With Respect to Interstate Solicitation

Because of widespread interstate solicitation activities, lack of

uniformity in state action, and the importance of federal income tax

exemption to these efforts, it is believed that the federal government

can and should play the primary role in regularizing interstate solicita-

tion practices. Using existing facilities and authority, the Service should

require (on Form 990 or other forms specially adapted) the disclosure

of solicitation and administrative costs in accordance with generally

accepted accounting principles.

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Such solicitation information would

be required from the same sizes and categories of organizations as those

now required to file Schedule A of Form 990, as well as organizations

operated exclusively for religious purposes.

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In order to reduce duplication and to minimize the registration requirements applicable to organizations involved in interstate commerce, the federal statute governing reporting and registration for organizations involved in interstate solicitation could provide for the preemption of state laws regarding registration and reporting for solicita- tion activities. To provide the states adequate information with which to administer their own laws, the federal statute could require that any entity registering with the Internal Revenue Service must file signed copies of the Form 990 (or other form used to report to the Service) with the attorney general of each state with which it has any substantial contact. Such filing would be in lieu of the varied state forms now required. While organizations involved in interstate solicitation would still have a multiplicity of reporting requirements, they would be relieved from the onerous burden, currently existing, involving satisfac- tion of a variety of different laws in each state in which they operate.

An intergovernmental task force could formulate more effective rules and procedures, and otherwise facilitate coordination and cooperation among federal and state governments.

In the foregoing manner, each state could be assured of receiving adequate notice and financial information regarding solicitation activities conducted within its borders. Organizations, at the same time, would benefit from a simplifed procedure for registration and reporting. The preemption for interstate solicitation would also be applicable to any local government registration and reporting requirements. The attorney general of the state could be made responsible to submit or make available to such local government copies of any Form 990 received, if the state so required. Federal preemption of interstate solicitation is not intended in any way to affect the state's authority to require its own registration and reporting for organizations involved solely in intrastate solicitation.

A new federal office could be established, for example, within the Treasury Department (which includes the Internal Revenue Service), to oversee charitable solicitations, to assure full public disclosure and to institute administrative and judicial proceedings to discourage, and eventually eliminate, with adequate sanctions, the dissemination of deceptive or misleading information and to require the registration (and possibly bonding) of professional fund raisers.

Disclosure requirements, could include rules requiring the furnishing

to each solicited person of a governmentally approved "disclosure state-

ment," the filing with the Service of financial information, and data

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respecting compensation paid to key officers and employees, and the imposition of a penalty tax in appropriate cases.

⁷⁶

While such rules would be consistent with the recommendation of the Commission, there are overriding concerns which operate independently of any specific legislative proposals. These concerns involve primarily the need to fashion a system which will produce full disclosure of the desired information at a minimum cost (in terms of money, time, and disruption) to the affected organizations. Such organizations operate, in many cases, with marginal resources and should not be needlessly burdened with excessively complex or impractical requirements. For example, it may be more efficient to provide, in lieu of the "disclosure statement" requirement outlined above, that persons solicited be advised that such information is available upon request.

It is contemplated that an "Office of Nonprofit Solicitations" would be granted equitable powers to enjoin solicitation, to mandate public disclosures where needed, and to publish and disseminate criteria respecting fund-raising and administrative costs.

A p a r t from the establishment of criteria and enforcement of disclosure rules, no specific percentage limitations would be applied respecting limits on costs for administration and fund raising. Consistent with policies which underlie the securities acts,

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full ventilation of these practices would leave to the general public the determination of propriety in individual cases. If, after a reasonable period of experience, modifications were considered necessary, corrective legislation could then be enacted.

The new office would be responsible for assuring prompt public access to solicitation literature in proper form (with notice respecting availability of fuller financial data at the headquarters of the soliciting organizations). This special office might be supplemented by and guided by an accrediting organization, which would review the finances of and certify all exempt organizations whose solicitation practices are found to merit approval.

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The locus within the federal establishment for the new office should

be determined after all of its duties and responsibilities are firmly

ascertained. Unless, however, a compelling circumstance requires that

the office be located outside the Treasury Department, the intimacy of

the ongoing relationship with the Service suggests that, on balance, an

office located within the Treasury would lend itself most readily to

efficient administration. The creation and administration of standards

respecting solicitation should in no way interfere with the Service's

customary audit procedures.

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Alternatively, if preemptive federal laws are not enacted, the responsi-

bilities of charitable organizations that solicit in a variety of states

should also be greatly simplified. If federal and state harmonization is

effected, uniform filings (or a central place in which such filings could

be made) would alleviate the multiplicity and variety of registrations

now required. The establishment of a joint federal-state task force may

well be appropriate to formulate recommendations for harmonization.