In most states, solicitation of charitable donations by nonprofits and other organizations (fundraisers, cause marketing co-venturers and others) requires a filing with a state charity regulator. Most often, an application for a charitable solicitation license, permit, certificate or registration is the required filing. Usually the Secretary of State or Office of Attorney General (or a consumer protection or licensing division under one of these offices) handles these charitable registration filings. Once a charity is registered, annual compliance in the form of registration renewals and/or annual financial reporting is required in most states. Not all states, however, require this and those that do have very disparate laws, each with their own extension, exemption and exception protocols that are part of the state charitable solicitation acts and regulations that govern charitable registration and renewal filings.
Charitable Registration Extensions
Since one of the filing seasons for charitable registration renewal and annual financial reporting is nearly upon us and because an estimated 90% of all nonprofit organizations required to make these filings are not able to do so on time, this article will focus on charitable registration extensions. This is a timely topic, as hundreds of thousands of charitable, 501(c)(3), tax-exempt nonprofits gear up to file charitable registration extensions that, once filed with the state charity offices, will buy them three, or possibly six, additional months to file their charitable registration renewals and other compliance filings.
In Defense of Nonprofits
First, in defense of nonprofits, it is only fair to mention that many nonprofits file extensions because they are conscientious about ensuring that all governance and due diligence requirements are met. Meeting these state filing deadlines is usually a function of having completed their Internal Revenue Service (“IRS”) Form 990 (Return of Organization Exempt From Income Tax) on time which, for most organizations, is due four and a half months following the close of their fiscal year end (i.e. May 15th for organizations with a fiscal year end of December 31st).
Why More Time Is Often Needed
At first glance, some might think that more than four months is enough time to prepare the IRS Form 990, but a closer look reveals a different reality. First, the 990 is somewhat complex, consists of twelve pages and requires a myriad of schedules, depending on answers given in the base form. After the 990 is prepared, usually by an accountant, many organizations will also need an audit of their financial statements. So after an accountant and an auditor have completed their tasks, you might think the 990 is ready for filing. Think again.
For many organizations, the 990 must then be reviewed by an internal audit and/or finance committee, which must then provide a report or recommendation to the full board of directors, which must then meet to review and approve the filing of the 990 with the IRS. These steps take a great deal of time and coordination of schedules. Suddenly, a deadline four and a half months away not only seems like a short amount of time, it becomes quite a challenge to meet.
This leads directly to the need for nonprofits to file an extension request not only with the IRS, but also with most of the states in which they are registered to solicit charitable donations. The IRS extension provides more time to prepare the form 990 and the state extension requests allow more time to file charitable registration renewals, which also require annual financial reporting (usually a copy of the nonprofit’s 990).
Filing IRS and Charitable Registration Extensions
The IRS extension is filed on Form 8868 (Application for Extension of Time to File an Exempt Organization Return), a simple two-page form that requires the first page to be completed for an automatic three-month extension and the second page to be completed before the expiration of the first extension for an additional (but not automatic) three-month extension. A copy of this form, or the IRS approval granting the extension, is required by most states in support of first and second extension requests filed with the state charity offices.
State charitable registration extension requests sometimes require a state-specific form, such as New Hampshire’s Form NHCT-4 (Application for Extension of Time to File Annual Report with Charitable Trusts Unit) and New Jersey’s Extension Form CRI-400, which requires a signature by an officer and payment of the annual registration fee at the time of the extension request. Other states, such as Colorado and New Mexico, require an online filing, but most states simply require an extension request via e-mail or fax. Regardless of the form or procedure needed for filing an extension, the information required is more uniform and usually very basic. Most states simply require the submission of an extension request prior to the expiration of the current registration with a copy of IRS Form 8868 and the following information:
– Name of organization
– Employer identification number (EIN) and/or state registration number
– Amount of additional time requested
– Brief explanation of why the extension is needed.
