Frequently Asked Questions - Charitable Trusts - California Dept. of Justice

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Frequently Asked Questions

Charities

Commercial Fund-raiser

Raffles

CHARITIES
I have just been solicited by a charity. How can I tell if it is legitimate? How can I check out a charity? Can't I get information about a charity's operations and expenditures directly from the charity? How can I understand the information that is on a charity's Form 990? What is the role of governmental agencies regarding charities? What does the Attorney General investigate? What does the Attorney General's Office generally not investigate? What can I expect when I submit a complaint to the Attorney General's office about a charity or a charitable solicitation? Top of Page
COMMERCIAL FUND-RAISER
What is a commercial fundraiser for charitable purposes? What is a fundraising counsel? What is a commercial coventurer? What is required to register as a commercial fundraiser? What is required to register as a fundraising counsel? What is required to register as a commercial co-venturer? When is registration required? Do I have to file a financial report or accounting of funds or assets received as a result of a solicitation for charitable purposes? Which financial reporting form should I use to file the required financial report(s)? When must annual financial reports be filed? Is there a penalty for not completing registration or filing annual financial report(s) by the required dates? Top of Page
RAFFLES
May charities now hold raffles to raise funds? What is a raffle? Who may hold raffles? Does an organization already registered as a charity need to register separately to conduct a raffle? Are there separate reporting requirements? Must all eligible organizations register and report? Can my organization hold a raffle immediately? If an organization gives away raffle tickets, does it have to register and report? How do I register to conduct a raffle? How long is a raffle registration valid? If my organization registers but decides not to hold a raffle, is the fee refundable? What information must we provide for raffle registration? As a chapter of a statewide organization, do I have to register to hold a raffle? My organization has changed the raffle date noted on the registration form. Do we need to contact the Registry? When is the Nonprofit Raffle Report disclosing raffle activities required to be filed? What kind of record keeping is required? Are there limits on raffle prizes? Does an organization report individual buyers of raffle tickets? When can an organization expect to receive confirmation of registration? Can I complete the registration and report forms on the Internet? Top of Page
Questions about Charitable Organizations
The Attorney General's Guide for Charities, first published in 1988, provides comprehensive information about California laws that govern charities, and also about important federal laws. It is primarily intended to assist individuals who give their time and skills to serve charitable organizations. The answers to many basic questions about charities can be found in the Guide. Be sure to check the "2001 Supplement". Top of Page
Questions About Charitable Solicitation
The Attorney General's Guide to Charitable Solicitation provides information about charitable fundraising, solicitation disclosure laws and commercial fundraisers. It also includes important suggestions to donors and information on how to check out a charity. Top of Page
CHARITIES I have just been solicited by a charity. How can I tell if it is legitimate? The Attorney General's office can tell you if a charity is registered and current in its reporting requirements. However, we can't tell you whether it is legitimate, or such things as how effective it is, or whether it uses its money wisely. There is no Attorney General's seal of approval. It is up to the individual donor to check out a charity for him/herself. Top of Page How can I check out a charity? You may find the most recently filed Form 900, 990EZ or 990 PF by searching the database. Please note, however, that not every charity report is available yet, and the information on the reports is unedited. The Attorney General's Registry of Charitable Trusts (Registry) (916-445-2021) maintains the public files containing financial reports (IRS Form 990) for the largest California registered charities. In addition, the Registry maintains a current index and a computer printout of all registered California charities. The Registry receives and processes the periodic financial reports which must be filed by the largest public benefit corporations and Charitable Trusts; many small charities are exempt from annual reporting. Currently, all hospitals, schools, and churches are also exempt from reporting to the Registry. If a charity has not registered with the California Attorney General, the Registry is unable to provide any information about it. If the charity has registered, the Registry can provide the following public information: a copy of its articles of incorporation or trust instrument, copies of annual information returns for the largest tax-exempt organizations (IRS Form 990 or 990 EZ for public charities and Form 990 PF for private foundations) filed by the charity, and the RRF-1 form. If a Form 990, 990 EZ, or 990 PF is available for the charity listed above, that document may contain valuable information about the charitable organization and its programs. Top of Page Can't I get information about a charity's operations and expenditures directly from the charity? Certainly. Federal law now requires a charity to send you a copy of its Form 990 for a reasonable charge. If the form is not available by searching the database, this is the fastest way to obtain the information. You can also request copies of Form 990 from the Attorney General's Registry of Charitable Trusts. The charge is 30 cents per page copying charges, plus mailing costs. All public copying requests are handled by a copying service and processed in the order received. The average time to process such requests is three weeks. Top of Page How can I understand the information that is on a