Asking for Donations? Be Sure You are Properly Registered

Q: Can you address what nonprofits must and should do about registering in their own and other states when they solicit donations? I am employed by a management support organization. Many of the nonprofits with which we work are not aware of the requirements and I would like to provide them with current information. I appreciate anything you can share with me on this matter.


A: You raise an issue that is getting a lot of attention today, especially from the states themselves and the IRS. The short answer is that organizations must be registered in the states in which they solicit funds. And, that might as well be every state if they have a “donate now” button on their website. While each state has different laws on the books – for instance, some allow for exemptions for such things as religious organizations, organizations receiving money from only a handful of individuals within the state or organizations receiving an insignificant amount of money from within the state – they are all looking for full compliance.

The registration requirements are not new. Organizations have long been obligated to register in those states in which they conduct a solicitation by any means – e.g., direct mail, email, raffle sales, telemarketing, personal visit and so on. This has been true whether or not the organizations have a physical presence in the state. Even the ubiquitous “donate now” buttons on websites can trigger registration requirements in states that argue that one of their residents could conceivably come upon one of these sites, see the button as a solicitation and be motivated to give.

Throughout the years, a number of organizations have received calls from states that proactively identified them as scofflaws, threatening fines and demanding immediate registration. In the grand scheme of things, it was not a large number. But, just because one of your organizations may have knowingly or unknowingly ignored these laws with impunity in the past, they do so now at their own peril.

Three situations have emerged to make this so. The first is the public’s growing unease over the scandals that have rocked both for-profit and nonprofit corporations, and the states’ corresponding desire to protect their citizens by, at the very least, keeping track of who is asking those citizens for money. Second, the poor economy has motivated states to look for every source of revenue they can find. Registration fees and fines for the failure to register contribute to states’ coffers. And third, the IRS did a major rewrite of the Form 990, which now requires nonprofits to report the states in which they must file a copy of their Form 990 and the states in which they are registered or have received an exemption from registering. These two questions allow the IRS to determine the states from which an organization has raised funds. Failing to answer is not an option. Answering falsely opens the leadership to charges of perjury. In either case, the leadership may be personally liable for civil and in some cases criminal penalties, which can bring fines up to $25,000 and potential jail time.

Ensuring one’s compliance to the filing requirements is not easy because each state has its own stipulations for registration. Some grant registration automatically if an organization files a copy of its IRS determination letter, along with a cover sheet that includes basic identifying information and any required filing fee. Thirty-six states, plus the District of Columbia, accept the Unified Registration Statement, version 3.20, which is available – with supplemental forms for 13 states – at www.multistatefiling.org. But, organizations still have to file this form separately in each state, along with the applicable filing fee. Still other states require completion of a unique registration form, plus any filing fee. The filing fees can range from $25 to $400. On top of this, registration is an annual requirement, with different filing deadlines in each state.

There are companies that will process all of an organization’s registration materials each year. They tend to run around $7500 in professional fees (exclusive of filing fees), with some a little less and some a little more. If an organization goes this route, it should be sure to ask what the fee covers and what level of accountability the company assumes if they miss a filing deadline or makes some other mistake.

Obviously, an organization can file its own registrations. It is my understanding that this takes an average of two weeks of dedicated attention, though not all at one time and each organization’s unique situation will impact the actual number of hours. Contact the states’ Attorney General or Secretary of State (the Department of Agriculture and Consumer Affairs in Florida and the Department of Consumer and Regulatory Affairs and the Office of Tax and Revenue in the District of Columbia) for specific requirements and to learn of any exemptions and penalties that might apply in the organization’s case.

While complex, registration is a task that cannot be put off. Get going today. Good luck.

Are You Prepared for When Disaster Strikes?

This past week news has centered on little other than the devastating impact of the earthquake in Haiti. The challenges of responding to this crisis are immense. More than one newscaster has claimed the task impossible, despite the outpouring of help from around the world, the hundreds of millions of dollars in donations and the fact that Haiti has over 10,000 NGOs of its own to mobilize – the highest number of NGOs per capita of anywhere in the world. True, this is an extraordinary situation. But, it should serve as a lesson to all organizations in our sector. We must be prepared for the unexpected, whatever form that might take. After all, experience teaches us it is not a question of “if” something untoward will occur, but “when.”

