Nonprofit Law & Finance Essentials e-book set

Tools to Manage Money and Mission

Bruce R. Hopkins, Thomas A. McLaughlin, Laurence Scot

• Publisher: Wiley
• Year: 2012
• ISBN:
  9781118478424
• Edition: 1
• Topic: Commerce
• Subtopic: Organismes sans but lucratif et organismes de bienfaisance

The ultimate insider guide to managing your nonprofit effectively and protecting its mission—all in one affordable collection

This e-book bundle demystifies nonprofit laws and financial responsibilities, providing you with the expert advice to financially manage your nonprofit effectively and understand its complex legal issues. Written by renowned nonprofit leaders Bruce Hopkins, Thomas McLaughlin, and Laurence Scot, the Nonprofit Law and Finance Essentials e-book collection equips you to meet and manage your nonprofit's legal and financial obligations with step-by-step guidance, practical tools, and concrete strategies.

• Fundraising Law Made Easy /Bruce R. Hopkins—features the ins and outs of fundraising law from nonprofit law authority Bruce Hopkins
• Streetsmart Financial Basics for Nonprofit Managers, Third Edition /Thomas A. McLaughlin—presents plain-English direction for reading, interpreting, and implementing financial data
• The Simplified Guide to Not-for-Profit Accounting, Formation & Reporting /Laurence Scot—offers a wealth of solid information for understanding nonprofit financial transactions, financial statements, and internal and external reports

Learn how constitutional law, governance, and IRS audit practices pertain to charitable fundraising. Make management decisions that ensure your organization's long-term financial viability. Navigate unique nonprofit accounting rules. It's all at your fingertips with Wiley's Nonprofit Law & Finance Essentials e-book set, equipping you with the tools to manage money and mission.

This book is printed on acid-free paper.

Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Hopkins, Bruce R.

Fundraising law made easy / Bruce R. Hopkins.

p. cm.

Includes index.

eISBN : 978-0-470-53024-5

1. Fund raising-Law and legislation-United States. 2. Charitable uses, trusts, and foundations-United States. I. Title.

KF1389.5.H655 2009

344.7303’170681-dc22

2009013314

Preface

This book exists principally because of your author’s belief that the federal and state law concerning the regulation of fundraising for charitable purposes is one of the most fascinating aspects of the panoply of nonprofit law, and I wanted to capture it in a nontechnical form. As to the latter motive, I wanted the subject to be in the format of its companions, the books Nonprofit Law Made Easy, Charitable Giving Law Made Easy, and Private Foundation Law Made Easy. In format, style, and length, it parallels its siblings. The hope is that these four books, in tandem, will be of assistance in guiding non-lawyers through the maze of law concerning charitable fundraising, private foundations, other types of nonprofit tax exempt organizations, and charitable giving.

This book also, however, blatantly mimics still another Wiley book (the one that started it all): Not-for-Profit Accounting Made Easy. Lawyers and accountants in the nonprofit realm populate overlapping universes, so these four companion volumes about nonprofit law are a natural fit with the book on nonprofit accounting rules.

As was noted in the preface to Nonprofit Law Made Easy, I have never had the opportunity to discuss this accounting book with its author, Warren Ruppel. I cannot imagine, nonetheless, that he extracted as much enjoyment from this writing process as I have. After years of writing technical (and long) books about various aspects of nonprofit law, writing the charitable fundraising, private foundation, nonprofit organizations, and charitable giving books with this approach was pure pleasure. The biggest challenges, not surprisingly, were the decisions as to what to include and what to leave out. This book thus reflects my take on what constitutes the fundamentals of the law concerning the charitable solicitation process.

In any event, I had a far easier time of it than Mr. Ruppel did. He had to create his book; I had merely to imitate it. The substance obviously is different but the format is unabashedly copied. Consequently, the four law books are about the same length as his, there are likewise a dozen chapters in each, every chapter of these books opens with an inventory of what is coming and ends with a chapter summary and there are no footnotes. (The lack of footnotes came the closest, to derogating from the pleasure of writing these books.) The four books also share a similar dust jacket. So Mr. Ruppel and Wiley designed the original vessel; I poured my descriptions of the law into it.