charity's Form 990? IRS Form 990 basically explains how much money the charity received for the year reported, and gives a fairly detailed breakdown of how the charity spent the money. The Attorney General's office has prepared instructions for detailed review of a Form 990. They are contained in the Attorney General's Guide to Charitable Solicitation on pages "20-24".. Top of Page What is the role of governmental agencies regarding charities? Various government agencies take actions that affect the status and operations of charitable organizations. The IRS and the California Franchise Tax Board initially determine whether an organization qualifies for federal and state income tax exempt status. At any time during the operating life of a charity, the IRS or the Franchise Tax Board may audit the organization to determine its liability for taxes, penalties, or revocation of tax exempt status. The role of the Attorney General in overseeing California charities is different from the IRS and Franchise Tax Board. The Attorney General represents the public beneficiaries of charities, who cannot sue in their own right. The Attorney General investigates and audits charities to detect cases in which directors and trustees have mismanaged, diverted, or defrauded the charity. If in fact such improper actions by directors have resulted in a loss of charitable assets, the Attorney General may sue the directors to recover from them the missing funds. The funds recovered by the Attorney General are returned to the charity. Top of Page What does the Attorney General investigate? Some of the problems frequently investigated by the Attorney General include: self-dealing transactions either between a director and the public benefit corporations, or by trustees; loans by a corporation to a director or officer; loss of substantial corporate funds or assets during one year; losses of charitable assets through speculative investments; excessive amounts paid by a public benefit corporation or Charitable Trusts for salaries, benefits, travel, entertainment, legal and other professional fees; sale of a charity or conversion of a public benefit corporation to "for profit" status (authorized by statute under restricted conditions) at a price that is unfair to the charity; illegal use of charitable funds; and diversion of Charitable Trusts funds from their intended purpose. Top of Page What does the Attorney General's Office generally not investigate? The Attorney General's Charitable Trusts jurisdiction does not apply to churches, religious corporations, homeowner's associations, and most mutual benefit corporations. The Attorney General does not review matters involving internal labor disputes, contested elections, disagreements between directors and members over policy and procedures, and most legal actions between charities and third parties regarding contracts or torts. Persons with complaints in any of the foregoing categories may choose to consult a private attorney to review legal rights and remedies. Persons with complaints of criminal activities by a charity should refer the matter to the local district attorney. Top of Page What can I expect when I submit a complaint to the Attorney General's office about a charity or a charitable solicitation? The Attorney General's office receives thousands of inquiries and complaints from the general public, news reporters, and other interested parties regarding possible mismanagement or diversion of charitable assets. All complaints about charities are reviewed by the Attorney General's Charitable Trusts audit staff. An investigation is conducted on those cases in which there is reliable evidence of a diversion of assets or gross mismanagement resulting in a significant financial loss to the charity. If these improper actions have resulted in a loss of charitable assets, the Attorney General may sue the directors to recover from them the missing funds. The funds recovered by the Attorney General are returned to the charity. However, the Attorney General has a small staff and limited financial resources to carry out charitable investigations. Although disclosure procedures prohibit the Attorney General from discussing pending investigations or indicating whether or not any specific action has or will be taken with respect to a particular organization, you may be assured that the Attorney General seeks to administer the Charitable Trusts laws equitably and efficiently. Top of Page NOTE: Detailed answers to most questions can be found in one of the publications available at this web site.
RAFFLES May charities now hold raffles to raise funds? Recent changes to the state constitution and Penal Code provide a narrow exception to the prohibition against gambling in California. After July 1, certain tax-exempt groups such as charities may hold fund-raising raffles. Top of Page What is a raffle? A raffle is a type of lottery in which prizes are awarded to people who pay for a chance to win. Each person enters the game of chance by submitting a detachable coupon or stub from the paper ticket purchased. A raffle must be conducted under the supervision of a natural person age 18 or older. At least 90 percent of the gross receipts from raffle ticket sales must be used by the eligible tax-exempt organization to benefit or support beneficial purposes in California. Groups are prohibited from awarding raffle prizes by use of a gaming machine, apparatus or device such as a slot machine. A raffle also may not be advertised, operated or conducted over the Internet. However, the organization conducting the raffle may place on its web site an announcement of a raffle. See Penal Code section 320.5 and Statutes and Regulations. Top of Page Who may hold raffles? Only eligible private, tax-exempt nonprofit groups qualified to conduct business in California for at least one year prior to conducting the raffle may conduct raffles to raise funds for the organization and charitable or beneficial purposes in California. Eligible organizations are charities and religious or other organizations that were exempted from state taxation by the Franchise Tax Board under the following Revenue and Taxation Code sections: 23701a (labor, agricultural, or horticultural organizations other than cooperative organizations); 23701b (fraternal orders); 23701d (corporations, community chests or trusts operating exclusively for religious, charitable or educational purposes); 23701e (business leagues, chambers of commerce); 23701f (civic leagues, social welfare organizations or local employee organizations); 23701g (social organizations); 23701k (religious or apostolic corporations); 23701l (domestic fraternal societies); 23701t (homeowners' associations); and 23701w (veteran's organizations). If you need a copy of your tax-exempt letter, submit an e-mail request to the Franchise Tax Board or write to: Exempt Organizations Unit, Franchise Tax Board, PO Box 942840, Sacramento, CA 94240-0040. Top of Page Does an organization already registered as a charity need to register separately to conduct a raffle? Are there separate reporting requirements? Yes. Raffle registration is a separate requirement from charity registration. A report on raffle activities is required during the year (September 1 through August 31) in which any raffle is held.. Top of Page Must all eligible organizations register and report? Nonprofit religious organizations, schools and hospitals are exempt from the registration and reporting requirements; however, even though they are not required to register and report, those organizations must still comply with all other provisions of Penal Code section 320.5. Top of Page Can my organization hold a raffle immediately? No. Before conducting a raffle, your group must be registered with the Attorney General's Registry of Charitable Trusts. Your group also must receive written confirmation of your annual registration before holding the initial raffle. Top of Page If an organization gives away raffle tickets, does it have to register and report? Registration is not required if all tickets for a drawing are free, and solicitations of voluntary donations to the organization are in no way connected to distribution of tickets, and this is made clear to all participants. If you require a "donation" in return for a ticket, you must register. Top of Page How do I register to conduct a raffle? Complete the raffle annual registration form (ct-NRP-1) and mail to the Registry with your $20 registration fee by September 1 of the year (September 1 through August 31) in which you expect to hold a raffle. Checks should be made payable to the Department of Justice. Please note, you must receive written confirmation of your registration before holding a raffle. Raffle registration forms are available on the Internet at Charities Forms, or may be requested by mail, fax, or telephone. Top of Page How long is a raffle registration valid? A raffle registration is good for 12 months - from September 1 through August 31 - and must be renewed annually. Since the law takes effect July 1, 2001, the first year under the new law includes two extra months - July and August. Therefore, this registration period will be July 1, 2001 through August 31, 2002. Top of Page If my organization registers but decides not to hold a raffle, is the fee refundable? No. Top of Page What information must we provide for raffle registration? An eligible nonprofit group must furnish on the registration form: a) Name of organization; b) Address of organization; c) One or more of the following: Federal Tax/Employer Identification Number (assigned by the Internal Revenue Service and usually found on the IRS letter granting exemption from federal taxes. Contact the Exempt Organization Section of the IRS at (877) 829-5500; or http://www.irs.gov/ with questions); or Corporate Number (assigned by the Secretary of State at the time the Articles of Incorporation are endorsed and filed); or Organization Number (assigned by the Franchise Tax Board to associations, trusts, and organizations that are not incorporated in California but do business in California); or California Charitable Trusts Identification Number (assigned by the Registry of Charitable Trusts to organizations required to register and report with the Registry). d) Name and title of a "fiduciary," which is a person such as a director, officer, trustee or other individual occupying a similar position of responsibility in the organization. Top of Page As a chapter of a statewide organization, do I have to register to hold a raffle? Yes. Each individual chapter of an organization that plans to conduct a raffle must register and complete a Nonprofit Raffle Report for each raffle conducted. Top of Page My organization has changed the raffle date noted on the registration form. Do we need to contact the Registry? No. You can indicate the revised date on the Nonprofit Raffle Report when it is completed and filed. Top of Page When is the Nonprofit Raffle Report disclosing raffle activities required to be filed? A separate disclosure report is required for each raffle held by the organization. The reports may be filed with the Registry of Charitable Trusts anytime after the conclusion of a raffle, but must be filed by no later than September 1 of each year for activities in the current registration period. Top of Page What kind of record keeping is required? The required information appears on the Nonprofit Raffle Report form (ct-NRP-2). Basically, the organization must report the date and location of the raffle held; total funds received from the raffle; total expenses for conducting the raffle; the charitable or beneficial purpose for which raffle proceeds were used or the amount and organization to which proceeds were directed. (See Nonprofit Raffle Report form at forms.) Top of Page Are there limits on raffle prizes? State law does not specify any limits on the value of raffle prizes. Top of Page Does an organization report individual buyers of raffle tickets? No. Top of Page When can an organization expect to receive confirmation of registration? Depending on volume, it could be up to 60 days after receipt of the registration form. Top of Page Can I complete the registration and report forms on the Internet? Yes. However, upon completion, you must print it, sign and mail it along with the fee to the Registry of Charitable Trusts.