No area in the world is immune to natural disasters. Therefore, your organization is susceptible. Is your data protected and retrievable even if your computers are smashed, looted or swept out to sea? Do you have a staffing plan where people know who is to report, under what circumstances, and where to report if your physical space can’t be reached, is uninhabitable or otherwise compromised? Do you have a means of checking up on staff who don’t immediately report to be sure that they are okay? What about a plan for providing service when your normal operations are disrupted? How will you access critical supplies? How will you determine which programs have priority if you cannot, for some reason, provide them all? Do you have a process in place for communicating with your clients if basic telecommunications are disrupted? How will you triage their needs? Do you have agreements with other organizations to work together or even take over for you in times like these?

Then there are man-made disasters, which are even more likely to occur. Pick up a newspaper almost any day and there is a story about someone in the public eye who said something politically incorrect when out with “friends” or in front of a live microphone that was assumed to be off. It can happen to your executive administrator or a visible member of your board. What about a trusted staff member or volunteer who absconds with organizational funds? Or, a program that gets bad publicity? Perhaps someone associated with your organization is accused of sexual harassment. Or, your property is burglarized or significantly vandalized. The possibilities are endless. Are you prepared to handle them quickly and intelligently? Have you identified an organizational spokesperson who will serve as the (only) voice of the organization in these circumstances? Do you have a policy for whether you will be proactive or reactive in dealing with the press? A script by which you control the spin? What about procedures for staying in the public’s good graces?

While it is never possible to cover all contingencies, having risk and crisis management plans in place that deal with the most likely will serve you in good stead. Not only will you be able to quickly respond to the situations you’ve previously identified, you will have a plan from which to start – one you can adapt – when faced with the unexpected.

Few people like thinking about worst case scenarios – it’s why so many die without wills, despite the knowledge that we all will die. However, your organization made a commitment to the community when it opened its doors. You cannot afford to be ill prepared to meet that commitment. As such, you need plans that are updated as new situations reveal missing elements. Bring key stakeholders in today and start them brainstorming. Tomorrow may be too late.

Giving to help Haiti

The devastation in Haiti is agonizing to see. Most of us want to contribute in some way to help. Please be sure that your donation goes to a legitimate charitable organization and gets to Haiti to help those who need it most. If you are unsure which organizations are worthy of your support, take a look at this article "How to Spot Dubious Haiti Charity Pleas" on Forbes.com.

We, and many of our fellow consultants, are often asked to help people create new nonprofit organizations. One of our esteemed colleagues, Don Greisman, has written a splendid article on why in most cases this is NOT a good idea, and suggests alternatives. If you or someone you know is toying with this idea, reading this thoughtful article is a must.

Secret Ballot or a Show of Hands

Q: We have an election coming up and a number of us would like to know the most common practice of nonprofit boards: To elect board members by public vote or secret ballot?


A: Given your question, it appears your vote is not proforma. Good. I give extra points to any organization that questions how to move forward and with whom. I trust it means that you have sufficient depth of leadership to require a serious vote and that you are looking for the most effective means of achieving that.

Both voting procedures are commonly used. I am unaware of one being used significantly more than the other. The approach a specific organization takes is often spelled out in that organization’s bylaws.

If your bylaws do not specify the technique to use, consider the advantages and disadvantages of each. The public vote is faster and everyone sees the will of the people. However, the results of a voice vote may be determined on the basis of the group that projects the loudest. And, if the first candidate gets a particularly hearty response, those intending to vote for the second candidate may feel the majority has spoken and opt not to vote rather than be associated with what they perceive will be the losing side. Even a show of hands can be inaccurate unless several people are counting and all arrive at the same number. However, a secret ballot has its own problems. It takes longer. And, if the nominations were contentious, there may be a question about the validity of the vote and/or the subsequent count. Of course, this can be mitigated if ballots are numbered and accounted for, and there are representatives from “both sides” counting the ballots.

What is far more important than the type of vote is that you have a thoughtfully-considered list of criteria for board service. That makes it easier for your governance or nominating committee to vet the nominees and assure the voting body of the capability of each person up for election to the board. As long as each candidate meets the defined criteria, the format you ultimately choose shouldn’t matter. Everyone can feel comfortable that any of the people on the ballot will represent the community well if elected.

