Toward the Ideal of Uniformity, Transparency and Efficiency in State Regulation of Charitable Activity in the United States
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Karen Gano
and
Karl Emerson
For many years now there has been a universal cry for a single electronic filing platform for compliance with uniform state registration and annual reporting requirements for all states. It continues to confound the public, charities who must register, scholars, technology experts, everyone that this efficiency has not been accomplished. There have been many efforts by state regulators through the National Association of State Charity Officials (NASCO) and the nonprofit sector over the years to make this tremendous efficiency a reality. The technology necessary has existed for many years and so is not the barrier to developing and implementing such a system. The authors, retired state charities officials, describe here the barriers to efficiencies that would save charities that must register separately in 42 states tens of thousands of dollars in administrative expense each year to comply with the respective state requirements. They explain why technology has increased inefficiencies of state regulatory processes over the past decade and disclose key lessons learned from the states’ most recent attempt to create a “Single Portal” registration platform for compliance with filing requirements in all states to inform future attempts to achieve a multistate registration system.
Two primary conclusions are drawn from the attempts by the states’ Single Portal attempt. First and ironically, since the technology for such a platform exists, all the time and money states have spent over the past decade developing and implementing their own independent online filing systems may very well be the decisive factor that now may prevent them from agreeing to participate in such a logical, cost-effective, and valuable multistate solution. Second, and perhaps the most important conclusion, is that the leadership for successful development of a multistate registration platform must come, not from the state regulators, but from the constituency that would benefit most from the efficiencies of the platform: the nonprofit sector and its funders.
1 Context and Why it Matters
The purpose of state regulation of charities is to identify activity or circumstances that harm charitable assets or reflect misrepresentation in charitable solicitations and take action to prevent or stop that harm. To facilitate carrying out this purpose, 42 states require registration and some form of annual reporting for charities and solicitors for charitable funds operating in the state. Registration gives state regulators knowledge of what charities are active in the state and enables them to track the activity of those charities and charitable solicitations conducted in the state.
The problem is that the state systems for charities registration and reporting are singularly specific to each state and are collectively disparate to each other state. No state’s electronic data collecting or reporting system communicates with any other state’s system. Even though technology exists to enable communication between the states and their different types of platforms, there is insufficient incentive for the states to implement such communication because each state’s system fulfills that state’s statutory and regulatory requirements. Charities operating or soliciting in multiple states must spend time and money intended for charitable purposes repetitively entering data in multiple independent electronic filing systems or contract with a service to do so for them. The purpose of charities regulation is hindered because fraudulent activity by a bad actor often is not limited to only one state. State regulators must access other states’ databases and individually contact each state’s regulators to assess activity and registration status in the other states, an inefficient and time-consuming process.
There are approximately 1.4 million charities in the United States. While the federal government, through the IRS, and the respective 50 state governments share jurisdictional authority for charities oversight,[1] the responsibility for ensuring the integrity of charitable activity falls disproportionately on the states.
The IRS confers charitable tax-exempt status and has exclusive authority to revoke that status for noncompliance with federal statutory and regulatory requirements. However, the IRS’s ability to carry out the compliance reviews and audits to effectively ensure regulatory compliance and identify fraud has been severely impaired by funding restraints imposed by Congress for more than a decade[2] and still further now by impacts anticipated to result from changes by the current federal administration.[3] In addition, the IRS has become unreliable in its threshold responsibility to determine that an applicant qualifies for charitable tax-exempt status, having granted charitable status to many organizations that do not qualify on the basis of the much-abbreviated Form 1023EZ application for tax exempt status.[4] These circumstances exacerbate the challenges for the states in carrying out their respective responsibilities to regulate charitable activity, but also heighten the importance of state oversight.
