A Nonprofit Guide to Online Fundraising Compliance

Ryan Jones • Mar 29, 2021
compliance

Many facets of working in the nonprofit sector really get people psyched up and ready to do more good. Gala dinners with delicious cuisine, meeting interesting new people, challenging charity runs, and of course, making a positive impact on the world. One thing not on the list of exciting benefits? Fundraising compliance. It almost puts you to sleep just reading the phrase. But have another sip of coffee, get wired, and keep reading; it will be worth it.

Ensuring that your nonprofit organization adheres to local laws and regulations isn’t voluntary, and it isn’t just the right thing to do—it’s absolutely necessary. Unless, of course, you love crippling fines, which are indeed very exciting. So read on as we dig into the surprisingly spicy world of nonprofit fundraising compliance.

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What is Online Fundraising Compliance?

More than 1.5 million nonprofit organizations are registered with the Internal Revenue Service, and about 170,000 are registered with the Canada Revenue Agency, most of which operate at least partially online. With that many organizations putting out marketing, social media, email, and fundraising messaging, it can be challenging for potential donors to know if they are giving to a trustworthy mission and that their dollars are being used the way they expect.

As a result, federal and regional governments in most jurisdictions have enacted legislation and fundraising regulations to ensure that organizations legally solicit donations online. With such rulings in place and being followed, donors can know that their gifts are going somewhere aboveboard. This is one of the many benefits of online fundraising compliance. 

Online fundraising compliance is the process of ensuring your nonprofit organization adheres to ethical practices, laws, and regulations that govern the way you solicit donations online. Being compliant requires the collective effort of everyone on your team, including your board of directors. It allows you to fundraise safely, encourage donors to give, and most importantly, stay out of trouble. 

Step one in most areas? Registration, which lets the relevant governing bodies know that you will be collecting donations online and establishes a line of communication between your organization and enforcement agencies. 

Once you’re registered, it’s up to you to learn the rules and follow them. These rules cover everything from how you’re allowed to ask for online donations, what to do when you accept them, and what types of records you need to keep, and reporting you need to do afterward. 

Note that online fundraising refers to any solicitation process by a nonprofit organization that involves the use of any of the following:

Since online fundraising can happen through different channels, you must pay attention to each marketing channel’s compliance guidelines. For example, if you’re sending fundraising emails, you need to comply with CAN-SPAM and CASL regulations. If you receive donations from citizens of the European Union, don’t dismiss GDPR. Be sure to use an email marketing platform that complies with these regulations.

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Why is Online Fundraising Compliance Important?

Why is Online Fundraising Compliance Important?

Short answer: You have to do it. It’s the law. 

Long answer: If you don’t adhere to the laws and regulations set out by your region’s governing bodies regarding online fundraising, you may face one or two consequences: 

Tangible Consequences

Depending on what type of rule you may have contravened, you may be subject to financial penalties such as fines, late fees, lawsuits, and withdrawn major donations. These penalties may be severe enough to negate any financial benefit from the fundraising you did outside the law. In especially egregious cases, those who ignore the law may have their tax-exempt nonprofit status revoked, meaning you’re suddenly on the hook for paying the tax on all of your income. 

And obviously, the tangible upside to following the rules is that sweet, sweet tax exemption, which means you get to keep the donations you receive. The bottom line is that you need to follow the law to ensure that your revenue goes to your important programs instead of government coffers.

Intangible Consequences

Punitive actions resulting from compliance infractions result in negative public relations, which spreads like wildfire through digital media channels thanks to social networks and easy sharing. Any trust that you have built with donors is likely to evaporate, and you can pretty much kiss all your potential donors goodbye. And a bad reputation tends to hang around long after the fines have been paid, so it’s better not to risk it.

On the flip side, responsibly following the law and making it known that your organization is in good standing with all regulatory bodies is a great way to build trust with the public. Registered organizations appear in publicly available databases that function as a sort of Better Business Bureau for nonprofits, and that’s just good advertising. 
It’s also a best practice to add your Employer Identification Number or Canadian Charity Number to your website, as well as a disclosure statement. So that especially interested donors can confirm your nonprofit registration status for themselves. Such transparent efforts will encourage potential donors to decide to give when they can see that you are committed to responsible governance. You may find that the trust you’ve fostered leads to increased donations and improved donor retention rates. Nice!

How to Comply with Solicitation Regulations

How to Comply with Solicitation Regulations

United States

The thing about the internet is that there aren’t really any borders. That means that slapping a donate button on your website, asking for donations on social media, or even using Keela’s donation forms on your website could be interpreted as asking citizens of every state, in the USA, for a donation. So, in addition to filing for Federal Tax-Exempt Status with the IRS to be recognized as a 501(c)(3) nonprofit organization, you may need to comply with regulations in every state.

Harbor Compliance created a handy map of states that require additional compliance measures, such as registration, disclosure statements, or both; 41 states currently require nonprofits to register to solicit their residents, while 25 require disclosure statements. If you intend to fundraise online, it’s a good idea to check every state’s requirements to be nationally compliant. 

Currently there is no easy way to do this; there is an effort to consolidate registration data called the Unified Registration Statement, but it doesn’t cover every state (and the website looks like it predates GeoCities). For the most part, state agencies require you to provide your completed Form 1023 and Form 990 documents, proof of tax exemption, your organization’s bylaws, and a list of directors and board members. Some agencies can help you register in the states that require it if your budget can bear outsourcing.

Canada

Compliance in Canada is pretty straightforward: register with the Canada Revenue Agency and check out what is necessary in your region. With only ten provinces and three territories, it’s not that much information to work through.

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Even if you’re pretty sure you’ve registered your nonprofit organization correctly in every jurisdiction that requires it, and you’re 99% certain that you’re complying with every federal and regional regulation, it’s probably worth your time to double-check. Laws change all the time, especially in regards to the internet, so even well-established organizations ought to make sure they’re up to date on compliance. And once you know that all your ducks are in a compliant row, you can sleep well, dreaming of your rock-solid tax-exempt status.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any information included in this article without seeking legal or other professional advice.

Nonprofits must adhere to solicitation regulations to avoid legal consequences. Get your ducks in a row by learning the basics of online fundraising compliance.