II. Laws that Govern Charitable Organizations
I. Introduction II. Laws that Govern Charitable Organizations III. Laws that Govern Professional Fundraisers IV. Laws that Govern Charitable Trusts V. Minnesota-Organized Nonprofits and Charitable Gambling VI. When Nonprofits Must Provide Notice to the Attorney General VII. Uniform Prudent Management of Institutional Funds Act Appendix
The Charitable Solicitation Act, Minnesota Statutes sections 309.50-.61, governs the activities of charitable organizations that solicit cash and non-cash donations in Minnesota. The Act provides for registration, annual reporting, and supervision by the Attorney General’s Office of charitable organizations, as well as any professional fundraisers that they may hire to solicit donations on their behalves. The Act helps ensure that organizations that solicit charitable contributions are accountable to the public and properly administer, manage, and use the donations that they receive. The Charitable Solicitation Act further states the documents that charities and their fundraisers file with the Attorney General’s Office are public.(1) The public nature of these documents assists donors in making informed decisions about how to give, protects against deceptive practices and other fraud, and ensures that assets held for charitable purposes are properly administered and utilized.
Charitable Organizations are Required to Register
Unless exempt, a “charitable organization” must register and file certain documents with the Attorney General’s Office before it is permitted to “solicit” any “contributions” in Minnesota.(2)
Key Definitions—Charitable Organization, Contribution, and Solicit
Under Minnesota law, a “charitable organization” is any person, including a corporation or other entity, that solicits for any charitable, philanthropic, educational, religious, cultural, or similar public interest purpose.(3) Organizations that are tax exempt under section 501(c)(3) of the Internal Revenue Code are likely charitable organizations under Minnesota law. Organizations that are tax exempt under a different subpart of section 501(c), or that are not tax exempt at all, may also still be charitable organizations, depending on the circumstances. For example, a civic league, a lobbying group, fraternal society, or chamber of commerce could be a charitable organization if it solicits contributions for a charitable purpose. Organizations whose primary purpose is to support or oppose a candidate for public office are not considered charitable organizations. For the purposes of this guide, the term “charity” is used interchangeably with “charitable organization.”
Under Minnesota law, a “contribution” is a gift of—or a promise to give in the future—anything of value to a charity.(4) Contributions include not only money donations, but donations of non-cash items as well. Examples of common non-cash contributions to charities include cars, clothing, and other household goods. The term contribution also includes payments for merchandise or advertising if representations are made that any part of the price paid will be applied to a charitable purpose. See the section entitled “Determining Total Contributions” for more information about how to calculate the total value of the contributions that a charity has received during the year (and an important exception when doing so). For the purposes of this guide, the term “donation” is used interchangeably with “contribution.”
Under Minnesota law, “solicit” and “solicitation” are defined very broadly to mean any request, whether direct or indirect, for a contribution in connection with a claim that the contribution will be used for a charitable purpose.(5) Mailings and flyers, written ads, and TV and radio ads requesting a donation are considered solicitations. The same is true for in-person and telephone requests for donations. Even a request to attend a concert, sporting, or similar event—or to buy a particular product or item—is considered a solicitation when made in connection with the claim that a portion of the price paid will be used for a charitable purpose.
Certain Charitable Organizations are Exempt from Registration
Charities that claim they are exempt from registering under the Charitable Solicitation Act should still be aware of three important points:
- Charities claiming to be exempt from registration must still file a Charitable Organization Exemption Form with the Attorney General’s Office.
- Some charities that are exempt from registering under the Charitable Solicitation Act but are tax-exempt under section 501(c) of the Internal Revenue Code may still need to register as charitable trusts under the Supervision of Charitable Trusts and Trustees Act, Minn. Stat. §§ 501B.33-.45. Please see the section entitled “Laws that Govern Charitable Trusts” of this publication, which discusses regulation of charitable trusts, for more information.