The states have much broader authority to effect correction for conduct that threatens charitable assets through state statuary and common law.[5] The state attorney general, acting on behalf of the public interest in the charitable benefit intended by the charitable assets, may intervene to investigate and, through the courts, seek restitution for misappropriation of charitable assets, require governance reforms or seek court appointment of new fiduciaries for breaches of fiduciary duties and self-dealing by directors of a charity, and may bring criminal and civil actions for fraud in charitable solicitations or misuse of charitable assets for personal benefit.[6]
Adding to the challenge for state regulators is the fact that most state charities resources are dedicated to processing and managing compliance with registration requirements rather than fulfilling the primary purpose of state registration – to identify, prevent, and stop fraud or waste of charitable assets. Most states have fewer than three full time equivalent employees (FTEs) devoted to charities oversight, and a third have less than one FTE.[7] Only 9 % of the states, mostly the largest states, employ 10 or more FTEs.[8] The employees in states with few FTEs are trained to manage the registration and annual reporting functions. They are not trained investigators. Often the investigators and attorneys assigned to charities matters are assigned only on a case-by-case basis and generally those matters arise from complaints, notice requirements, or media reports rather than proactive efforts to identify problems from registration data.
The inefficiencies of charities regulatory processes, even as states have greater access to searchable electronic data, undermines confidence in the effectiveness of charitable regulation.
2 Electronic State Filing Platforms Render Greater Burdens for Many Charities
The state charities regulatory system overall is perceived as inefficient.[9] It’s greatest burdens under the current disparate circumstances are imposed on those charities that operate nationally and must register separately and repetitively in every state. The state registration statutes were enacted decades ago, before the Internet existed. 18 years ago, only Colorado had an online filing system. Charitable organizations or their third-party filers prepared and filed paper forms and attachments with the other 41 states each year. At that time and until about a decade ago, almost all states accepted the Unified Registration Statement (“URS”) that was developed by the National Association of State Charity Officials (“NASCO”) as an alternative to each state’s unique form. The URS is only three pages, although, depending on the size and complexity of the organization, the required URS Supplement can be many more pages. The paper copies of all of a charity’s required forms and attachments for all the 41 states were usually a foot to a foot and a half high. The advantage of using the URS instead of each state’s registration form has always been that once the master URS copy is finalized it can be easily modified to be accepted by any participating state in less than a minute.
More and more states have stopped accepting the URS as they started developing and implementing their own online charitable registration filing systems. To date, 32 states have online filing systems, with more states launching on-line in the near future. The efficiencies afforded to multistate filers by the URS were not built into the electronic platforms for these 32 states because each exists on a distinct operating system with the result that the basic information previously reported on the URS now must be entered 32 times, repetitively, on each state’s online charities registration filing system, while paper forms are still submitted to the remaining nine states. The paper forms result in slower processing times, causing delays for charities seeking approvals, and unlike electronically filed forms, require more personnel for the administrative processing function and manual data entry into a database to maintain records for public-facing disclosures of solicitations and status.
For initial registrations in the 42 states that require registration, an organization is typically required to submit a copy of its articles of incorporation and bylaws submitted in the state of incorporation; the organization’s IRS determination Letter; the IRS Form 990 return for its most recently completed fiscal year; audited, reviewed, or compiled financial statements depending on the organization’s level of contributions; a registration statement; and, in most cases, a registration fee that is either a fixed amount, regardless of an organization’s level of contributions, or a sliding scale amount based upon an organization’s income from contributions for its most recently completed fiscal year or, in a few cases, based on its gross revenue. All of these documents now must be uploaded separately and repetitively on the electronic system for each state. The statutes require varying types and amounts of renewal information to be filed each subsequent year, along with a renewal fee, for a charitable organization to legally solicit contributions. The fees vary from $0 to $2,000 per state each year and can total well over $5,000 for large national organizations. The fees serve as a source of income for the states, one that they are unwilling to compromise by participation in a multistate registration system.
Many of the new online filing systems are efficient and easy to use and, in most cases, result in quicker registration approvals. Others are challenging and time consuming, imposing an additional resource drain for charities. Ironically, the end result of more and more states implementing their own online filing systems is that it is now much more time consuming, complicated, and costly to register a charitable organization to solicit contributions nationally than it was 18 years ago before all these technological enhancements were implemented.
