Source: https://foundry.legal/nonprofit-pbcs-and-social-impact/memo-to-nonprofit-founders-charitable-solicitation-requirements-in-colorado/
Timestamp: 2019-11-21 11:24:34
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Memo to Nonprofit Founders: Charitable Solicitation Requirements in Colorado » Foundry Legal, LLC
Topics: Forum Content, Nonprofit, PBCs, and Social Impact
THE COLORADO CHARITABLE SOLICITATIONS ACT: WHAT YOU NEED TO KNOW
TO: Nonprofit founders and executive directors
FROM: Foundry Legal, LLC
We prepared this memo to help you meet your compliance obligations in Colorado. In Colorado, a statute known as the Colorado Charitable Solicitations Act (“CCSA”) requires that organizations that solicit Coloradans for charitable donations register with the state. What follows is some general information about the law as well as an up-to-date summary of the steps your organization must take in order to comply with the CCSA. Be sure to consult with the statute directly for the specific requirements, or consult our office to assist.
OVERVIEW OF REGISTRATION REQUIREMENT.
ONGOING ANNUAL REPORTING OBLIGATIONS.
Colorado is one of the many U.S. states that requires charities and other nonprofit organizations to register with a state agency when soliciting contributions from persons located within that state. If you reasonably anticipate that your organization will solicit donations exceeding $25,000 or if you pay a consultant to help with your fundraising, you must register with the state of Colorado prior to initiating any campaigns or requests for donations. Also, each year you must make a filing with the State of Colorado, which will include your federal Form 990 tax filing as well as some other information, to stay compliant.
Penalties are typically monetary and range upwards from $60 for a single violation. All registrations are managed online via this website: https://www.sos.state.co.us/ccsa/pages/public/createAccountEin.xhtml.
And guess what? Other groups may be subject to requirements the CCSA:
For-profit groups conducting charitable sales promotions.
Charitable groups being assisted by solicitation agents.
Contact experienced legal counsel to help you navigate the CCSA and related rules.
II. OVERVIEW OF REGISTRATION REQUIREMENT
Many U.S. states require charitable nonprofit organizations to register with a state agency when soliciting contributions from persons located within that state. Many states, including Colorado, enacted these requirements as a means to curb the widespread practice of fraudulent charitable solicitations. Colorado found that each year millions of dollars were being siphoned away from legitimate charitable causes and directed towards illegitimate, non-charitable activities. The nonprofit registration system enables the public to make better-informed decisions about the legitimacy of a charitable organization and the funds those organizations raise.
In Colorado, all charitable organizations that “reasonably anticipate” raising more than $25,000 in one fiscal year must register with the Secretary of State before beginning their solicitation. Even “Newly-Formed Charitable Organizations,” defined as organizations that have not reached the 15th day of the fifth month following the close of the first fiscal year, must register. The registration process takes place on the Secretary of State’s website. Below, you can find direct links to specific webpages and helpful FAQ. As always, please don’t hesitate to reach out if you have any questions or need assistance. We are here to help in any way we can!
There are three different categories of actors who must register under the act. “Charitable organizations”, “professional fundraising consultants,” and “paid solicitors” are all required to register prior to taking part in any type of solicitation for contributions and are also required to update their registration annually. Failure to abide by the Act can result in fines or, for more serious violations, criminal penalties. Although most nonprofit entities will be considered a charitable organization according to the CCSA, it is important to pay attention when dealing with the other two types (fundraising consultants and paid solicitors) as there are specific reporting requirements for such relationships.
III. REGISTRATION & EXEMPTIONS
A. Which Organizations Need To Register and Which are Exempt
Pursuant to C.R.S § 6-16-101 et seq., every charitable organization that intends to solicit contributions in the state of Colorado or have contributions solicited in Colorado on behalf of the organization, or that participates in a charitable sales promotion, must register.[1] A charitable organization is defined as:
any person who is or holds himself out to be established for any benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary purpose, any person who operates for the benefit of the objectives of law enforcement officers, firefighters, other persons who protect the public safety, or veterans, or any person who in any manner employs a charitable appeal or an appeal which suggests that there is a charitable purpose as the basis for any solicitation.”[2]
Some charitable organizations are exempt from the § 6-16-104 requirements—namely, those that:
Do not intend to and do not actually raise or receive gross revenue in excess of $25,000 dollars during a fiscal year (excludes grants from governmental entities or from 501(c)(3) registered organizations)[3];
Do not receive contributions from more than 10 persons during a fiscal year[4];
Exclusively solicit funds on behalf of a specific individual named in the solicitation, provided that all proceeds are for the direct benefit of the individual[5]; or
Are formed as political parties, candidates for federal or state office, and/or political action committees (which are required to file financial information with federal or state elections commissions).[6]
If an organization is exempt from registration, it must indicate the exemption and cite the basis in response to any Secretary of State inquiry.