- Parts of the Charitable Solicitation Act prohibiting certain practices and mandating certain disclosures when soliciting donations apply to all charities, regardless of whether or not they are required to register.(8)
The following types of charities are exempt from registration under the Charitable Solicitation Act:
De Minimis Exemption
A charity is exempt from registration if:
- it did not receive contributions totaling more than $25,000 during the prior accounting year and it does not plan to receive contributions totaling more than $25,000 during the upcoming year;
- it does not utilize a professional fundraiser; and
- its “functions and activities” are performed wholly by unpaid persons.(9)
See the section entitled “Determining Total Contributions” for more information on how to calculate the total amount of contributions a charity has received for purposes of this exemption.
If a charity pays persons to perform services related to its “functions and activities” (i.e., services related to its governance or administration, fundraising, solicitation of contributions, representations to donors, etc.), it must register. If a charity does not pay any staff—or only pays persons for services unrelated to the performance of its functions or activities—then the charity need not register if it also satisfies the other criteria for the de minimis exemption.
- Example 1—A charity that only pays someone to clean its offices, clear its parking lot of snow, or operate a server that hosts its website does not pay a person engaged in performing the organization’s functions or activities.
- Example 2—By contrast, a charity paying a person to act as a board member or officer, to oversee or provide its charitable programming, to assist or consult in creating its solicitations, website content, or publications providing information to donors, or to engage in other similar or equivalent conduct does pay a person who performs the organization’s functions and activities.
Charities should be aware that, under this exemption, an organization that utilizes a professional fundraiser or that has paid staff performing its functions and activities is not exempt even though the charity did not receive $25,000 in contributions during the prior year. The $25,000 ceiling to qualify for this exemption includes donations from all sources, not merely donations received from Minnesota sources. For example, if a charity solicited $20,000 in donations in Wisconsin and $10,000 in donations in Minnesota it would not qualify for this exemption because total contributions exceeded $25,000.
Religious Institution Exemption
Religious institutions that do not need to file a Form 990 federal tax return because they meet certain filing exceptions contained in portions of the Internal Revenue Code are exempt from registering.(10)
Educational Institution Exemption
Certain types of educational institutions are exempt from registering.(11)
A charity that solicits donations only from persons who have a right to vote as a member of the organization prior to the solicitation are exempt from registering.(12) Examples may include fraternal, alumni, trade, or professional associations.
Named Beneficiary Exemption
An organization that solicits donations is exempt from registering if:
- the donations are for a person identified by name in the solicitation; and
- the entirety of the donations are transferred to the person with no deductions; and
- there is no restriction on how the donations are to be used by that person.(13)
Examples may include solicitations for a named person who has a medical condition or a named family who lost their home in a disaster.
Private Foundation Exemption
Private foundations (as defined in section 509(a) of the Internal Revenue Code) that did not solicit contributions from more than 100 persons during the previous year are exempt from registering.(14)
Determining Total Contributions
As discussed above, charities receiving less than $25,000 in total contributions may be exempt from registering with the Attorney General’s Office. Money donations are the most common type of contribution, and are easy to value. Contributions to a charity from corporations and foundations, and those that are received as part of combined appeals (e.g., appeals conducted by a charitable federation), should be counted in calculating total donations. An important exception is grants received from government agencies. Government grants are excluded from the definition of “contribution,”(15) and do not need to be included when determining whether a charity exceeds the $25,000 registration threshold. The exception for government grants applies only to the process of calculating total contributions for the purposes of determining whether an organization should register with the Attorney General’s Office. A charity must still, for example, report government grants as revenue on its tax return and in satisfying other reporting requirements.
Charities should value non-cash contributions they receive in accordance with generally accepted accounting principles (“GAAP”), unless applicable law requires them to value non-cash contributions differently. If a charity is offering goods and services to the public, Minnesota law states that the value of the contributions received is the difference between the cost to the charity of the goods and services and the price that the charity (or any person acting on its behalf) resells the goods and services.(16)
Initial Registration Requirements for Charitable Organizations
Charities must attach a number of different documents when submitting their initial registration statement. The materials that must accompany the statement include the following:(18)
- Copies of all contracts between the charity and any professional fundraiser. If a charity enters into a contract with a professional fundraiser for the fundraiser to solicit in Minnesota after registering, a copy of the contract must be filed within seven days.
