TOP THREE LIST – What Are the Top 3 (plus!) Regulatory Issues You See Facing the Nonprofit Community Right Now?

Submitted by Geoff Peters, CEO, CDR Fundraising Group

A group of state regulators, attorneys specializing in regulation of nonprofits and fundraisers, and those who have been active in nonprofit regulatory affairs were asked what they feel are the top three regulatory issues facing the nonprofit community.  Here are their responses, combined and edited for clarity.

1. Complete administrative drift at the IRS.  Although the recent (c)(4) scandal didn’t directly affect many (c)(3) charities, it points to a larger problem:  that the IRS Tax Exempt office is chronically underfunded relative to its workload.  As a result, we have experienced an ever-increasing backlog of pending applications for exemption, poor management by people with little experience in exempt organizations tax law, much less published guidance, and over the past four years, a 96% reduction in training dollars spent by the EO Division! IRS staffing and resources deficits are bogging down routine processes to the point of collapse. (3 comments)
2. Incompetent state regulators who won’t follow their own laws, and try to bootstrap extra-legal regulations or add additional regulations that limit legitimate activities (3 comments)
   1. Louisiana is only the most recent example.  The law requires registration only by professional solicitors.  The regulations require registration by non-religious charities that contract with a professional solicitor, and now the AG’s office staff is attempting to shoehorn fundraising consultants into the definition of a professional solicitor.
   2. West Virginia is now attempting to require all charities and fundraising consultants registered in the state to obtain a certificate of authority to do business (or pay $25 to file an application so the SoS can determine that the organizations is exempt from obtaining a certificate of authority) and register with the Dept. of Revenue!  All of this despite the fact that the only contact any party has with WV is sending mail in from other states!  I have sent letters to WV on behalf of several clients, and have received no response.
   3. The NY AGs attempt to hold fundraisers strictly accountable for the message provided by the charities and distributed to the public. We are currently fighting this case in the NY Appellate Division. I see the outcome as very significant.
   4. Regulators continued focus on percentages to measure of charitable worth (nothing new here – but it brings into play many other issues – such as the need for charitable resources to scale program; Charity watchdog ratings; joint cost allocations; use of GIK etc.)
3. People (either the public or those who should know better) who think more regulation will lead to better charities (whatever that means) and fewer scams.
4. Use of consumer protection statutes to regulate charitable activities. Provisions that seek to regulate solicitations and promotional language using broad sweeping phraseology such as “has a tendency to mislead” does not meet constitutional muster and is far too subjective, especially as applied to core free speech.
5. Restrictions on charitable free speech.
6. The need to keep the Exempt Organizations function at IRS to preserve institutional precedent and avoid loss of those existing rules that actually work.
7. A thorough review of just which purposes and activities are charitable in the modern world.  For example, are billion dollar hospitals that charge fees for services and receive insurance and government reimbursements truly charities because they sometimes provide care for those who cannot afford it?