The current system is inefficient for fulfilling the purpose of regulation because 32 states are independently expending scarce FTEs to manage duplicative registration compliance rather than receiving the information from a single source and retraining those FTEs to identify at-risk charitable assets and investigate charity fraud and other abuses in the sector. What is ideally needed is for charitable organizations or their third-party providers to enter all the required information and upload the required documentation once to one website or portal.
3 Lessons Learned from the States’ Single Portal Attempt
3.1 Informing Future Multistate Platform Attempts
In 2013, 12 pilot states, with the support of NASCO and the National Association of Attorneys General (“NAAG”), began an initiative to create a Single Portal registration platform for compliance with all states’ registrations and launched a modified first version in 2018.[10] The states did not have access to funds to pay for construction of the Single Portal platform, but potential developers responded to an RFI for a transaction-based funding model. Respondents, including the chosen developer, counted on full participation by all the pilot states in calculating costs. However, as the project unrolled, some states declined to require registration exclusively on the Single Portal platform, leaving the developer unable to make a business judgment that it could recoup development costs as well as meet operating costs from transaction fees. In 2019, the developer determined that it was no longer feasible to continue the project. The lessons learned from this dedicated effort by state charities regulators informs the hurdles that must be overcome if a single multistate registration platform is ever to be achieved.
Lesson 1: The pilot states and their technical consultant,[11] believe that the operating costs for a single charities registration platform could be recouped by transaction fees, even if registration thereon is an option and not a requirement, but that development costs could not be recouped from transactional fees. The development costs to build the system and the significant time investment to obtain required approvals for participation of each respective state on the system will require independent funding.
Lesson 2: Standing in the way of uniform requirements among the states is reluctance or inability by regulators to undertake the bureaucratic process of obtaining inter-agency and/or legislative approval for the requisite regulatory changes. For example, data-mapping identified approximately 300 separately represented data points among the required forms for the pilot states. Many were duplicative but simply worded differently or presented in different areas of a state’s respective form. Ultimately, this presented a technology issue that could be overcome by programming, although making programming more complex, but it also exposed a fundamental leadership problem – that the changes needed were unlikely to be realized without leadership advocacy with lawmakers by the constituency that will benefit most: the multistate charities filers and their funders. Bureaucracy can be an immovable boulder, particularly for regulatory staff trying to make changes from within the bureaucracy. Charities agency heads (attorneys general or secretaries of state) have competing interests for expenditure of their political capital to advocate for changes in regulations or processes that require review and approval through cumbersome statewide policy management procedures and sometimes necessary legislative changes.
Lesson 3: An independent multistate platform operator (other than the states) can better develop processes and agreements with each state to enable transfer to each respective state of the state-required fees collected on the platform. State standards for payment processing are stringent and often inflexible for valid security reasons, but requirements differ among states. Because the states would be owners of the Single Portal platform, the payment processor for the platform had to meet the standards of each state for custody and retention of money. Differing standards became irreconcilable. An independent, third-party platform operator can draw on existing precedent to meet state standards for transfer to each respective state of the fees and payments it collects for that state.
Lesson 4. The states have reported in NASCO meetings that the majority of their registered charities are smaller charities that operate within the boundaries of a single state and have no affirmative fundraising solicitations outside the state. If true, there is no obvious failure in a state’s present system from an intra-state point of view and thus, there is disincentive to expend political capital to change it when other interests are more pressing.
Lesson 5. There is also fiscal disincentive for the states to make the necessary changes for system communication with other states to share data. When the states began the Single Portal project, the fact that very few states had electronic registration systems served as an incentive for participation in the Single Portal platform development because it would reduce the respective state’s development costs while realizing the efficiency of easy information sharing among the states. As the Single Portal project became more complex with resulting delays, states began to build their own independent electronic filing systems. Thirty-two states now have spent money to develop new electronic charities filing platforms over approximately the past decade. The cost of necessary changes in legislation, administration, and technical integration, especially when the system is working from an intra-state perspective, would be considered unjustified by bureaucracy, absent constituent advocacy on behalf of charitable interests.