Now, back to this matter of what to include and what to exclude. I included in this book the absolute basics, namely:

• A discussion of the law’s definition of charitable fundraising (such as it is)

• Fundraising methods and costs

• Relevant nonprofit law in general (as a primer)

• The states’ charitable solicitation acts

• The differences between private foundations and public charities

• Federal annual reporting requirements

• Charitable giving rules

• Unrelated business rules

• Other aspects of federal regulation of fundraising

• Constitutional law principles

But, wanting to do more, I worked in two hot nonprofit law topics, specifically, governance and IRS (Internal Revenue Service) audits, and made them as relevant as I could to the law of charitable fundraising.

Nonprofit law continues to be as dynamic as law can get; consequently, trying to capture what appears to be the basics of elements of this law at any point in time can be tricky business. Congress, the Treasury Department, the IRS, the courts, and others in federal and state government are certain to contribute their share of new law. For the sake of the charitable community, I hope coming law changes are not too tough on fundraisers and those charitable organizations, they, which are a meaningful component of the nonprofit sector and our society in general; fundraising professionals are an important part of American philanthropy.

As a nonaccountant in the nonprofit field, I am glad to have Not-for-Profit Accounting Made Easy as a guide to the basics of the accounting rules and principles applicable to nonprofit organizations. I have once again tried to emulate Mr. Ruppel’s work, to provide an equally valuable volume for the nonlawyer who needs a grounding in the law of charitable fundraising.

I extend my thanks to Natasha Andrews-Noel, senior production editor, and to Susan McDermott, senior editor, for their support and assistance in creating this book.

Bruce R. Hopkins September 2009

About the Author

Bruce R. Hopkins is a senior partner in the law firm of Polsinelli Shughart PC, practicing in the firm’s Kansas City, Missouri, and Washington, D.C., offices. He specializes in the representation of charitable and other nonprofit organizations. His practice ranges over the entirety of law matters involving tax-exempt organizations, with emphasis on fundraising law issues, charitable giving (including planned giving), the formation of nonprofit organizations, acquisition of recognition of tax-exempt status for them, the private inurement and private benefit doctrines, the intermediate sanctions rules, legislative and political campaign activities issues, public charity and private foundation rules, unrelated business planning, use of exempt and for-profit subsidiaries, joint venture planning, tax shelter involvement, review of annual information returns, and Internet communications developments.

Mr. Hopkins served as chair of the Committee on Exempt Organizations, Tax Section, American Bar Association; chair, Section of Taxation, National Association of College and University Attorneys; and president, Planned Giving Study Group of Greater Washington, D.C.

Mr. Hopkins is the series editor of Wiley’s Nonprofit Law, Finance, and Management Series. In addition to Fundraising Law Made Easy, he is the author of The Law of Fundraising, Fourth Edition; The Tax Law of Charitable Giving, Third Edition; The Law of Tax-Exempt Organizations, Ninth Edition; Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries; IRS Audits of Tax-Exempt Organizations: Policies, Practices, and Procedures; The Tax Law of Associations; The Tax Law of Unrelated Business for Nonprofit Organizations; The Nonprofits’ Guide to Internet Communications Law; The Law of Intermediate Sanctions: A Guide for Nonprofits; Starting and Managing a Nonprofit Organization: A Legal Guide, Fifth Edition; Nonprofit Law Made Easy; Charitable Giving Law Made Easy; Private Foundation Law Made Easy; 650 Essential Nonprofit Law Questions Answered; The First Legal Answer Book for Fund-Raisers; The Second Legal Answer Book for Fund-Raisers; The Legal Answer Book for Nonprofit Organizations; The Second Legal Answer Book for Nonprofit Organizations; and The Nonprofit Law Dictionary; and is the coauthor, with Jody Blazek, of Private Foundations: Tax Law and Compliance, Third Edition; also with Ms. Blazek, The Legal Answer Book for Private Foundations; with Thomas K. Hyatt, of The Law of Tax-Exempt Healthcare Organizations, Third Edition ; with David O. Middlebrook, of Nonprofit Law for Religious Organizations: Essential Questions and Answers; with Douglas K. Anning, Virginia C. Gross, and Thomas J. Schenkelberg, of The New Form 990: Law, Policy and Preparation; and also with Ms. Gross, Nonprofit Governance: Law, Practice, and Trends. He also writes Bruce R. Hopkins’ Nonprofit Counsel, a monthly newsletter, published by John Wiley & Sons.

