Vol. 7, No. 1, Pg. 32. The New South Carolina Solicitation of Charitable Funds Act.

• Author: By Shawn M. Flanagan

South Carolina Lawyer

1995.

Vol. 7, No. 1, Pg. 32.

The New South Carolina Solicitation of Charitable Funds Act

32The New South Carolina Solicitation of Charitable Funds ActBy Shawn M. FlanaganOrganizations that solicit contributions of any kind should know about the overhaul of the Solicitation of Charitable Funds Act (Act) effective June 29, 1994. For most nonprofit organizations, compliance with the Act will mean filing a two page Uniform Registration Statement and a copy of the organization's tax return (IRS Form 990--Return of Organization Exempt From Income Tax) with the Secretary of State (Secretary) each year. However, additional and more onerous burdens are imposed on nonprofit organizations that use for-profit (i.e., professional) fund-raisers.

This article describes the requirements of the new law and how the Secretary, through the Division of Public Charities, plans to interpret and enforce it.

Historical Background

Originally passed in 1972, the Act sprang from a concern that some nonprofit organizations were receiving too small a percentage of money raised in their name by for-profit fund-raising organizations. Many contingent fee contracts provide for reimbursement of fund-raising expenses from gross receipts and a fee based on a fixed percentage of receipts. Charities that employ professionals may receive only 5-10 percent of the gross amount donated, due to high start-up costs of fund-raising campaigns.

The old Act gave the Secretary the authority to approve contracts between nonprofits and their professional fund-raisers. S.C. Code § 33-55-90. Other state statutes set upper limits on percentage fees and established minimum percentages that had to be devoted to charitable purposes.

The old Act received little attention over the past several years because portions of it, such as § 33-55-90, were unconstitutional under the First Amendment based on the holding in Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620 (1980). In that case, soliciting charitable funds was held to be a fundamental First Amendment right. Therefore, any regulation of charities and professional soliciting is subject to strict constitutional scrutiny. As a result of

34Schaumburg, Secretary of State v. Joseph H. Munson Co., 467 U.S. 947 (1984) and Riley v. National Federation of the Blind, 487 U.S. 781 (1988), the Secretary did not attempt to penalize noncompliance with the old Act. The new Act was drafted with the above case law in mind.

According to the Secretary, the definition of charitable organization under the new Act was not meant to be broader than the prior definition.

Registration Under the New Act

The Act's first requirement is that (1) charitable organizations that solicit contributions, (2) professional fund-raising counsel and (3) professional solicitors, must all register with the Secretary. Charitable organizations must register by July 1 of each year. § 33-56-30. The registration of a professional lasts one year from the date the Secretary receives the application. § 33-56-30 and 33-56-110.

Charitable Organizations That Solicit Contributions

The definition of "charitable organization" has been divided into three parts under the new Act. First, the definition specifically includes an entity that is exempt from taxation under Internal Revenue Code § 501(c)(3). Second, particular types of organizations are included without reference to tax-exempt status. For example, "social welfare" and "civic" entities are included regardless of whether or not the entity is also tax-exempt under IRC § 501(c)(4). Finally, in a very broad statement, the definition also includes "any person who employs a charitable appeal as the basis of solicitation or an appeal that suggests that there is...