.


IV. Local Law

A. Fund raising regulation ordinances.
B. Jurisdictional reach of these ordinances (American Charities for Reasonable Fundraising Regulation, Inc. et al. v. Pinellas County, 189 F. Supp. 2d 1319 (M.D. Fla. 2001), on remand, 221 F.3d 1211 (11th Cir. 2000)).
C. Gambling/gaming rules.