More about exemptions can be found here.
B. When to Register
If your organization anticipates receiving or actually receives donations that exceed $25,000 in a single fiscal year, it must register with the state prior to beginning solicitations in Colorado. (Though “solicitation” is not defined in the statute, organizations should rely on an ordinary dictionary definition of solicit, “approach with a request or plea.”[7]) Anyone who searches for the organization by name or EIN on the Colorado public search page will be presented with information about the charity.
Some organizations that are likely exempt from the requirement may still prefer to register in the interest of transparency, so that potential donors who are investigating the organization will find information they expect to find. A charity may file an exemption statement at the same time as completing registration; this will describe basis of the exemption (and thus lessen the risk of penalties being imposed for noncompliance) while allowing search results to authenticate the organization’s status and other information donors may be interested in knowing about the organization. [8]
C. What You’ll Need
As of October 2018, registration must be completed and signed electronically via the Secretary of State’s online system.[9] First, create an account with a name, valid email address and organization EIN.[10] (After registering, log in to the site at this link.) The person who electronically signs the registration statement must be “an officer of a nonprofit corporation, a trustee of a charitable trust, or a senior manager member of any other entity subject to the filing requirements of the CCSA.”[11] The organization’s representative will receive a user ID and password after registering.
Colorado registrants must provide the following:
The name of the charitable organization, its organizational purpose, and the name(s) under which it intends to solicit contributions;
The address and telephone number of the principal place of business, the address and telephone number of any offices in Colorado, OR if it does not have an office within Colorado, the name, address, and telephone number of the person in custody of its financial records (note: P.O. Boxes are not acceptable and applications without a physical address may not be accepted);
The names and titles of the officers, directors, trustees, and executive personnel of the charitable organization;
The last day of the fiscal year of the charitable organization (use the tax year designated in the Bylaws and on IRS Form 990);
The place and date when the charitable organization was legally established, the form of its organization, and its tax-exempt status;
A financial report for the most recent fiscal year, upon a form prescribed by the secretary of state, or, in the discretion of the secretary of state, a copy of the charitable organization’s federal Form 990, with all schedules except schedules of donors, for the most recent fiscal year.[12]
The names and addresses of any paid solicitors, professional fundraising consultants, and commercial coventurers (i.e. those who solicit sales of a product or service that include a representation that some portion of the price is devoted to a charitable organization) acting on behalf of the organization.[13]
CO Secretary of State, “Common Mistakes to Avoid” – These are the Secretary of State’s top 8 reasons for rejection and how to avoid them.
Under certain circumstances, a charitable organization must file a short-period registration and financial statement: for example, if the organization has not been in existence for an entire accounting period, if the organization changes its accounting period, the organization merges out of existence, or the organization dissolves before the end of its accounting period.
Complying with the charitable registration requirement is that it is not expensive:
Application for a new registration number: $10
Amendment to registration: $10
Annual registration renewal fee: $10
But failing to meet deadlines can be pricey:
Penalty for a late-filed registration: $50
E. Timing of Review by SOS
An initial review by SOS to determine that all requirements have been satisfied and notification of any deficiencies in the application will take place within 10 days of the receipt of the application.
Following the Secretary of State’s approval, the organization will be issued a permanent registration number or update the registrant’s status and confirm the registrant’s authorized officer via e-mail. Thereafter, as long as an organization’s registration has not been denied, suspended, revoked, withdrawn, or expired, the entity may obtain a registration certificate to verify the organization’s status.[14]
CO Secretary of State “Instructions for Registering as a Charitable Organization” – includes steps for registering online, resources if you’re not sure you need to register, what to do if you don’t have financial figures yet, and reasons for rejection.
