First, it is important to understand when your organization falls within the purview of the Commission’s requirements.  Basically, a solicitation is a specific event (e.g., mailing, seminars, fundraising gala) where your organization makes an unrequested attempt to collect something from the public, such as money.  This includes oral or written requests, invitations to functions, brochures, and collection boxes.  But remember, these above listed items are only subject to the Commission’s requirements when they are sent out without being requested.  Solicitations do not include instances when someone requests information about your organization or comes to your organization’s place of business.  Nor does it include communication with people you already know, communication to only your organization’s own members, email to recipients you don’t know are located in Los Angeles, or information contained on a website, TV or radio broadcast.  Further, you can make a plain statement that your organization is “nonprofit,” “tax-exempt,” or “funded or supported by charitable contributions” without filing any forms.   

Second, if your organization’s activity does fall within the definition of a “solicitation,” you will be subject to the Commission’s requirements.  In such an instance, your organization must file a Notice of Intention form at least fifteen (15) business days prior to the solicitation.  The Notice of Intention provides basic information regarding your solicitation event, and you will also need to attach your organization’s formation and tax-exemption documents to the Notice as listed on the form itself.  After you submit the Notice, you will receive a Commission issued Identification Card if your organization’s event is approved.  The Information Card provides information to potential donors so they can make an educated decision whether to support your organization.  You must either display the Information Card or ensure all information from the Information Card is included as part of your solicitation.  Finally, within thirty (30) days after your solicitation event, you must file a Report of Results of Activity including your receipts, expenditures, and distribution of net proceeds.

Please note that the filing information on the Notice of Intention and Report of Results of Activity is INCORRECT.  The Commission recently moved locations and has not yet updated its forms or its website.  Please ensure you use the correct information, listed below, to make sure the Commission gets your Notice of Intention with time to spare:

Los Angeles Police Commission

Commission Investigation Division

100 West 1^st Street, Suite 147

Los Angeles, CA 90012

Tel: (213) 996-1260

Fax: (213) 996-1279

Please contact us if you would like assistance complying with the Commission, or any other matter.  We wish you luck as you embark on a new year of fundraising!

Please note that nothing contained herein is meant to be, nor should it be, construed as legal advice.  Should you or your organization have a question regarding this, or any other legal issue, please contact your legal advisor.

By Jessica Shofler

Staff Associate

Seton & Associates

Internet fundraising is growing into a powerful tool for charitable organizations. As Allan Pressel of CharityFinders illustrated at Seton and Associates’ October seminar, a clear and effective website can help raise more funds, lower fundraising costs, attract in-kind donations, build capacity, track donor demographics, recruit staff and volunteers, develop long-term relationships with donors, increase across-the-board participation among event attendees, members, planned gifts and e-advocacy, and motivate people to support the organization immediately. However, using the internet also requires compliance with state solicitation laws. In California, most internet solicitations will fall within the purview of “solicitations for charitable purposes,” which require registration and the filing of an annual report with the California Attorney General. Unless otherwise limited by a disclaimer on your website, it is conceivable that donations will not be restricted to one state’s residents. That your website will reach donors from all over the country is feasible. Having to register with each state’s attorney general’s office can be a cumbersome process. With that in mind, the National Association of State Charity Officials (NASCO) along with the National Association of Attorneys General has organized an effort to create the Unified Registration Statement (URS) to consolidate the information and data requirements of states that require the registration of nonprofit organizations performing charitable solicitations within their jurisdictions. Currently, 39 jurisdictions require registration. As states move toward developing specific laws these guidelines are the conservative approach to ensuring donations from the web are handled appropriately.

If you would like more information about Internet Fundraising, please email Seton & Associates at fundraising@setonlawgroup.com to schedule a meeting.

Generally, there are not many restrictions on for profit entities (either limited liability companies or corporations) regarding the activities conducted, so long as such activities are not illegal.  For profit entities generally sell goods or services to the public and it is anticipated that those individuals or organizations that own such for profit entities will benefit in some way from the operation of the entity’s business.

However, with nonprofit entities, there are strict restrictions on benefits accruing to individuals or organizations.  Specifically, 501(c)(3) public charities are required to offer programs which benefit the entire public.  Treasury Regulation 1.501(c)(3)-1(d)(1)(ii) provides that  “[a]n organization is not organized or operated exclusively for one or more of the purposes specified in subdivision (i) [i.e. charitable purposes] of this subparagraph unless it serves a public rather than a private interest.”  Further, as provided in the Internal Revenue Manual Section 7.25.3.16.7, an “organization must demonstrate that it is not organized or operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the organizational or persons controlled directly or indirectly by such private interests.”  However, the IRS generally allows for an exception to the benefit of private individuals or organizations.  As provided in Internal Revenue Manual Section 7.25.3.16.7.1, “If an organization serves a public interest and also serves a private interest other than incidentally, it is not entitled to exemption under IRC 501(c)(3). 