IRS Issues 990 Guidelines to Its Agents

It's time to start thinking about filing your organization's 990. As you undoubtedly know, the new form looks very different from that in years past. The IRS has been providing its agents with guidelines that will help them evaluate the completed forms they receive. We thought you might want a copy of those guidelines so that you can be sure you are meeting the agency's expectations.

Governance Project: Guide Sheet for Completing the Project Check Sheet

1. Enter the Agent’s name and group number.

2. Enter the name of the organization examined.

3. Enter the EIN of the organization examined.

4. Enter the tax period or periods examined.

5. Enter the Form being examined (Form 990, Form 990-EZ,or Form 990-N). If different Forms were filed, enter the Form filed for the primary year under
examination. If the organization was not required to file a Form 990, Form 990-EZ,or Form 990-N, select Not Applicable.

6. Enter the organization’s foundation code.

7. Select Yes or No depending on whether the organization has a written mission statement that reflects its current I.R.C. § 501(c)(3) purpose(s). If the organization does not have a written mission statement, answer No. Likewise, if the organization has a written mission statement but its current activities do not reflect that mission statement, answer No even if the organization is fulfilling other appropriate I.R.C. §501(c)(3) purposes.

8. For each item, select Yes – just officers, Yes – just directors, or Yes – both, as appropriate, based upon whether the organization’s bylaws address the listed
information with respect to those individuals. Select No if the bylaws do not address the listed information at all, or N/A – No Bylaws if the organization has no bylaws.

9. Select the appropriate box or boxes corresponding to those individuals or groups of individuals to whom the organization provides copies of its most recent articles and bylaws.

10. Enter the number of board members with voting rights as of the first date of the primary tax year under examination.

11. a. Select the appropriate response (Once per year, Twice per year, Quarterly, Once per month, Twice per month, or Other) depending on the number of times the board met during the primary year under examination.
b. Select the appropriate response (Once per year, Twice per year, Quarterly, Once per month, Twice per month, or Other) depending on the number of times the board met during the primary year under examination. The board includes members with voting rights as well as those without voting rights. For purposes of this question, the term full board does not require that all board members actually be present.

Example: If all board members were invited to attend a meeting and the board
actually met, then this would qualify as a meeting of the full board.

12. Select the appropriate response (Yes-met the requirements, Yes-exceeded the requirements, No-did not meet the requirements) depending on whether the number of meetings actually held by the board met or exceeded the meeting requirements as set forth in the bylaws.

For example, if the bylaws provided that the board would meet monthly (twelve times in a year) and the board only met ten times during the primary year under examination, then the response would be No. If the board does not have bylaws, the appropriate response is N/A – No bylaws.

13. Select Yes or No depending on whether compensation arrangements for all officers, directors, trustees, and key employees are approved in advance by an authorized body of the organization composed of individuals with no conflict of interest with respect to the compensation arrangement. If anyone with a conflict of interest with respect to a particular compensation arrangement participated in the approval of that particular compensation arrangement, the appropriate response is No. Select N/A – No Compensation Provided as appropriate. For purposes of this question, officers,directors, trustees, and key employees are the same as the definitions contained under I.R.C. § 4958.

14. a. Select Always, Sometimes, or Never depending on whether the organization’s authorized body relies upon comparability data in making compensation determinations. Select N/A – No Compensation Provided as appropriate.
b. If you responded Always or Sometimes to 14a, select the appropriate box or boxes corresponding to the comparability data considered by the organization in making its compensation determinations.
c. If the Other response is selected for 14b, please write in a brief description of the other comparability data referred to.

15. Select Yes or No depending on whether the organization contemporaneously documents the basis for its compensation determinations. For example, do the organization’s meeting minutes or other documents, created at the time compensation is approved, reflect the reasons underlying particular compensation determinations?Select N/A – No Compensation Provided as appropriate.