- A financial statement for the charity for the prior 12 months. See the next section of this publication discussing annual reporting for additional guidance on the nature and type of financial statement that a charity must submit, which varies by organization.
- A $25 registration fee payable to the “State of Minnesota.” This fee may be paid electronically with a credit or debit card using the Attorney General’s Office’s website, or by check through the mail.
The statement must be executed pursuant to resolution of the charity’s board of directors and signed by two of its officers.(19) A parent charitable organization supervising and controlling a subsidiary chapter, branch, or similarly affiliated charity may file an initial registration statement on behalf of the subsidiary.(20)
Annual Reporting Requirements for Charitable Organizations
Charitable organizations that want to maintain their registration must file an annual report form and certain accompanying materials, and pay a fee, every year.(21)
Contents of Annual Report
The contents of the annual report that charities must file with the Attorney General’s Office include the following documents:
A charity’s annual report form provides information to the public and the Attorney General’s Office about its operations, finances, and activities over the prior year. Charities must fully, accurately, and truthfully answer all questions contained in the form. It must be executed pursuant to a resolution of the charitable organization’s board of directors and signed by two of its officers.(22)
Part of this annual report form requires charities to identify their five highest paid directors, officers, and employees if such persons receive total compensation of more than $100,000 from the charity or from any related organization, when aggregated.(23) The term “related organization” is defined by Minnesota Statutes section 317A.011, subdivision 18, which charities should consult when completing this part of the form. This requirement applies to persons who are directors, officers, and employees of the reporting charity, but does not require highly paid employees of a related organization to be listed if they are not also a director, officer, or employee of the reporting charitable organization.
- Example 1—ABC Charity is affiliated with a related organization, ABC Corporation. ABC Charity’s highest paid persons are five of its officers, who are paid $50,000 each. These same five persons are also employed by ABC Corporation, which pays them another $150,000 each. ABC Charity would identify these officers on its annual report form and list the total compensation for each of them as $200,000.
- Example 2—Same ABC Charity, ABC Corporation, and compensation as in Example 1. ABC Corporation also employs five other persons that are not directors, officers, or employees of ABC Charity and pays these five persons $250,000 each. ABC Charity would not report these persons on its annual report form because they are not directors, officers, or employees of the charity.
2. IRS Tax or Information Return
If a charity files a federal tax or information return with the IRS, it must also file a copy of the return with the Attorney General’s Office. The most common type of tax return that charities file is Form 990, with the others being Form 990-EZ, 990-N, and 990-PF. A charity must include all schedules that it submitted with its tax return when filing a copy of the return with the Attorney General’s Office, except for a schedule of the charity’s contributors.(24)
- Charities that file Form 990-EZ, 990-PF, or 990-N with the IRS instead of Form 990 should file a copy of these forms with the Attorney General’s Office as well.
- Charities that properly file a copy of their tax return with the Attorney General’s Office as part of their annual reporting are not required to file another copy of the tax return with the Minnesota Department of Revenue.
3. Financial Statement
A charity must include with its annual report a financial statement covering its most recent fiscal year. The statement must be prepared in accordance with GAAP, and must contain a balance sheet, a statement of income and expenses, and a statement of functional expenses. It must further identify the portion of the charity’s revenue that the organization allocated towards management and general expenses, program services, and fundraising.(25) Financial statements that do not comply with GAAP, which include those prepared on a cash basis, do not meet the requirements of the Charitable Solicitation Act and may result in a charity’s registration falling into default.
The specific type of financial statement a charity must provide to the Attorney General’s Office—and whether the organization is permitted to treat its federal tax return as its financial statement—varies depending on the amount and nature of the charity’s revenue and the type of tax return that it filed, as follows:
- Charities With More Than $750,000 in Revenue. A charity with more than $750,000 in revenue must file an audited financial statement prepared in accordance with GAAP that has been examined by an independent certified public accountant for the purposes of expressing an opinion.(26) A charity with more than $750,000 in revenue may not treat its federal tax return as its audited financial statement.(27)
- A charity that is a food shelf need not include the value of donated food in determining whether it has $750,000 in revenue if the food is not resold and is redistributed at no charge.(28)
- Charities With Less Than $750,000 in Revenue that File Form 990. A charity with less than $750,000 in revenue does not need to file an audited financial statement. If the charity files a Form 990 with the IRS, the charity may also treat its Form 990 as its financial statement if the Form 990 was prepared in accordance with GAAP.(29) If the charity’s Form 990 was not prepared in accordance with GAAP, the charity must complete the financial section portion of the annual report form that it files with the Attorney General’s Office.