IV. ONGOING ANNUAL REPORTING OBLIGATIONS
After initial registration, all registered charitable organizations must file an annual financial report with the CO SOS. We recommend that the organization’s chief recordkeeper (i.e., whether that be the Secretary or President) take responsibility for the filing. In addition, any changes to the organization’s address, principals, corporate forms, tax status, or other details about the identity or business of the organization must be updated with the CO SOS promptly.[15]
A. When to File Renewal
Provided that a charitable organization has not filed a tax deadline extension with the IRS, they must file their registration and financial report for the most recent year by the 15th day of the 5th calendar month after the close of each fiscal year in which the charitable organization solicited in Colorado. If the organization did file an IRS tax filing extension, the Colorado deadline is auto-extended by three months, per the chart below:
Extensions beyond the automatic three-month extension are by request, and must be accompanied by an explanation of the reason for the request.
Thereafter, renewals may be submitted as early as the close of the accounting period to which the filing applies, and no than 365 days following the initial registration.
B. Annual Renewal Filing
Confer with your nonprofit’s CPA/financial officer and recordkeeping officer to collect the following information for the annual renewal filing:
A financial report for the most recent fiscal year (which should be consistent with the IRS Form 990);
A copy of the organization’s IRS Form 990 for the most recent fiscal year;
Any changes of name, address, principals, corporate forms, tax status, and amendments among other changes that affect the identity or business of the organization.
CO Secretary of State – FAQs – information on renewal, fee schedule, how to file a renewal, and important due dates for renewal depending on organization’s fiscal year.
Per statute, no charitable organization, prior to registration, shall solicit contributions in Colorado by any means, have contributions solicited in Colorado on its behalf by any other person or entity, or participate in a charitable sales promotion. No charitable organization shall aid, abet, or otherwise permit any paid solicitor to solicit contributions on its behalf in Colorado unless the paid solicitor soliciting contributions has complied with all requirements under Section 6-16-104.
Penalties for failure to register may include fines, suspension, or revocation. For example, there is a $60 fine for every overdue report or overdue update of estimated financial information and a $300 fine for continuing to solicit contributions before registering and after notification.[16] If a nonexempt organization solicits contributions before filing its initial registration OR before renewing its registration, it is required to provide financial reports for the last three fiscal years OR for the period of solicitation (whichever may be shorter).
VI. ADDITIONAL RESOURCES.
Here are a few important resources for the state of Colorado:
A. Statutes and Regulations:
Foundry Legal: Selected Statutes, C.R.S. 6-16-104
Colorado Secretary of State: C.R.S. Title 6, Article 16, Colorado Charitable Solicitations Act
Lexis Nexis (Official Statutes): Official Statutes
Implementing regulations: Rules for the Administration of the Colorado Charitable Solicitations Act
C. Secretary of State:
Code of Colorado Regulations 1505-9: Rules for the administration of the Colorado Charitable Solicitations Act, permanent rules and changes
Annual Reports on Charitable Solicitations overview of Colorado’s charitable solicitations law, tips, review of industry standards for accountability, guides for evaluating charities, and statistics. See also PDF version – 2017 Report.
CO Secretary of State “Instructions for Registering as a Charitable Organization” includes steps for registering online, resources if you’re not sure you need to register, what to do if you don’t have financial figures yet, and reasons for rejection
CO Secretary of State “Instructions for Annual Renewal” includes information on renewal, fee schedule, how to file a renewal, and important due dates for renewal depending on organization’s fiscal year
CO Secretary of State “Instructions for Requesting an Extension” includes information on extension requests, compliance with the IRS extension period, when you should request an extension, and information on additional extensions (more than 3 months)
CO Secretary of State “Instructions for Changing the Authorized Officer” includes instructions for changing the authorized officer or signer for your organization, who can be an authorized officer, and what to do with your account in the case of changing an authorized officer
CO Secretary of State “Instructions for Withdrawing” includes what to do if you have changed locations, no longer have to register, and when to file a withdrawal
C. Other state requirements
Over 40 states have state-level registration requirements. Some of these requirements are triggered by mere presence alone. Visit the IRS website and the list of state requirements here to find out what requirements might apply in other states where your charity operates.
See, e.g., Illinois Solicitation for Charity Act
Registration: http://www.illinoisattorneygeneral.gov/charities/register_report.html
General checklist/other:
http://www.ag.state.il.us/charities/Charitable_Organization_Checklists.pdf
http://www.ag.state.il.us/charities/index.html
https://myforefront.org/sites/default/files/files/pages/Purple%20Book%20PDF.PDF
Colorado Nonprofit Association – State-wide resource and collective voice for Colorado’s nonprofit sector, includes materials, education and publications for members
The following terms are definitions used in the implementing regulations (available here) useful in understanding legal compliance as a charitable organization.