16. a. Select Yes or No depending on whether any of the organization’s voting board members have either a family or business relationship with any other voting or nonvoting board member, officer, director, trustee, or key employee. Family relationships include those of spouses, brothers or sisters, spouses of brothers or sisters, ancestors, children, grandchildren, great grandchildren, and spouses of children, grandchildren and great grandchildren. For purposes of this question, officers, directors, trustees, and key employees are the same as the definitions contained under I.R.C. § 4958.
b. If you responded Yes to question 16a, enter the number of such family or business relationships that exist.
c. If you responded Yes to question 16a, enter the number of voting members with family relationships, the number of voting members with business relationships, and the number of voting members with both types of relationships with any other voting or non-voting board member, officer, director, trustee, or key employee. The number of family, business, or both relationships should equal the number of relationships indicated in question 16b.

Example: An organization has a total of ten board members. Husband and Wife both serve on the board. Wife and another board member are the sole shareholders in a for-profit corporation. In addition, Wife and Husband are partners in a for-profit organization. For 16a, the answer would be yes. For 16b, the total number relationships would be two. For 16c, the answer would be one business relationship (the relationship between Wife and the other board member) and one for both (since Husband and Wife have both a family relationship and business relationship.

17. Select Yes or No depending on whether effective control of the organization rests with a single or select few individuals. For example, is there a single individual or small group of individuals to whom the board typically defers?

18. a. Enter Yes or No depending on whether the organization has a written conflict of interest policy.
b. If you responded Yes to question 18a, select Yes or No depending on whether the conflict of interest policy addresses recusals. If you responded No to 18a, select Not Applicable.
c. If you respond Yes to 18a, select Yes or No depending on whether the conflict of interest policy requires annual written disclosures of conflicts of interest. If you responded No to 18a, select Not Applicable.
d. Select Never adhered to, Sometimes adhered to, Always adhered to, or Not
Applicable depending on whether the organization’s conflict of interest policy was adhered to. For example, did those with a conflict of interest on a particular matter recuse themselves from the corresponding decision making process? If you responded No to 18a, select Not Applicable. If no actual or potential conflicts of interest were disclosed during the primary year under examination, select Not Applicable.

19. Select Yes or No depending on whether the organization has systems or procedures in place intended to ensure that assets are used properly and consistently with the organization’s mission.

20. a. Select Never, Once per year, Twice per year, Quarterly, Once per month, Twice per month, or Other depending on how often the organization provided board members with written reports of the organization’s financial activities. The board includes members with voting rights as well as those without voting rights.
b. Select Never, Once per year, Twice per year, Quarterly, Once per month, Twice per month, or Other depending on how often the board discussed/considered reports of the organization’s financial activities. For example, look at whether the organization maintained complete, current, and accurate financial records, and whether the board had and exercised the opportunity to discuss/consider those reports and records. The board includes members with voting rights as well as those without voting rights.

21. Select Yes or No based on whether, prior to filing, the organization’s Form 990 was reviewed by either the full board or a designated committee. Please note that the question addresses a review of the Form 990 prior to filing, not merely receipt of the Form 990 prior to filing. If the organization was not required to file a Form 990,Form 990-EZ, or Form 990-N then select Not Applicable.

22. a. Select Yes or No depending on whether an independent accountant’s report was prepared during the primary year under examination.
b. If you responded Yes to 22a, select Yes or No depending on whether the
accountant’s report was discussed/considered by either the full board or a designated committee. If you responded No to 22a, select Not Applicable.

23. a. Select Yes or No depending on whether a management letter was prepared by an independent accountant during the primary year under examination.
b. If you responded Yes to 23a, select Yes or No depending on whether the
management letter was reviewed by either the full board or a designated committee. If you responded No to 23a, select Not Applicable.
c. If you responded Yes to 23a, select the appropriate response (Yes - adopted some, Yes – adopted all, or No – adopted none) based on whether the organization adopted any of the recommendations contained in the management letter. If you responded No to 23a, select Not Applicable.

24. a. Select Yes or No depending on whether the organization has a written policy for document retention and destruction.
b. If you responded Yes to 24a, select the appropriate response (Yes – all of the
time, Yes – some of the time, or No – none of the time) depending on whether the organization adhered to its written document retention and destruction policies during the primary year under examination. If you responded No to 24a, select Not Applicable.

25. Select the appropriate response (Yes – all of the time, Yes – some of the time, or No – none of the time) depending on how often the board of the organization contemporaneously documents its meetings and retains this documentation.

26. Select the appropriate response depending on whether your examination was hindered by a lack of necessary documentation. Consider whether documents that should have been available were never produced, prematurely destroyed, or otherwise unaccounted for.