Regardless of the state-specific requirements, including the above information and a copy of the IRS 8868 with all requests is a good practice. As for timing, it is usually a good idea to file for extensions 15 to 30 days in advance, but most states will accept an e-mail, fax or online filing right up until the renewal or annual financial reporting due date. It’s also wise to ask for an acknowledgement of an extension request and confirmation of the new deadline if the extension is approved. Some states will mail or e-mail a written approval, while others make this information available online. Several states do neither, so following up with them is prudent to ensure that the extension was received and approved.
In Washington, D.C., Maine, Mississippi and Wisconsin, extensions are not available. Arizona statutorily requires registration renewal and annual financial reporting during the month of September and does not allow for extensions. Charities may file after the filing period, which ends September 30th, and pay a $25 late fee. Kansas doesn’t require an extension and no late fees or penalties are imposed for filing late. Some states, tired of endless barrages of extension filings throughout the year, such as Pennsylvania and Washington, no longer require extension requests. Instead, they have opted to proactively grant all nonprofits an automatic extension: a 180-day extension in Pennsylvania and a six and a half month extension in Washington.
The procedures for second charitable registration extension requests are mostly the same as first-time requests but, in a few states, special procedures are required. For example, in Illinois, a second request must be accompanied by a draft annual financial report on Form AG990-IL (Illinois Charitable Organization Annual Report), along with draft financial statements (balance and income), a copy of IRS Form 8868 and a $15 renewal fee. Simply following the same procedures used for the first extension request in Illinois will likely lead to a deficiency notice that must be addressed prior to the expiration of the first extension. A number of states, including Florida, Minnesota and Tennessee do not allow for a second extension.
Variations in State Requirements Can Make Extension Process Challenging
For charities that operate in multiple states, the wide variations in state requirements for requesting extensions can make the process extremely challenging. For example, in Maryland, an extension request must be faxed or mailed with a copy of IRS Form 8868, but the failure to include a date in Part I, Line 1, of Form 8868 can cause delays or rejections of extension requests. In New York, extension requests can be emailed, but must contain the name of the organization, its Charities Bureau registration number and the Federal Employer Identification Number (EIN) in the subject line. For example, the subject line should read: “Re: ABC Charity, NYS Reg No. 01-23-45, EIN 12-3456789″.
Those responsible for maintaining state requirements for charities in multiple states need to make sure to thoroughly research the requirements in the applicable states to avoid delays and rejection or work with a knowledgeable service company to ensure the requests are properly submitted on time.
Consequences of Failing to File Extension Requests Properly and On Time
Though meeting charitable registration renewal deadlines by May 15th is a fantasy for many nonprofits, the consequences of missing these deadlines are very real, especially if extension requests are not filed properly and on time. Missing renewal deadlines can result in late fees, potential fines, bad PR, damage to reputation and a possible loss of donors for the nonprofit/charity. Also, charities should be aware of the possible need to cease soliciting in states where their registration has expired.
Since filing an extension is not an option in all states, and because some states that do grant an extension for the filing of annual financial reports do not grant an extension for filing the charitable registration renewal (e.g. Arkansas), it’s important to know exactly what is required in each state. For example, Alaska does not grant extensions for charitable registration renewals and annual financial reporting and does not charge a late fee, but solicitation must cease if registration is not in effect.
Filing procedures vary widely and the smallest of mistakes can lead to the rejection of an extension request. These rejections invariably lead to late fees and sometimes fines, some of which are statutory and cannot be waived. For example, in Illinois a mandatory $100 late fee is imposed if a renewal or extension request is not filed on time. Also, if renewals and annual financial reports are not filed before the end of all allowable extensions, some states base their late fees on when the filing was originally due, which may automatically result in a late fee of $150 ($25 per month), if the registration renewals or required annual reports are not filed before the expiration of all extensions.
The cost in time, resources and dollars to comply with state charitable registration statutes is high, so it behooves wise charities to avoid adding to these expenses by failing to file extension requests properly and on time.