However, to be incidental, the private benefit must be a necessary concomitant of the activity which benefits the public at large and accomplishes exempt purposes.  In other words, the benefit to the public cannot be achieved without necessarily benefitting certain private individuals.”  For example, if a public charity hosts certain events in furtherance of its purposes, such as a fundraising dinner, it is anticipated that the organization may need to engage the services of a for profit business or an individual to assist with putting on such an event.  It is further anticipated that this individual or organization will be compensated by the nonprofit for performing such services.  Therefore, even though an individual or company is receiving a benefit (i.e. compensation for the services performed), such benefit accompanies the larger focus of the actual charitable activities (i.e. the charity may be benefitting a certain cause, and by engaging an event planner the charity is able to put on a high profile event and raise funds to support its cause).  As such, it seems fairly certain that a 501(c)(3) organization that engages the services of a for profit event planning corporation is not at risk of violating the rules regulating private inurement.  Therefore, it appears that your charitable goals can be accomplished through the establishment of a nonprofit public benefit corporation exempt under Section 501(c)(3) of the Internal Revenue Code.

The final and arguably most important component of this structure relates to the relationship between the for profit company and the nonprofit organization in the event that there are common directors, officers, etc.  As far as the 1023 application, which is submitted to the IRS for 501(c)(3) approval, the arrangement between the two organizations must be disclosed, and any oral or written contracts must be described (and copies attached, in the case of a written agreement).  The IRS will also require disclosures regarding the precautions taken to ensure that the agreement was negotiated in good faith and at arm’s length (i.e. how it is ensured that both parties have equal bargaining power). 

In addition, under Section 4958 of the Internal Revenue Code, there are strict excise taxes imposed upon what are known as “excess benefit transactions.”  For purposes of these taxes, an excess benefit transaction is defined as “any transaction in which an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or for the use of any disqualified person if the value of the economic benefit provided exceeds the value of the consideration (including the performance of services) received for providing such benefit. For purposes of the preceding sentence, an economic benefit shall not be treated as consideration for the performance of services unless such organization clearly indicated its intent to so treat such benefit.”  Essentially, if a nonprofit were compensating a for profit, in which one of the nonprofit’s directors or officers had an interest, at a level above fair market value, the nonprofit and its directors may be taxed on such amount.

Note also, that in addition to the above, in the event the entities are formed in California, there are also some requirements under California regarding a nonprofit organization’s entering into contracts where one (or more) of its directors or officers has a material financial interest.  Specifically, under Section 5233 of the California Corporations Code, the following facts must be established:

(A)  The corporation entered into the transaction for its own benefit;

(B) The transaction was fair and reasonable as to the corporation at the time the corporation entered into the transaction;

(C) Prior to consummating the transaction or any part thereof the board authorized or approved the transaction in good faith by a vote of a majority of the directors then in office without counting the vote of the interested director or directors, and with knowledge of the material facts concerning the transaction and the director's interest in the transaction.  Except as provided in paragraph (3) of this subdivision, action by a committee of the board shall not satisfy this paragraph; and

(D) (i) Prior to authorizing or approving the transaction the board considered and in good faith determined after reasonable investigation under the circumstances that the corporation could not have obtained a more advantageous arrangement with reasonable effort under the circumstances or (ii) the corporation in fact could not have obtained a more advantageous arrangement with reasonable effort under the circumstances.

In addition, note that even if the entities are not formed in California, there may be laws similar to the above in other jurisdictions which govern relationships between entities such as those herein-described.

Based on the above discussion, it is possible that your goals may be accomplished by the formation of a hybrid structure based around a for profit entity and a nonprofit organization.  However, it is important to note that certain safeguards must be taken along the way to ensure that the agreements between the parties and the operations of the two organizations are carried out in a manner consistent with the laws of California as well as the IRS guidelines regulating 501(c)(3) public charities.

The Charitable Organizations and Solicitations Act, 1975 PA 169, as amended, MCL 400.271 et seq., MSA 3.240(1) et seq. requires an organization to obtain a charitable solicitation license if it solicits or receives contributions in Michigan in excess of $8,000 or if it compensates any person for fund raising services, including employees or independent contractors. Under section 13 of the Act, some organizations are exempt from licensing requirements. The determination of whether any one of those exemptions applies is to be made by the Charitable Trust Section, not presumed by the organization. The same statute also requires professional fund raisers to be licensed and bonded before soliciting on behalf of a charitable organization or a religious organization.