Mr. Hopkins earned his JD and LLM degrees at George Washington University National Law Center, and his BA at the University of Michigan. He is a member of the bars of the District of Columbia and the state of Missouri.

Mr. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, Committee on Nonprofit Corporations. He is listed in The Best Lawyers in America, Nonprofit Organizations/Charities Law, 2007-2009.

1

INTRODUCTION TO THE LAW OF FUNDRAISING FOR CHARITY

The purpose of this chapter is to provide a framework consisting of the fundamental elements in federal and state law that shape the rules concerning fundraising for charitable organizations. Thus, this chapter will:

• Provide a definition of the phrase charitable fundraising.

• Address the concept of charitable sales.

• Explore the definition of the phrase charitable contribution.

• Describe the various methods of fundraising.

• Discuss the controversial matter of fundraising costs.

• Summarize the commensurate test.

• Enumerate the several issues pertaining to fundraising compensation.

• Explain the trap that lurks in the step transaction doctrine.

• Summarize the law concerning the enforceability of charitable pledges.

• Correlate the applicability of the public policy doctrine to the charitable giving setting.

DEFINITION OF CHARITABLE FUNDRAISING

A common perception is that there is a single type of activity termed fundraising , just as there is a prevailing view that all charitable gifts are made in cash. Most state and local, as well as some federal, regulatory approaches seem founded on this perception. An assumption is made that the law amply defines fundraising, when in fact it does not. Yet, to raise funds in this setting is to solicit gifts.

State Law

State charitable solicitation acts (see Chapter 3) usually define the word solicitation . These definitions generally are encompassing. This fact is evidenced not only by the express language of the definition but also by an expansive definition of the term charitable and application of these acts to charitable solicitations conducted, in common parlance, “by any means whatsoever.” A solicitation can be oral or written. It can take place by means of a variety of methods of communication (discussed ahead). Debate over the legal consequences of charitable solicitation over the Internet (discussed ahead) highlights the importance and scope of the word solicitation.

A most expansive, yet typical, definition of the term solicit states that it means any request, directly or indirectly, for money, credit, property, financial assistance, or other thing of any kind or value on the plea or representation that the subject of the gift is to be used to benefit a charitable organization or otherwise be used for a charitable purpose. Usually, the word solicitation is used in tandem with the word contribution (or gift) (discussed ahead). The term may, however, encompass the pursuit of a grant from a private foundation, other nonprofit organization, or a government department or agency. (About a dozen states exclude the process of applying for a government grant from the term solicitation; a few similarly exclude the seeking of private foundation grants.) There is no requirement that a solicitation be successful; a solicitation is a solicitation irrespective of whether the request actually results in the making of a gift.

A court created its own definition of the term solicit in this setting, writing that the “theme running through all the cases is that to solicit means to ‘appeal for something,’ ‘to ask earnestly,’ ‘to make petition to,’ ‘to plead for,’ ‘to endeavor to obtain by asking,’ and other similar expressions.” (The court ruled that a state’s charitable solicitation act did not apply to gambling activities held to generate funds destined for charitable purposes.)

Federal Lobbying Rules

At the federal level, the definition of fundraising that is most relevant (and accurate) in the charitable setting is found in an odd place: the tax laws restricting legislative activities by public charities. One of the law requirements is that these activities may not be substantial; an elective test provides allowable lobbying expenditures in terms of declining percentages of aggregate program (charitable purpose) expenditures. Exempt purpose expenditures, however, do not include amounts paid to or incurred for (1) a separate fundraising unit of the organ...