If you are running a charitable entity, there are likely times when fundraising becomes a topic of conversation. Whether you need to fundraise for your upcoming clothing distribution or your next food pantry day, it’s essential to understand and follow the fundraising laws in Pennsylvania that relate to your charity.
Grasping the complexities of fundraising laws is critical for any charitable institution functioning in PA. Given the variation in rules and regulations across the country, working with knowledgeable lawyers specializing in charity laws for your specific area can aid in ensuring compliance and effectiveness in your fundraising efforts. This blog post will explore some fundamental questions you may want to ask a lawyer as you prepare to fundraise in the Commonwealth.
1. What Does Possessing Tax-Exempt Status Signify in Relation to Charity?
Tax-exempt status for a charitable organization means it is exempt from paying certain types of taxes, including income, sales, and property taxes. The income generated through donations, fundraising activities, or other sources is not subject to income tax. Similarly, the organization might not have to pay sales tax on purchased goods or services or property tax on owned real estate. Achieving and maintaining this status demands adherence to specific guidelines established by the Internal Revenue Service (IRS) and state law. However, if the charity engages in business activities unrelated to its exempt purpose, it may be subject to Unrelated Business Income Tax (UBIT).
Attaining and maintaining this tax-exempt status requires adherence to specific guidelines by the Internal Revenue Service (IRS) and state law. Charities must apply to the IRS, demonstrating that they meet the requirements, including operating exclusively for charitable purposes and refraining from participating in political campaigns. Once granted, charities must comply with reporting and record-keeping requirements to maintain their status. These responsibilities ensure transparency and accountability while allowing charities more resources for their mission.
2. What Is Unrelated Business Income Tax?
Unrelated Business Income Tax (UBIT) is a tax imposed on the unrelated business income of tax-exempt organizations. This tax applies to income not substantially related to the tax-exempt purpose that forms the basis of the organization’s exemption.
For example, if a nonprofit charitable organization operates a business that does not directly support its primary charitable purpose, its income may be subject to UBIT. This tax aims to prevent tax-exempt entities from having an unfair advantage over taxable entities engaged in similar activities.
It is important to note that there are certain exceptions and modifications to this rule. For instance, revenues from activities in which substantially all the work is performed by unpaid volunteers or from the sale of donated merchandise might not be subject to UBIT. As always, tax matters can be complex, so it is a good idea to consult with a tax professional or attorney familiar with nonprofit tax law for specific guidance.
3. How Does a Business Know What Activities Are Deemed Unrelated to Business Income?
Unrelated business income is revenue generated from a trade or business regularly conducted by a tax-exempt organization, but not significantly related to the organization’s exempt purpose. This concept can be complex to understand, and it is often challenging for organizations to distinguish between income related to their business and income unrelated to it. Therefore, seeking professional legal guidance to clarify these distinctions and ensure they comply with tax laws is important.
4. What Kinds of Fundraising Events Are Permitted Under Fundraising Laws?
Fundraising events offer a vast array of opportunities for organizations to generate funds. These can range from simple bake sales and poker tournaments to more elaborate direct mail campaigns. However, it is important to note that each type of fundraising event may have distinct legal stipulations and reporting requirements. Therefore, before planning a fundraising event, organizations must understand and comply with the relevant laws to avoid any potential legal complications.
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5. How Can I Maintain Compliance with Fundraising Laws?
Maintaining compliance with fundraising laws in Pennsylvania is crucial for any charitable organization operating within the state. Compliance involves adhering to several legal requirements and guidelines, as outlined below:
- Charitable Solicitation Registration: In Pennsylvania, as in many states, charitable organizations are required to register before soliciting donations, irrespective of whether funds are received. This process is governed by the ‘Solicitation of Funds for Charitable Purposes Act.’ This state registration is done through the PA Bureau of Charitable Organizations and the BCO-10 is the form you will need to fill out to complete this registration.
- Professional Fundraiser Registration: Professional fundraisers conducting charitable solicitations in Pennsylvania are required to register with the Bureau and maintain a $25,000 bond. However, it is noteworthy that Professional Solicitor licensure is not required at the state level in Pennsylvania.
- Control Over Fundraising Activities: A charitable organization must establish and exercise control over fundraising activities conducted for its benefit. This is stipulated under the Pennsylvania Statutes Title 10 P.S. Charities and Welfare §.
- Compliance with Federal Laws: Aside from state-specific laws, charities must also comply with federal laws. This includes understanding the specifics of the IRS Form 990, the annual reporting return that certain federally tax-exempt organizations must file with the IRS.
- Understanding Changes to Fundraising Laws: It’s important to stay updated with any changes to fundraising laws. Laws might be amended at any time, so it is crucial to have a legal professional who stays up to date on these updates to help your organization stay compliant.
Remember, this is a complex area of law, and it can be beneficial to consult with a legal expert to ensure full compliance.
6. What Are the Legal Considerations for Nonprofits Functioning in Pennsylvania?
Pennsylvania residents looking to initiate or manage a nonprofit should be cognizant of the specific state laws that apply to them. One of the most fundamental principles is that nonprofits must serve their purpose without providing financial gains to its members, directors, or officers, beyond reasonable salaries and expenses.
When setting up a nonprofit, submitting a proposed budget, certified Articles of Incorporation and a copy of the organization’s bylaws is generally necessary. It may also be beneficial to submit resumes of board members. Pennsylvania law requires organizations that solicit charitable contributions to meet certain requirements. In addition, nonprofits are expected to adhere to a range of legal and regulatory requirements to maintain public trust and credibility.
7. How Can Lawyers Assist Clients in Navigating Fundraising Laws?
Lawyers who specialize in charity law can provide invaluable help to nonprofits. They can assist organizations in understanding and navigating the complex regulations around fundraising, tax-exempt status, and more. They can offer clarity for state-specific laws, and translate complex legal jargon into terms that are easy to understand.
They can also assist in preparing and filing crucial documents like the Articles of Incorporation, and provide advice on the legal aspects of various fundraising activities. Furthermore, they stay updated on any changes in the law, ensuring that the organization remains compliant at all times.
Are You Ready to Begin the Process of Fundraising for Your Nonprofit?
While this guide provides a starting point for charitable entities, it is always best to consult with a professional when it comes to understanding and complying with fundraising laws in Pennsylvania. At May Herr & Grosh, we are here to aid you in navigating these complexities and ensure your charitable institution thrives. Contact us today if you are ready to speak about your upcoming fundraising event to ensure you are working within all the applicable laws.