Lesson 6: The fundamental issue exposed initially by the data-mapping and reinforced by Lessons 3, 4, and 5 above is that the states are not the appropriate initiating leadership for a multistate registration platform. Leadership for successful development of a multistate registration platform must come from the constituency that would benefit from the efficiencies of the platform: the nonprofit sector and its funders, and especially the multistate registration filers.
Among the multistate filers are the largest charities with national beneficial reach and correspondingly broad reach for funding opportunities. These charities would be in the best position to work with Independent Sector, the Urban Institute’s National Center for Charitable Statistics (both long-time advocates and partners in the Single Portal attempt), and others to coordinate a collective advocacy effort with the states. Professional fundraisers and commercial co-venturers who also must register in multiple states would have profit motives for joining the collective effort. Crowdfunding platforms that must comply with California’s new statutory reporting requirements may also be incentivized to join a collaborative effort for a national, uniform electronic reporting platform in anticipation of other states adopting requirements similar to California’s.[12] While an individual charity may determine that the expenditure of resources necessary for participation in development and state-by-state advocacy that would be required to achieve success for the system would be imprudent when compared with the ongoing annual cost of contracting with outside services to complete their annual filing requirements, the philanthropic and foundation funders for multistate filers have broader purposes and corresponding incentive to fund development and advocacy for the overall benefit to society that would result.
There are models for such industry-driven initiatives, such as the International Fuel Tax Agreement, Inc. (IFTA), established by the commercial trucking industry.[13] IFTA created a single system for reporting and submitting to each state the state-regulated and determined fuel taxes for commercial trucking, which previously had been a tedious and time-consuming process for carriers crossing state jurisdictional boundaries. Incentivized by the need for efficiency and cost savings for state-regulatory compliance, the commercial trucking industry developed the IFTA system and created an industry lobby that worked state-by-state to advocate for and obtain participation in the IFTA cooperative agreement. The 48 US contiguous states and 10 Canadian provinces now accept accounting for and payment from IFTA for their respective state’s fuel taxes from commercial trucking activity.[14] The combined compliance system honors each state’s distinct fuel tax rate. Nonprofits and their funders have the same efficiency and cost savings motives for savings that would benefit society and the class of beneficiaries served by each charity rather than paying for inefficient and duplicative state regulatory compliance.
3.2 Other Critical Issues for a Multistate Platform
3.2.1 Integration with Searchable Forms 990 Data
Efficiency in any single platform for compliance with all states’ registration requirements must include capability for integration of the data collected by the states with the Forms 990 data, as well as broad availability of that collective data to all states and the public to better facilitate fraud identification[15] and enable better policy development and informed charitable giving. Candid, BBB Wise Giving Alliance, Charity Navigator and others have advocated for this integration for many years and even more intensely as they have joined with others to make charities data from many sources available in searchable and manipulatable ways on the Giving Tuesday Data Commons Platform.[16] The dilemma for them is the inaccessibility of the state registration data because it is currently warehoused in each state’s independent database system, without an API or other means of downloading usually more than one charity’s file at a time, and then only in a static format such as pdf.
