California Assembly Bill 488 (AB 488), which was signed into law in 2021 and took effect on January 1, 2023, had a significant impact on nonprofits. The law introduced new regulations for charitable fundraising on internet platforms, aiming to increase transparency and protect donors. While the main purpose of the bill was to expand regulation of online platforms and fundraising services that facilitate donations to nonprofits, the law has some serious implications for the nonprofit organizations themselves.
Charities accepting donations from California donors have long been required to register with the Attorney General’s Registry of Charities and Fundraisers (formerly the Registry of Charitable Trusts). Registration is required within 30 days of the receipt of assets from within the state. Once registered, the organization is required to file an annual report, form RRF-1, including a complete copy of their form 990, pay a filing fee based on the organization’s revenue, and affirm that they had a financial statement audit if their revenue exceeded $2 million. This filing is due the same date as the federal form 990 and receives an automatic six-month extension if the 990 is extended. Failure to file the complete RRF-1 package and pay the filing fee by the extended deadline will result in the organization being reported as delinquent by the Registry. Per existing law, a nonprofit that is not in good standing with the Registry is prohibited from soliciting or accepting contributions until the delinquency is resolved.
While this prohibition has been in place for quite some time, many organizations continue to solicit contributions because they are unaware of their delinquency and/or the prohibition. However, with the passage of AB 488, these delinquent organizations may find themselves unable to use online fundraising platforms, as the law makes it illegal for the fundraising platforms to solicit or collect contributions for organizations that are not in good standing.
Furthermore, California Gov. Code Section 12599.9, and the recently issued regulations, Cal. Code Regs., tit. 11 §§ 314-323, impose a series of special new requirements for online charitable fundraising. These regulations expanded the prohibition beyond organizations that are delinquent with the Registry. The law requires that, in order to receive contributions from California residents, the organization must not only maintain its 501(c)(3) status, but also, they may not be on any “may not operate” list issued by the Attorney General or the California Franchise Tax Board.
With the passage of the new law and the issuance of the regulations, California announced that it will not allow organizations who fail to comply with all their governmental agency filings, to solicit or receive contributions from residents of the state. This includes filing the federal form 990, California form 199, Attorney General form RRF-1, and even the biennial Secretary of State SI-100 (Statement of Information). Organizations that fail to comply with these filing requirements and proceed to solicit contributions can be faced with loss of their exempt status, cease and desist orders, fines and penalties, and legal action initiated by the Attorney General. In some cases, the directors and officers of the organization could be held personally liable for the organization’s failure to comply with state laws.
In addition to the possible legal and punitive consequences of failure to file, the IRS, California Attorney General and Secretary of State each maintain a website that publicly reports the status of nonprofit organizations, meaning that potential grantors and donors have access to that information. Delinquencies and failure to file can seriously damage the reputation of the organization, hampering its ability raise funds in the future.
The best protection against delinquency is an informed and involved board and management team who are aware of the filing requirements and deadlines. The organization’s leadership should periodically monitor the organization’s status and ensure that required filings are submitted to remain in good standing. We suggest that the organization’s top financial officer checks all four databases, even if there is no reason to believe that the organization is out of good standing on any of these lists.
- CA Secretary of State CA SOS bizfile Online
- CA Attorney General Registry Verification
- CA Franchise Tax Board Entity Status Letter | FTB.ca.gov
- IRS Tax Exempt Organization Search | Internal Revenue Service (irs.gov)
If you find that you are not currently in good standing with any of these entities, we encourage you to reach out to your tax compliance provider or contact the agencies directly as soon as possible to resolve the delinquency to avoid loss of your tax-exempt status. Please do not hesitate to contact us at (714) 372-8110 or Info@EvergreenAllianceCPA.com if you have any questions regarding the foregoing or if you need any additional information whatsoever regarding the exempt organization compliance services which Evergreen Alliance provides.