Charitable Solicitation License / Registering as a Charitable Trust

Feb 22 05:36 UTC 2002

A few years ago, Jan and I travelled to downtown Detroit to consult 
with the Accounting Aid Society about our finances.  I think the most 
pressing issue at the time was whether we needed to send paper receipts to 
everyone who donated, but we asked a lot of questions.  We had just gotten 
our 501(c)3 status, and we wanted some info on what that would mean for 
us.

The woman we spoke with was R. Sue Dodea ("arsoo").  One of the things she 
told us was that we ought to have a Charitable Solicitation License from 
the State of Michigan.  (That is, a license to solicit donations for a 
charitable purpose.  The state keeps track of organizations that do that, 
so that (I suppose) if you get a call from someone asking you for money, 
you can check with the State to see if they're legit.)

I started to work on that at the time (fall of 1998), but was stymied when 
I found that I needed to know the value of Grex's equipment (for two years 
running) to complete the forms.  No one could come up with that 
information easily, so I moved on to other things and let it slide.

It's been bugging me all these years, though, and now that we *do* have 
numbers for how much our stuff is worth, at both the beginning and end of 
2001, I decided to embark on the project of filling out the forms.

So I did some reading on the Attorney General's web site 
(www.ag.state.mi.us), downloaded the requisite forms, and filled them out.
I have to say, it was a lot of work.  Probably about 40-60 hours of work.

Here are some things I learned:

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.

Our annual gross receipts are usually right around $8000; some years over, 
some years under.  Last year we were over.  However, if you add up just 
the donations we receive from Michigan sources, we are under the limit, 
and probably always have been.  (I don't have data on when we received 
donations of hardware in the past, so I can't be sure.)  Last year, for 
instance, we received $4569 in Michigan donations.

That may get us out of having to have the license, but the guy I talked to 
on the phone wouldn't commit, because:

The State also requires us to send them a copy of our latest IRS form 990, 
which is the tax return for non-profits.  The IRS doesn't require it of 
us, because our gross receipts are under $25000/year.  But Lansing needs 
it anyway.  This is the form which took the most time to fill out.  It was 
doable, but required putting together data from a number of sources.  Now 
that I've done it once, it would be a lot easier.  But not trivial, and if 
I didn't have good records it would have been very hard.

The IRS form naturally does not distinguish between Michigan donations and 
others, so our total for donations on there appears as $9,222.62.  I spoke 
with "Dan" at the Attorney General's office, and he said that normally, if 
they saw that on the 990, they would require us to get a license.  I can, 
of course, point out in my cover letter that not all of that money came 
from Michigan, but he couldn't guarantee me that that would make a 
difference.

(BTW I pointed out to Dan that asking an organization with gross receipts 
of $8,000/year to spend 40 hours of volunteer labor each year on licensing 
is a huge burden.  He agreed, and said that the $8000 number was picked in 
the 1970s, and has never been updated.  He said the people in the Attorney 
General's office would rather see it in line with the IRS's $25,000 
figure.)

Note that if we are required to have a license, that means filling out an 
application and a 990 every year.

Also: I discovered there is another State form that we really are required 
to fill out.  We should be registered as a Charitable Trust, which is 
defined as any charitable organization which holds property in Michigan.  
It's a short form, but it, also, requires Form 990.  *But* (this is like 
that Good News-Bad News book I had when I was a kid) it's possible to 
request an exemption from submitting form 990, as long as you do it the 
first time, if your gross receipts are under $25,000.  *However*, there's 
no such exemption for the charitable solicitation license, so if we're 
required to have that, we need to fill out a 990 anyway.

Now that you're all thoroughly confused, here's a summary of what I think 
our options are:

1. We could send in all the forms, and let them sort it out.  We might or 
might not be required to have a solicitation license.  (Why does that 
sound dirty?)  My guess is we probably would be required to get one.  It 
would almost be better that way - otherwise we'll have to always be 
worried about going over that $8,000 limit, and it would be better to be 
prepared to accept whatever comes in and not worry about how it adds up.
But, if we are required to have the license, the treasurer will have to do 
the 990 each year.  I kept good notes on how I did it, so it will be less 
work next time, but it will be a chunk of work nonetheless.

2. We could try to just register as a charitable trust (the thing we are 
pretty clearly required by law to do), and hope they don't ask us about 
the charitable solicitation license.  That probably won't work - they ask 
on the registration form whether we solicit donations.