To obtain a determination whether a license or registration is required, charitable organizations must file an Initial Charitable Trust/Charitable Solicitation Questionnaire either online or by mail, along with all requested attachments. The attachments must include copies of creating documents. Incorporated entities are required to submit copies of their articles of incorporation, including all amendments and certificates of assumed or fictitious names. Submitted copies must show evidence that the documents were properly filed with the appropriate state agency. In Michigan, that agency is the Department of Labor and Economic Growth, Corporation Division. A constitution and/or bylaws must be submitted by unincorporated entities and by corporations if those documents exist. If the organization has received tax exempt status from the IRS, a copy of that determination letter should be included. (More information about obtaining tax exempt status from the IRS is available at their website.) A recent financial accounting should be sent along with the Questionnaire for those organizations that have had financial activity. If it is determined that a charitable solicitation license is required, then the organization will need to submit a properly completed Application for License to Solicit Donations. Alternatively, organizations that solicit in more than one state may file the Unified Registration Statement that is accepted by many states.

The charitable solicitation license expires each year either six (6) or seven (7) months following the end of the organization's fiscal year. The expiration date is stated on the license sent to each organization at the time it is issued. To renew the license, the organization should submit an Application at least thirty (30) days prior to the expiration date, along with all necessary attachments.

On January 1, 2007, a new California law (AB 839)  [PDF 58 kb / 4 pg] passed allowing eligible nonprofit organizations to hold "charity poker night" fundraisers. Nonprofit organizations and suppliers of equipment and/or services for such fundraising events must submit an application for registration to the Bureau of Gambling Control for approval.

Controlled games which are an approved funding mechanism for these fundraisers are specified in the California Penal Code section 337j(e)(1) as “any poker or pai gow game, and any other game played with cards or tiles, or both, and approved by the Bureau of Gambling Control, and any game of chance, including any gaming device, played for currency, check, credit, or any other thing of value that is not prohibited and made unlawful by statute or local ordinance.”

A detailed listing of provisions outlined in AB 839  [PDF 28 kb / 1 pg] can be found at: Charitable Gambling Fundraisers At-A-Glance.

Nonprofit organizations must register with the Bureau to host one event per calendar year. In addition to nonprofit organizations, businesses that supply equipment and services for fundraising events will be required to register annually with the Bureau. A business that supplies equipment and/or services to an event must register annually.

No one under the age of 21 is allowed to participate at these fundraising events. Nonprofit organizations are required to post problem gambling information at each fundraising event.

The new law does not allow the use of slot machines or Internet gaming for fundraising purposes. Other fundraising restrictions apply to charity bingo and raffle events. The Attorney General’s Charitable Trust Section regulates raffles (Raffles - Charitable Trusts - California Dept. of Justice - Office of the Attorney General). Nonprofit Organizations must register with the Attorney General’s Registry of Charitable Trusts prior to conducting a raffle and file financial disclosure reports on each raffle event. Please contact your local city, sheriff, or police department for inquiries regarding bingo.

Bureau staff work directly with the Franchise Tax Board to assist in providing required documents to determine tax exemption. A process has been implemented which allows nonprofit organizations to obtain written documentation necessary to process applications in a very minimal waiting period.

During the 2007* calendar year, the Bureau of Gambling Control has monitored and tracked all applications received by the Charitable Gambling Program. Based on the research of both Nonprofit Organizations and Gambling Equipment/Service Suppliers the total number of applications received for Nonprofit Organizations in 2007 was 322 and the total for Gambling Equipment/Service Providers was 90 as shown in the chart above.

As shown in the chart below, 59% percent of the Gambling Equipment/Service Suppliers are located in Southern California, 28% percent in Northern California, 2% percent in Central California, and 1% percent out of other locations

The free online workshop – Stay Exempt – Tax Basics for 501(c)(3)s – consists of five interactive modules on tax compliance topics for exempt organizations:

• Tax-Exempt Status – How can you keep your 501(c)(3) exempt?
• Unrelated Business Income – Does your organization generate taxable income?
• Employment Issues – How should you treat your workers for tax purposes?
• Form 990 – Would you like to file an error-free return?
• Required Disclosures – To whom do you have to show your records?

Users can access this new training program at Stay Exempt. Users can complete the modules in any order and repeat them as many times as they like.  The online training website does not require registration and its visitors will remain anonymous.