(C.R.S. § 6-14-103)
Accounting period: The time period for keeping records and reporting income and expenses
Agent: An individual that transacts business or manages affairs for the principal and provides and accounting to the principal; includes subcontractors
Authorized officer: individual designated by the filing entity to electronically sign forms on behalf of the organization in accordance with the CCSA; must be an officer of a nonprofit corporation, trustee of a charitable trust, or a senior manager member of any other entity subject to filing requirements
Bona fide personal emergency: Includes:
A medical emergency affecting a registrant or member of registrant’s immediate family, including incapacitation, hospitalization, accident, or death
A practical emergency including extraordinary obstacles out of the registrant’s control that prevents timely disclosure such as the loss or unavailability of records or a computer due to fire, flood, or theft
Failure to timely file documents due to failure to plan
Misunderstanding of applicable disclosure requirements and deadlines
Mistakes in electronic filing submission, including incomplete filings resulting in rejection of the document
Lack of access to internet or computer
Lack of corporate credit card or other means of making online payments
CCSA: Colorado Charitable Solicitations Act, codified at Article 16 Title 6, C.R.S.
Directly employed: The charitable organization controls or directs the means and methods of accomplishing the result of the individual’s work, regardless of whether the individual is employed full-time or part time, paid a salary, on commission, or called employee, agent, or independent contractor
EIN: Employer Identification Number used by the IRS to identify a business entity
Fiscal year: annual accounting period (“tax year”)
Gross revenue: All revenue received from any source during the organization’s accounting period, without subtracting costs or expenses. “Gross revenue” excludes receipt of funds by a pass-through agent that lacks the right to use or benefit from them
Newly-Formed Charitable Organization: An organization that has not reached the 15th day of the fifth month following the close of its first fiscal year
Principal Place of Business: Street address of the organization’s usual place of business, does not include a post office box or private mailbox
Registrant: Refers collectively to charitable organizations, professional fundraising consultants, and paid solicitors subject to CCSA requirements
Short–period registration and financial statement: Registration and financial statement covering a period of less than 12 months
Subcontractor: Agent, not employee, of a paid solicitor who solicits on behalf of the paid solicitor for the benefit of a charitable organization that contracted with the paid solicitor
[1] C.R.S. § 6-16-104, available at – https://www.sos.state.co.us/pubs/info_center/laws/Title6/Title6Article16.html#a6-16-103 (last visited October 6, 2018).
[2] C.R.S. § 6-16-103(1).
[3] C.R.S. § 6-16-104(6)(c).
[4] C.R.S. § 6-16-104(6)(c).
[5] C.R.S. § 6-16-104(6)(d).
[6] C.R.S. § 6-16-104(6)(d).
[7] Merriam Webster, https://www.merriam-webster.com/dictionary/soliciting (last visited Nov. 23, 2018).
[8] More information for how to do this are available at: https://www.sos.state.co.us/pubs/charities/instructions/charity/exemption.html.
[9] Website URL to create account: https://www.sos.state.co.us/ccsa/pages/public/createAccountEin.xhtml. See also: https://www.sos.state.co.us/pubs/charities/instructions/charity/registration.html#fn1. In 2018, Colorado adopted certain changes to the regulations See the latest updates to the regulation at: https://www.sos.state.co.us/CCR/eDocketDetails.do?trackingNum=2018-00315.
[10] Id. ¶ 2.2.
[11] See, e.g. 8 CCR 1505-9, ¶ 1.3 (“Authorized Officer”), available at http://www.sos.state.co.us/pubs/rule_making/files/2018/8CCR1505-9CharitableSolicitationsRules-TempAdopted20180921.pdf.
[12] If, at the time of the initial registration, the charitable organization does not have the required financial report or Form 990 for the most recent fiscal year, the charitable organization shall submit a financial report or Form 990 for the most recent fiscal year in which such information is available.
[13] Note that certain of these details may be made public.
[14] 8 CCR 1505-9, ¶ 4.1.2.
[15] See, e.g. 8 CCR 1505-9, ¶ 2.2.
[16] ¶ 6.1; 8 CCR 1505-9; CRS § 6-16-104. E
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