The National Association of State Charities Officials (NASCO) published Results from 50 State Survey on Regulation of Crowdfunding Activities on October 3, 2017 (download PowerPoint file here). The Survey was designed and distributed to 50 States and the District of Columbia by the NASCO Crowdfunding Working Group convened in 2016. 41 States (including DC) responded.
Excerpts from Crowdfunding Survey
Fundraising for Individuals
Does your state regulate fundraising by individuals for individuals where there is no opportunity for a benefit?
- YES – 14
- NO – 27
Does your state regulate fundraising by individuals for individuals where there is an opportunity for a non-equity benefit?
- YES – 5
- NO – 36
Does your state regulate third party websites (GoFundMe, etc.) for their activity hosting fundraising campaigns for individuals where there is no offer of a benefit?
- YES – 7
- NO – 34
Does your state regulate third party websites (Kickstarter, etc.) for their activity hosting fundraising campaigns for individuals offering a non-equity benefit?
- YES – 5
- NO – 36
Gene’s Comments – A minority of responding states regulate fundraising for individuals. Such fundraising includes appeals for medical and disaster relief. Oddly, more states regulate fundraising by individuals for individuals where there is no opportunity for a benefit (presumably to the contributor) than where there such an opportunity. There is little regulation over third party websites for their activity hosting fundraising campaigns for individuals.
Fundraising for Charities
Does your state regulate third party websites for their activity hosting fundraising campaigns submitted by charities?
- YES – 19 (including 8 only if website charges a fee)
- NO – 22
Does your state regulate third party websites for their activity allowing donors to contribute to most any charity (charity list imported from from GuideStar or IRS Master File)? Examples of such websites include Amazon Smile, PayPal Giving Fund, GoFundMe Impact Fund, and Network for Good
- YES – 19 (including 5 only if website charges a fee)
- NO – 22
Does your state require that any charity give its permission before a third party website may offer donors the chance to donate to that charity?
- YES – 26 (including 1 only if website also displays charity’s logo or its written material)
- NO – 15
Gene’s Comments – Nearly half of the responding states regulate third party websites for hosting fundraising campaigns submitted by charities. This suggests that more states believe additional protection is required when a charity raises funds rather than when an individual raises funds. Because charitable assets are involved in the former case, this seems to make sense. Yet, it seems peculiar that an individual raising money purportedly for a sick friend would not require the same level of regulation as a charity raising money for a class of sick people. The likely rationale is that when an individual raises money for another individual, the typical donor will personally know one or both such individuals and would serve as an additional source of accountability. The questions in this section also don’t seem to differentiate between a for-profit third party website hosting campaigns allowing donors to select a recipient charity and a nonprofit, DAF sponsoring organization’s website hosting its own campaigns giving donors the chance to recommend a beneficiary charity. For a DAF sponsoring organization that is also a grantmaking organization, it should be able to select its own grantees whether or not such grantees have pre-approved being a recipient of such funds.
Peer to Peer Fundraising Campaigns
Does your state regulate individuals who conduct peer to peer campaigns to contribute to a charity using a third party website?
- YES – 10
- NO – 31
Does your state require individuals who conduct those peer to peer campaigns to obtain permission from the charity?
- YES – 10 (including 1 only if individual also displays charity’s logo or its written material)
- NO – 31
Does your state regulate third party websites that host individual peer to peer campaigns to benefit a charity?
- YES – 8 (only if compensated)
- NO -33
Does your state require third party websites that host individual peer to peer campaigns to obtain permission from the charity?
- YES – 11
- NO – 20
Gene’s Comments – Peer to peer fundraising is a particularly complex area. Many charities don’t want to allow supporters to fundraise as agents of the charities without the charity’s permission and some level of guidance/supervision. However, this does not mean that they wish to discourage supporters from asking friends and family members to also contribute to the charity. There is no bright line separating where an individual is acting as an unauthorized agent of the charity in fundraising on its behalf and where an individual is acting on her or his own behalf simply encouraging others to donate to the charity. But establishing a crowdfunding campaign likely crosses the line even if a strong majority of states don’t want to regulate such unauthorized activity, leaving it up to charities to enforce it themselves.
Donor Advised Funds
Does your state regulate donor advised fund charities that receive and distribute donations collected for specific charities through a third party website?
- YES – 25 (including 9 as a professional fundraiser, if paid)
- NO – 16
Gene’s Comments – As noted above, DAF sponsoring organizations, assuming they are operating lawfully, should be free to select their own grantees and are not acting as agents for such grantees. The language in the solicitation matters and must ensure that the DAF sponsoring organization is not acting as a mere conduit and has the requisite control and discretion over the donated funds. The sponsoring organization should not be identified as a professional fundraiser if the only fee involved is an intra-organizational fee from the DAF to the general fund of the sponsoring organization. Of course, it’s quite possible that many DAF sponsoring organizations are acting as conduits and not truly sponsoring DAFs, and they may fall within the desired state regulations. For the sponsoring organizations, a more difficult question may be whether they are hosting multiple DAFs or whether such funds, while restricted, fall under the single entity exception to the DAF laws. See also Donor-Advised Funds: What You Should Know.
Jurisdictional Issues
How does your state address jurisdictional requirements to permit regulation of third party websites through which a donor may make a charitable contribution?
- Charleston Principles – 5
- Look whether it targets state residents as donors – 9
- Look whether it fundraises for a charity operating in the state – 1
- Not encountered yet – 8
Gene’s Comments – It’s surprising that only 5 responding states stated that they address the above-described jurisdictional requirements using the Charleston Principles, the nonbinding guidance developed by NASCO in 2001 to address out-of-state registration requirements with respect to online charitable solicitations.
Crowdfunding Enforcement
Has your state engaged in any enforcement activity arising out of crowdfunding?
- YES – 17 (including 4 criminal referrals for fraud)
- NO – 24
Any effect in your state on traditional charities resulting from fundraising for individuals using third party websites?
- NO – 3 (no measurable effect)
- UNKNOWN – 25
Gene’s Comments – Expect greater enforcement in the future, hopefully informed in part by data regarding the impact on charities resulting from fundraising for individuals. With the charitable contribution deduction now unavailable for the vast majority of taxpayer due to the new tax laws, individuals may have more choices to make with their giving decisions without any tax implications. From the vast majority of contributors’ tax perspective, it makes no difference whether to give to a charity or directly to an individual with charitable needs. Consequently, it seems likely that giving to individuals will have a depressing effect on giving to charities as at least some charitably inclined donors make their giving decisions from among a broader pool of recipients (charities, individuals, 501(c)(4) social welfare organizations, for-profit social enterprises).
Evaluation of Crowdfunding Regulation
Is current professional fundraising law adequate?
- YES – 5
- NO – 12
Is there a need for a new uniform law?
- YES – 17
- NO – 8
Is there a need for a single registration for 50 states?
- YES – 10
- NO – 9
Gene’s Comments – Not surprisingly, there’s not much agreement on whether and what types of new regulations are required. Legislators and regulators must develop well-informed laws. Currently, California’s AB 2556 appears problematic.