Here are some of the Key Findings of the study:

• Email open rates, click-through rates and response rates have fallen from 2006 to 2007. Open rates have fallen from 21.3 percent to 17.6 percent, and click-through rates have dropped from 4.9 percent to 3.8 percent.
• The average nonprofit sent an average of just over 4 emails per subscriber per month in both 2006 and 2007.
• The annual churn rate, or the rate at which an email list ‘goes bad’ in a year, dropped two percentage points (from 21 percent to 19 percent) between 2006 and 2007, a positive trend.
• The total amount raised online increased by 19 percent from 2006 to 2007.
• The average advocacy email response rate in 2007 was 7.5 percent. The average fundraising email response rate was .13 percent. While $1,000+ gifts made up just 1 percent of overall online donations in 2007, these gifts made up 20 percent of the amount raised online.
• A significant portion (almost 60 percent) of the participants’ subscribers did not take any online advocacy actions over the course of 2007.
• ‘Super activists,’ the subscribers taking 6 or more online actions in a year, made up just 5 percent of the total email list size but accounted for 42 percent of the organizations’ total actions.

The findings reveal email solicitations are becoming less and less effective as the technology and internet evolves, even as nonprofits saw an increase in fund raised online. Some say that social networking sites, such as MySpace or FaceBook, and advances in cell phones have stolen some of the spotlight from email solicitations. Nevertheless, nonprofit organizations should look for ways to take advantage of these technological advances and not only stick to emails.

Affluent people are increasingly likely to use the Internet to make their charitable donations, a new survey of nearly 3,500 donors has found.

But charities are turning off some of their biggest donors — people who give $1,000 or more, the survey found. Some charities send too many messages to donors who say they don't want them, while others don't take advantage of the interest many donors express in expanding their online interaction with nonprofit organizations, the survey found.

"Most charities are not paying attention," says Mark Rovner, president of Sea Change Strategies, a fund-raising consulting company in Takoma Park, Md. "The people responsible for [soliciting] larger gifts need to start taking the Internet much more seriously than they have."

Sea Change conducted the survey along with Convio, an Austin, Tex., company that provides Web-based software for nonprofit groups, and Edge Research in Arlington, Va., which does research and polling for nonprofit organizations.

The survey, which was conducted online, was based on data from 3,443 donors who had made gifts of at least $1,000 to a single cause in the past 18 months and donated an average of more than $10,896 per year to charities. Sixty-four percent of the donors were age 45 to 64, and 57 percent had incomes of at least $100,000. The donors' names were provided by 23 organizations that represent an array of causes, including advocacy groups, health organizations, international relief groups, public television stations, and Christian ministries.

Among the key findings:

• Four out of five donors said they had made a charitable gift online, and a little more than half, 51 percent, said they prefer to use the Internet for their donations. Some 46 percent said that they expect to make a greater percentage of their charitable gifts online within the next five years.

• Fifty-six percent said that charities send too many e-mail messages, and 47 percent said they do not read as many messages from charities as they did in the past.

• Seventy-four percent said it's inappropriate for a charity to obtain their e-mail address from a commercial database, while 82 percent said they don't think it's right for charities to send them messages about another organization.

• Ninety-two percent of donors like getting year-end tax receipts by e-mail, while 83 percent want to get electronic updates on a charity's finances and spending. Seventy-four percent said e-mail messages are appropriate when notifying donors that it's time to renew an annual gift or to explain how a donation has been spent.

• Eighty-one percent of donors dislike messages that take an urgent tone in seeking a repeat donation.

• Forty-six percent of donors said the charity's messages do a good job of making them feel connected to the organization, while 43 percent said the messages are well written and inspiring.

Most of the donors want more say on the quantity of e-mail they receive from charities.

As you may know, Google is offering more and more free, web-based services such as GMail (email), Google Docs (like Word, Excel, etc.), Google Calendar and much more.  These tools could be very helpful to organizations that cannot afford to buy expensive software.  Enter Google for Non-profits.  In addition to the regular Google offerings, Google for Non-profits offers services to nonprofit organizations, such as Google Grants, which allows 501(c)(3) organizations to apply for grants to get free Google AdWords. It also has information about setting up Google Groups, which is a good way to communicate to staff and volunteers, YouTube, Blogger and more. They even have an area that lets a nonprofit get Google Apps Education Edition, their premium product and support services, at no charge. Check it out at Google Nonprofits.

Click here link to register your organization for the Google Apps Education Edition for free.

• Click here

• Click on "Business Data Search"

• Click "Business Entity Information"

• Type in the name of the organization or the Department number (located on the filing receipt)

• When the entity appears, click "Amendments"

• Then click the eye ball and your Articles will appear!!

The 2007 National Association of Colleges and Employers (NACE) Recruiting Benchmarks Survey reports that for profit employers recruit roughly 32% of new college hires from internship programs.

Establishing an internship program at your organization is a great way to appeal to fresh young talent eager to help you with your cause.