Rules Governing Fundraising in Kentucky
Under Kentucky law, charitable organizations, professional solicitors and fundraising consultants must register with the Attorney General prior to any solicitation. Specifically, neither a professional solicitor nor a fundraising consultant may contract with a charitable organization unless it is properly registered with the Attorney General’s office.
The relevant Kentucky statutes governing fundraising activities define a “charitable or civic purpose” as any purpose or activity which holds itself out to be benevolent, educational, philanthropic, humane, patriotic, religious or fraternal. The statute further defines a “charitable organization” as any person determined by the IRS to be a tax-exempt organization pursuant to Section 501(c)(3) of the Internal revenue code; a person who employs a charitable or civic appeal as the basis of a solicitation, or employs an appeal that suggests that there is a charitable or civic purpose to a solicitation.
In addition, the statute defines a “professional solicitor” as a person who, for compensation, solicits contributions in the state of Kentucky, directly or indirectly, for or on behalf of a charitable organization. A bona fide salaried officer, employee or volunteer of a charitable organization will not be deemed to be a professional solicitor unless he is engaged by another charitable organization as one.
Finally, a “fundraising consultant” is defined to mean any person who, for compensation, plans, manages, advises, consults or develops material for or with respect to the solicitation of any charitable organization. Unlike professional solicitors, consultants are not, at any time, to have custody of contributions of a solicitation. Neither are they authorized to solicit contributions directly or indirectly. If a fundraising consultant’s fee is related to the amount of contributions received from a solicitation, the consultant will be considered a professional solicitor.
The relevant Kentucky statutes generally prohibit parties that carry out charitable solicitations from representing or misleading anyone into believing that the solicitation is for the benefit of a charitable organization, or that the funds will be donated to the organization, without first being authorized in writing to do so by the charitable organization.
Kentucky law further prohibits the using of a name, symbol or statement so closely related or similar to that used by another organization, public official or public agency in a manner that its use will confuse or mislead a solicited person. Finally, the act of representing to others that a charity will be the recipient of the solicited funds when the professional solicitor or his employer is allowed to keep more than 50% of the gross receipts as compensation, is prohibited under Kentucky law.
Kentucky law also imposes certain disclosure requirements on professional solicitors. Under KRS §367.668, professional solicitors must clearly disclose their names (as set out in their registration statements), the name of the charitable organization they represent and a description of how contributions raised by the professional solicitors will be used for a charitable or civic purpose. Professional solicitors must further give truthful responses to all oral or written requests for information by any solicited person even if the person inquires as to the percentage of funds that will eventually go to the charitable organization.
Under Kentucky law, professional solicitors must file a registration statement with the Attorney General and obtain approval from his office before soliciting in Kentucky. Professional Solicitors must also pay a fee of $300.00 plus costs of a background investigation by the Attorney General’s office. If the professional solicitor is a partnership or a corporation, the fee will cover all partners or employees of the partnership or corporation. The registration statement will expire on December 31 of the calendar year in which it was filed and the registration may be renewed be following the same process all over again.
The registration statement must contain the following information:
- Name, business address, telephone number of the professional solicitor;
- Name under which the professional solicitor is doing business in Kentucky;
- Name and addresses of any charity sharing in the charitable contributions received;
- Copy of Articles of Incorporation and by-laws of the professional solicitor, fundraising consultants, charitable organization and any tax exempt status letter from the IRS;
- Names, addresses and occupation of persons employed by or who have contracted with the professional solicitor and statements of the person’s criminal history; and
- Copy of the financial statement for the preceding fiscal year of the professional solicitor, setting forth its profits and revenue from all fundraising activities.
Just like professional solicitors, fundraising consultants are also required to file registration statements. However, unlike professional solicitors, fundraising consultants are only required to pay a fee of $50.00 plus the cost of a background investigation. Furthermore, if the fundraising consultant is a corporation, a single fee will cover all of its employees. Just as the case is with professional solicitors, the registration statements filed by fundraising consultants expires on December 31 of the calendar year the statement was filed.
Charitable organizations are required to file the federal Form 990 required by the IRS with the Attorney General. If the organization is a newly formed organization, a notice of intent to solicit must be filed with the Attorney General before any solicitation can begin. If the organization has several chapters, branches or affiliates, each chapter, branch or affiliate must file a separate notice of intent to solicit or report the necessary information to the parent charitable organization for a filing of a consolidated notice of intent to solicit.
Kentucky law requires that all non-exempt charitable organizations must file a Form 990 with the Attorney General every year that contributions are solicited from the Commonwealth.
Under Kentucky law, some organizations are exempt from the provisions of KRS §§367.650 to 367.670. These organizations include organizations that solicit contributions from its members (or their families) only as long as membership is not included as part of a solicitation to avoid the provisions of the relevant statutes. Furthermore, religious organizations are also exempt from the provisions of KRS §§367.650 to 367.670 in their solicitation for funds for religious purposes.
Publicly-owned or nonprofit privately-endowed educational institutions regulated by the Kentucky Board of Education, the Council on Postsecondary Education, or an equivalent public authority are also exempt. Finally, local solicitation by student groups or parent-teacher associations for its campus or group connected activities are exempt if approval has been given by the administration of the educational institution.
It is a Class D felony to knowingly give false or incorrect information under the provisions governing fundraising activities in Kentucky. A violation of the required filing provisions of the relevant statute will also constitute a Class D felony under Kentucky law.
In Kentucky, it is very likely that the fundraising provisions of KRS 367.650 to 367.670 will apply to internet-based entities that solicit donations from Kentucky residents. Like most states that have approved the Charleston Principles, Kentucky has not explicitly adopted the language of the principles in any of its provision. The Charleston Principles essentially seek to extend a state’s fundraising regulation over out-of-state entities that solicit donations through an interactive or non-interactive website. In Kentucky, however, it is probably prudent to assume that Kentucky will extend its existing fundraising provisions to cover out-of-state entities that receive contributions from the state on a repeated, ongoing or substantial basis through their internet solicitation. The relevant Kentucky statutes are written in a broad reaching language to cover all transmissions of oral and written requests to residents of the state for charitable and civic purposes. As such, it is very likely that the existing Kentucky provisions also regulate internet-based charitable entities.
- KRS §§367.650 to 367.670 contains the relevant statutes that govern with fundraising in the Commonwealth. http://www.lrc.ky.gov/KRS/367-00/CHAPTER.HTM
- Attorney General’s website, http://ag.ky.gov/civil/consumerprotection/charity/
- Kentucky Practice: Abramson, Substantive Criminal Law §28.31, Kentucky Practice (West Group 2000).