A relatively small amount of data collected by the states is unique from that collected on annual IRS Forms 990. In ideal circumstances, state registrations can become significantly simplified as standardized and curated 990 data becomes more easily searchable and if the IRS has sufficient resources to become more reliable in timely release of raw 990 data.[17] The availability now, in an open data context, of Form 990 data in a format that is “already structured, easily searchable, and readily available on both a trend-level and individual organization basis,”[18] allows regulators (and others) to be able, for example, to compare multiple organizations or track changes over time.[19] It enables quicker and more efficient action by state regulators to identify areas of noncompliance or potential fraud and protect vulnerable charitable assets and minimize fraudulent activity.[20]
For example, New York has shared widely that it used 990 data to identify a large number of charities that had reported loans to officers and directors, which is illegal in New York, and brought those charities, almost without exception, into compliance not by lawsuits but by demand letters with directions and timeline for bringing the charity into compliance. This initiative demonstrates efficient use of electronic data and resources to correct a significant number of legal violations with minimum expenditure of charitable regulation resources, and in a non-litigious manner that raised awareness of fiduciary responsibility without the harm that results in compromise of reputation and loss of donor support from a lawsuit by the attorney general.[21]
The ability to data-mine Forms 990 data will not eliminate the need for efficient collection of information by state regulators about charities operating or soliciting donations in their respective states. The states will continue to need some information that is not needed by the IRS for compliance with federal requirements for tax exemption, particularly related to solicitations and life events.[22]
3.2.2 States Should Make Available APIs for Download of Charities Registration Data
The states’ proprietary warehousing of public data about charities registered in their respective states would have been eliminated by the Single Portal project by providing all state’s data on a single platform with all public data available in downloadable electronic format. Nearly all information provided by charities in registrations and annual filings is public data. States make that data available, including information about whether the charity is compliant with the state’s registration requirements, on a state-specific database that is accessible by the public, but only for simple word searches and for viewing on the agency website or for pdf download of search results. It would be much more efficient and a significant public service for each state to provide an API to enable download of the data. This is relatively low-cost public service that each state registration office could provide now, whether or not a single multistate registration platform is ever developed.
Currently, large grant makers such as Fidelity Charitable that market donor advised funds, can verify that a potential grantee who operates or solicits nationally is compliant with all state regulations only by opening a database platform for each of the 42 states that require registration and searching the grantee charity by name, and doing the same all over again each year in which grants are designated for the grantee. This activity diverts thousands of charitable dollars unnecessarily to burdensome administrative activity.
Until a multistate registration platform is developed, the states could recoup the cost of developing APIs for the public to access their charity registration by charging a modest fee for download of the complete dataset. Allowing Candid, Charity Navigator, Wise Giving Alliance, Giving Tuesday, as well as paywall providers such as CitizenAudit and CauseIQ to download the respective state-collected public data and integrate it with Forms 990 data and other data that they collect would more effectively inform the public than the states have ability or resources to do. It would also give access to researchers and scholars of more comprehensive data for analysis to inform more effective state regulation and enable regulators to better meet oversight responsibilities even without development of the convenience for multistate filers of an efficient multistate state registration platform.
3.2.3 Changing the Primary Focus for State Regulators from Registration Compliance to Effective Use of Registration Data to Identify At-Risk Charitable Assets or Fraud
There is a learning curve for state regulatory offices in using data mining and analytics to enhance more effective oversight. It will require education and training to incentivize state regulatory offices to direct scarce resources to utilization of machine-readable data that 32 states are currently collecting (independently) as well as to utilization of the now readily available open access 990 data. NASCO, with support from NAAG, has resources to develop training materials and has infrastructure for making training resources available to all states’ charities regulators. Developing training materials for utilizing the 990 data and state-collected electronic data would enhance effectiveness of protection of charitable assets and that, in time, would benefit society and the nonprofit sector by increasing the level of trust that charities regulation is serving an effective purpose. Advocacy from the nonprofit sector and its supporters would bring weight and immediacy to more effective protection of charitable assets now as well as to the need for greater uniformity and transparency in the states’ charities regulation processes and practices.
4 Conclusions
The development by 32 states of independent electronic charities registration platforms that do not communicate or share information with any other state’s platform has complicated and increased compliance costs for charities, especially those that must register in multiple states. This increased burden on charities contravenes the public purpose of regulation of identifying, stopping and preventing harm to charities and charitable assets. Inability to access the data sets warehoused by the states, integrate them with Forms 990 data, and run analytics on the comprehensive data prevents more effective oversight by state regulators and assessment of better policy for charities regulation. Overcoming the significant barriers to correcting these inefficiencies presents challenges, but doing so will alleviate unnecessary burdens on charities, enable state regulators to more effectively carry out their regulatory purpose, and increase public confidence in charitable giving.[23]
© 2025 the author(s), published by De Gruyter, Berlin/Boston
This work is licensed under the Creative Commons Attribution 4.0 International License.
