The Law of Fundraising. Bruce R. Hopkins

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      The IRS's view is that fundraising does not include gaming; the conduct of a trade or business that is regularly carried on; and activities that are substantially related to the accomplishment of the organization's exempt purpose (other than by raising funds). The parenthetical phrase is not needed inasmuch as programs and fundraising are discrete and different activities.

(j) Commercial Coventurer

      Commercial coventuring occurs when a for-profit, commercial business enterprise announces to the public that a portion (a specific amount or a specific percentage) of the purchase price of a product or service will, during a stated period, be paid to one or more named charitable organizations. This arrangement usually results in a charitable contribution by the business enterprise, the amount of which is determined by and depends on consumer response to the promotion. (There is no charitable deduction for participating consumers.) This venture produces gift revenue to the beneficiary charity or charities and positive community awareness for the business sponsor.

      A traditional definition of the term commercial coventurer (the for-profit business enterprise) is any person who for profit is regularly and primarily engaged in trade or commerce, other than in connection with the raising of funds or any other thing of value for a charitable organization, and who advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.

It has become common to define a commercial coventure as a charitable sales promotion. This approach defines the promotion as an advertising or sales campaign, conducted by a commercial coventurer, which represents that the purchase or use of goods or services offered by the commercial coventurer shall benefit, in whole or in part, a charitable organization or charitable purpose. In this setting, the term commercial coventurer is defined as a person who for profit is regularly and primarily engaged in trade or commerce, other than in connection with soliciting for charitable organizations or purposes, and who conducts a charitable sales promotion. These definitions, or versions closely akin to them, are used in about a dozen states.

      The term commercial coventure is, in several respects, unfortunate. The word coventure suggests that the charitable organization involved is engaged in some form of a joint venture with the participating business enterprise. Also, the term implies that the beneficiary charitable organization is embroiled in some undertaking that is commercial. Both connotations have potential adverse consequences in law, in the tax-exemption setting, and in the unrelated business income setting.

(k) Administrative Agency

      The enumeration of definitions in a charitable solicitation act often includes reference to the state agency, department, or official with the responsibility for administration and enforcement of the statute. Predominantly, the administrative and enforcement authority is in the office of the state's attorney general. In many states, however, the authority is in the department of state.

      Otherwise, there is little commonality regarding the location of the regulatory authority in this area. In several states, the emphasis is on consumer protection; thus, the authority is in a department of consumer protection, department of agriculture and consumer services, department of commerce and consumer affairs, a division of consumer protection within the department of commerce, and the like. In a few states, the orientation is regulation of business activity; in this case, the authority is in a department of economic development, a department of business regulation, a department of regulation and licensing, or the like.

      In some states, the authority to enforce the charitable solicitation act is vested in the attorney general, with the administrative or regulatory authority lodged in another department or agency of the government.

§ 3.3 PREAPPROVAL

A fundamental requirement of nearly every state charitable solicitation act is that a charitable organization (as defined in that law and not exempted from the obligation)³⁵ that intends to solicit—by any means—contributions from persons in that state must first apply for and acquire permission to undertake the solicitation. This permission, which must be secured by both domestic (in-state) and foreign (out-of-state) charitable organizations, is characterized as a registration in most states. In other states, it is cast as an application for a license, a filing of a statement, a filing for a certificate, a filing for a permit, or a filing of a solicitation notice.³⁶ Some states with a form of statutory law on this point do not have any registration or similar requirement for charitable entities.

      Typical wording of a provision of this nature is that every charitable organization that intends to solicit contributions within the jurisdiction, or have funds solicited on its behalf, must, prior to any solicitation, file a registration statement.

      If the application for this permission is successful, the result is authorization to conduct the solicitation. Application for the registration, license, or other permit is most frequently made to the office of the attorney general or the secretary of state.

      Generally, the law requires a principal officer of the charitable organization to certify the accuracy of and to execute the registration statement, license, application, or the like.

      The statute usually enumerates the categories of information, about the charitable organization and the solicitation, that must be in the registration statement or other application. These categories of information most frequently are some or all of the following:

       The name of the organization

       The name in which the organization intends to solicit contributions

       The principal address of the organization and the address of any office in the state or, in the absence of an office, the name and address of the person having custody of the organization's financial records

       The names and addresses of any chapters, branches, or affiliates to be located in the state

       The names and addresses of the organization's trustees, directors, officers, executive staff, and registered agent

       The place where and the date when the organization was legally established

       The form of the organization (corporation, trust, or unincorporated entity)

       A statement about the organization's classification as a tax-exempt organization under federal law³⁷

       The purpose or purposes for which the organization was founded

       An income and expense statement, and an asset and liability statement, for the organization's immediately preceding tax year (perhaps audited), showing, among other items, the type and amount of funds raised, expenses for fundraising, and expenditures of the funds raised

       The methods by which solicitations will be made, including use of a professional fundraiser and/or professional solicitor³⁸

       The purpose or purposes for which the contributions to be solicited will be used

       The names of the individuals who will have final responsibility for the custody of the contributions

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