California AG’s Guide for Online Charitable Giving

The Charitable Trusts Section of the California Department of Justice published the Attorney General’s Guide for Online Charitable Giving in July 2019. The Guide consists of four sections:

  • Introduction: How and Where Can You Give to Support Charities Online?
  • Research Before Donating
  • Duties and Best Practices for Charitable Fundraising Platforms
  • Conclusion and Legal Notice

For charities, the following duties and best practices for charitable fundraising platforms should be carefully considered:

Fundraising must be conducted without fraud and deception.

“For instance, platforms should not make statements that create a likelihood of confusion or misunderstanding to a potential donor. … Such conduct includes failure to provide material information a potential donor would find helpful in deciding whether to donate or not, and failure to prohibit individuals that fundraise for charity on their platforms from making deceptive statements. Platforms also may not represent or imply a charity will receive an amount greater than the actual net proceeds reasonably estimated to be retained by the charity for its use.”

Material information that should be accurately, clearly, and conspicuously disclosed before donors can donate (framed from the perspective of the donor):

  1. Who are you giving the donation to?
  2. Will the charity receive the donation?
  3. If the charity can’t receive your donation, can you choose another charity to receive it (as donations are not refundable)?
  4. If the charity can receive your donation, how long does it take for the charity to get it? Can you be notified of this?
  5. How much of your donation does the charity receive?
  6. Is your donation tax deductible?
  7. Will the charity receive your contact information?
  8. Will your donation be used by a charity for the specific purposes described on a charitable fundraising platform?
  9. Has the charity given permission to the charitable fundraising platform to receive donations through the platform?

“Other material information that should be disclosed (and not only in fine print) include: information on refunds, the process for vetting charities before listing them on platforms or granting them donated funds, and the use of donor advised funds. For instance, if donor advised funds are used to accept donations, platforms should clarify what that means, why and how donor advised funds are used, and whether a donor advised fund is created for each donor.”

Abide by fiduciary duties

“A fiduciary relationship exists between any person soliciting on behalf of a charity and the donor who is solicited. Hence, when a platform or its partnering platform charity solicits and accepts donations on behalf of a charity, a charitable trust is created. This requires the platform or platform charity, and the charity that ultimately receives the donated funds, to use these restricted donations for the declared charitable purposes for which they were sought.”

Only list on platforms charities in good standing

“Do not list charities as potential donation recipients, or distribute donated funds or provide your services to charities unless they are in good standing with the IRS, the California Franchise Tax Board, and the Attorney General (specifically the Attorney General’s Registry of Charitable Trusts), when applicable.”

Let donors choose how their information is shared and responsibly handle their information

“Ensure that donors have a clear opportunity to choose whether their contact information will be given to the charities they have designated to receive donations. This also applies to consumers who make purchases on platforms that cause donations to be made as a part of their purchases. … Furthermore, ensure compliance with all consumer privacy and protection laws when handling donor or consumer information.”

Make the donation process transparent

“Provide transparency to donors as to what happens with recommended donations made to charitable fundraising platforms or their partnering platform charities. Donors should be informed when their donated funds are sent to their recommended charities, and should be contacted for alternate charities when the original charity can’t receive the funds. Similarly, ask consumers who designate charities to receive donations from the platform or another corporation whether they would like to be informed when donations are sent to their charities, and notify them accordingly (also ask consumers to provide alternate charities when their designated charity can not receive donations).”

On the points of whether donors should be informed when their donated funds are sent to their recommended charities and whether donors should be contacted for recommendations of alternate charities, I caution charities to ensure they are not inadvertently evidencing any retained control over the funds by the donors, thereby making their gifts incomplete and ineligible for a charitable contribution deduction.

“Also, publish reports for the public that provide transparency, and show the absence of fraud in receiving, handling, and processing donations designated for charity. For instance, specify the donation amounts received before fees were deducted, how much each charity received, when they received such funds, and whether the charities were originally designated by donors to receive the funds or not.”

Distribute donated funds as quickly as possible

“For platforms that accept donations for a small number of charities, all donated funds should be distributed within 30 days of the donations. For platforms that handle a voluminous number of donations for a large number of charities, more time may be required, like 60 days, unless it is determined within that time period that the designated charity is not eligible to receive the donations. Regardless, it should never take longer than a year to distribute the funds to alternate charities.”

“Furthermore, do not refuse to distribute donations for a recommended charity until a certain dollar value is reached, such as $100. Not only does this discourage smaller donations, which is all some donors can afford. It also unreasonably delays the charitable impact of such donations (as the donations are not yet received and used by charities actually helping those in need), unlike for donors who give in larger amounts.”

Provide compliant tax donation receipts

“Ensure charitable solicitations and receipts to donors comply with mandatory disclosures under California law. … If no portion is tax deductible, state “This contribution is not tax deductible.””

Obtain prior permission from charities to solicit and receive donations intended for them

“Do not use the name of a charity for solicitation purposes, unless the platform has the written consent of that charity in advance. … In addition to creating donor confusion and deception issues, the lack of consent interferes with a charity’s legal duty to control its fundraising and to prevent objectionable solicitations.”

“When obtaining consent in a written agreement, platforms should also ensure the charity is adequately informed of the agreement’s material terms. The agreement should conspicuously identify all fees deducted from donations, the processing time for release of the funding to the charity, and the terms on sharing donor/consumer information.”

The above provision seems problematic if a donor-advised fund (DAF) is involved. What most people may characterize as a DAF administrative fee is really an intraorganizational charge where the DAF sponsoring organization is charging itself. Typically, some percentage of the donation to the DAF sponsoring organization will be retained by the organization and the rest will be granted out. However, additional administrative fees may be incurred by the organization in connection with the DAF and also appropriately be spent form the DAF funds. The specific additional fees may not be known at the time of the donation.

Registration and other requirements

“Charitable fundraising platforms that permit Californians to make donations to or otherwise support charities may need to register with the Attorney General’s Registry of Charitable Trusts if they meet any of the following:

  • The platform is paid to solicit donations for charitable purposes, to receive or control funds as a result of charitable solicitations, or to provide advice or prepare materials for charitable solicitations …;
  • The platform is a for-profit entity that represents to the public that the purchase of any goods or services will benefit charitable purposes …;
  • The platform is deemed a trustee, which includes nonprofit and for-profit entities, that hold charitable assets ….”