- Charities With Less Than $750,000 in Revenue that Do Not File Form 990. A charity with less than $750,000 in revenue does not need to file an audited financial statement. If the charity files Form 990-EZ, 990-N, or 990-PF, the charity must complete the financial section portion of the annual report form that it files with the Attorney General’s Office and may not treat its tax return as its financial statement.(30)
4. Annual Fee
A charity must pay a $25 fee payable to the “State of Minnesota” when it submits its annual report. This fee may be paid electronically with a credit or debit card using the "Electronic Payment of Registration Fees" webpage on the Attorney General’s Office’s website, or by check through the mail.
If a parent charity is registered with the Attorney General’s Office, it may file the annual report on behalf of any subsidiary chapter, branch, or similar affiliate charitable organization. If a parent organization files annual reports on behalf of one or more of its subsidiaries, the accounting information for each subsidiary that raises or expends more than $25,000 may not be consolidated and must be set forth separately.(31)
Due Dates and Extension Requests
A charity’s annual report is due on or before the fifteenth day of the seventh month after the close of the organization’s fiscal year.(32) For example, if an organization’s fiscal year end is December 31, its annual report is due on July 15. Charities may request an extension of the due date to file their annual report of up to four months.(33)
The easiest way to request an extension is electronically through the Attorney General’s Office’s webpage, "Request an Extension of a Filing Deadline." Charities may also request an extension by mail. An Appendix is attached to this publication reflecting the due dates for annual reports for common fiscal year-end dates.
Effect of Failure to Timely File
A charity’s registration ends on the day after it should have—but failed to—file its annual report.(34) A charity whose registration is in default is not eligible to re-register until it has properly filed all past due annual report(s).(35) In addition to the usual $25 fee, charities that file their annual report late must submit a $50 late fee.(36)
Disclosure Requirements for Charitable Organizations
Minnesota law requires charitable organizations to make certain disclosures to prospective donors when requesting a contribution.(37) These disclosures include notice of any professional fundraisers the charity is using, and providing prospective donors with basic information about the charity that may be helpful in deciding whether or not to contribute. The disclosures must be made by all charities soliciting donations, even if the charity is exempt from registering with the Attorney General’s Office.
Prior to orally requesting a donation, or contemporaneously with a written request for a donation, a charity must clearly disclose the following information:(38)
- the name of the charity;
- the location of the charity by city and state;
- the tax deductibility of the donation; and
- a description of the charitable program for which the solicitation campaign is being carried out; and, if different, a description of the charitable programming of the charity on whose behalf the solicitation campaign is being carried out.
If the solicitation is made by direct personal contact, this information must be disclosed prominently on a written document shown to the person being solicited. If the solicitor is requesting a donation to more than one charity, this information must be given for all charities for which a donation is being sought.(39)
If a charity is using a professional fundraiser to solicit on its behalf, the professional fundraiser must disclose all of the above information and, in addition, disclose the name of the professional fundraiser as on file with the Attorney General’s Office and that the solicitation is being made by a “professional fundraiser.” These disclosures must be made in the same manner as discussed above.(40)
Other Requirements of the Charitable Solicitation Act
The Charitable Solicitation Act places various other requirements on charities that solicit donations in Minnesota. For example, it is unlawful for charities to engage in fraudulent, deceptive, or misleading practices in connection with any charitable solicitation, to use the name of others without written consent when soliciting, or to represent that their registration constitutes an endorsement by the State.(41) Charities must also maintain accurate and detailed books and records for a minimum of three years, which are open to the Attorney General’s Office for inspection.(42)