27. Select the examination disposal code for the primary return from the drop down menu.

28. Select the principal issue codes for the primary return from the drop down menus.

How Can I Get My Board to Evaluate Me?

Q: Could you refer me to an appropriate form or format for executive director evaluation? I am the executive director. While the board says it appreciates the work I have accomplished, I can’t seem to get anyone to formalize this feedback or talk about the raise I was promised as inducement for my accepting the position originally. I submitted a detailed progress report on my first anniversary, enumerating all that I had achieved. This included cutting costs equal to my annual salary, creating procedures where none existed previously and building our brand. I find myself, seven months later, still waiting for my first evaluation. The board recently asked me to find an evaluation form that it can use to facilitate the process. I’m hoping that if I give the directors one, they will finally sit down with me. In doing my research I came across your article, “Evaluating the Top Administrator: A New Approach,” and I thought you might be able to point me in the right direction. Thank you.

A: I can feel your frustration. It’s hard putting your heart and soul into a job, not knowing whether your bosses think you are on the right track, let alone whether or when you’ll get that promised raise. All of us deserve an evaluation. It’s the opportunity to get some pats on the back and learn where we need to grow.

However, I’m not surprised that your board keeps putting off your evaluation. As you read in the article to which you refer above, most people are very uncomfortable judging others. And, in today’s economy, where uncertainty reigns, you can understand why the directors might be less than anxious to provide any evaluation, let alone one they tied to a raise.

Let me start by saying congratulations for all that you have accomplished in a relatively short time. It is impressive and I’m sure the directors that verbally express appreciation are sincere. I must ask, though, whether these goals were the board’s priorities or yours. The fact that the board as a whole has not rushed to praise you leads me to suspect that these were your priorities and the board doesn’t know how to say it wishes you had done other things instead. I further suspect that the directors are hoping you will present them with an evaluation form that lists a plethora of typical tasks that they can then say you ignored as you forged ahead following the beat of your own drummer.

I hope I am wrong. The only way to avoid this in the future is to sit down together with your board and create a list of specific goals that are tied directly to the organization’s vision and for which you will be responsible. Each goal should be measurable and have a deadline for achievement. Each should specify whether the accomplishment is expected or whether it would be seen as exceeding expectations. Any promises of a raise should be in writing and tied to these goals. (Note – in these times do not be surprised or upset if the board doesn’t wish to commit to any sort of raise or bonus. Most likely, it is just being prudent with the organization’s funds.) I would also suggest that you put dates on the calendar right now for a quarterly or six-month review. The dates are more likely to be honored if they are already scheduled. If you wait until the evaluations are due it is too easy to let day to day crises prevent you from making the necessary time.

Of course none of this addresses the specific concerns you raised. I would go to your board chair and ask for a date within the next two weeks that you can put on your calendar for an evaluation. I would remind him or her that evaluations are a “best practice.” They are more critical today than ever before because they will ensure that you and the board are of a single mind moving forward in these chaotic times. You are holding your staff accountable for meeting the needs of the community and you expect to be held accountable as well. You are always looking to grow and you know that you can benefit from the board’s observations. You count on the board’s ability to share the community’s perceptions of you and the organization, and an evaluation provides the perfect opportunity to get these perceptions out on the table…. I could go on, but I’m sure you get the idea. The one thing I would not mention is that you are looking forward to discussing money. Get the evaluation first. You can always speak about money later.

When you approach the board chair I would acknowledge that you were asked to find an evaluation form that the board can use. I would say, however, that the more you researched the more you heard that off-the-shelf evaluation tools prove inadequate because no two executive director/CEO jobs are the same and check boxes or Likert scales fail to adequately reflect either the job that is being done or that needs to be done in the future. You can refer him or her to the article you found and referenced in your question. Suggest that you are willing to sit down with a small group of directors to help them determine the skills and characteristics that they see as important for the executive director of your organization to have at this time in history and at this point in the organization’s march toward vision accomplishment. You might also say that you have given the subject some thought and are prepared to help the board committee come up with something mutually satisfactory in a single meeting. (Remember, you don’t want this process to drag on any longer.) Of course, that means you must do your homework and be prepared to come with your ideas fully formed!

Good luck.