3. We could stick the whole thing in a drawer and not do anything unless 
we're asked for it.  The consequences of this are unclear, but:

- The Charitable Solicitations Act allows for fines of not more than $500 
or imprisonment of not more than 6 months for soliciting without a 
license.  I asked Dan if they ever really fined people or threw them in 
jail, and he didn't know.  He said what usually happens if they hear that 
someone is soliciting without a license is that they send out a letter 
asking them to comply with the law, the offending organization sends back 
the forms and gets licensed, and that's that.

- If that happens later than this year, the treasurer will be required to 
repeat the work of filling out the forms.  So one advangtage of getting it 
over with now is that the forms are all ready to go.

---------

The board discussed tonight whether to send in the paperwork I filled out.  
The consensus was that we would like to collect some more information 
before proceeding.  Hence this item.  The board plans to resolve the issue 
at the next meeting.

response 2 of 43:

Feb 22 17:04 UTC 2002

No, it's not a joke - "arsoo" is what people call her.

response 4 of 43:

Feb 23 02:07 UTC 2002

At what point would it be easier to approach our elected representatives
in Lansing and ask that they modernize the law?

response 6 of 43:

Feb 23 20:53 UTC 2002

So if anyone has any information about Charitable Solicitation Licenses or
Charitable Trusts, please enter it here.  I think the board will default to
sending in the paperwork if we aren't given a good reason not to.

response 8 of 43:

Feb 27 02:19 UTC 2002

ISTR that we have to consider them as such, for reasons having to do with the
conditions required for 501c3 status. 

response 10 of 43:

Feb 27 04:24 UTC 2002

Ah.  You could have done it differently, but you don't.  That's fine.

response 12 of 43:

Feb 27 19:45 UTC 2002

A friend who does a lot of accounting for both for-profit and not-for-profit
organizations said that if we get the solicitation license, we may be required
to undergo periodic financial auditing. This is not confirmed because it may
simply be that the groups she works with have that requirment while we may
not, due to our smaller numbers.  

response 14 of 43:

Feb 27 21:52 UTC 2002

Let's try not to do that then.

response 16 of 43:

Feb 28 02:25 UTC 2002

What remmers said.

response 18 of 43:

Mar 10 19:50 UTC 2002

Ok, here are some things to consider:

        1. If the sources of income asked about are specifically Michigan 
sources, as in the Charitable Solicitation Questionnaire, then we need 
only answer with regard to Michigan sources.  [Mark, the "See cover 
letter" comment is inapplicable and should be removed.]

        2. We call the subgroup of grexers with voting privileges "Members" 
and we refer to them as same in the license application and 
questionnaire, but on the 990, we list no income as "membership dues and 
assessments."  This apparent contradiction should be eliminated.

response 20 of 43:

Mar 10 22:49 UTC 2002

The part of "dues" that are "donations" is that part that is more than
reasonable compensation for "services" rendered.  In the case of grex, the
closest thing to a "service" is outbound Internet access, which is _certainly_
worth more than six bucks a month.  Therefore, no part of "dues" is a
"donation."

Or so I read the directions as applicable to a 501c7 organization; I haven't
re-read them closely enough to say that they are different for a 501c3,  but
I would be _really_ surprised if they were.

response 22 of 43:

Mar 10 23:33 UTC 2002

I think they're the same instructions.  However, the membership perks are
not the same internet access that you buy on the open market, so I don't
think they're worth $6.  The last time we discussed it in coop (I can't
remember when that was), I thought the consensus was that they are
essentially not worth anything.  I would appreciate some clarification here,
though.

To be clear, the internet privileges that are granted to members only are
these:

Non-members are forbidden all internet access except via these protocols: 
finger, gopher, talk, and http.  All other internet protocols (such as
telnet, ftp, and irc) are reserved for members only.

Now it might be the case that we could declare that some part of
membership dues are payments for services rendered, but have dues still be
100% deductible, because the perks are "frequently exercisable rights",
which is one of the "safe harbors" under which the IRS allows a benefit to
be treated as having insubstantial value.

In that case, though, I would need a number for how much the member perks
we give people are actually worth.  I really have no idea how to estimate
that.  I would appreciate some input on how to handle this.

response 24 of 43:

Mar 11 00:43 UTC 2002

IRS Publication 526 is one place where deduction of charitable contributions
is discussed.  It is clear that frequently exercisable rights can be
considered as having insubstantial value from the perspective of both the
donor and the charity, when we're talking about deductions from income. 
Whether that extends to filling out the 990 is what I don't know.