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California’s New Law for Charitable Fundraising Platforms – Nonprofit Law Blog

by brookridgearcadia
December 24, 2022
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California’s New Law for Charitable Fundraising Platforms – Nonprofit Law Blog
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Charity solicitation on computer screen

In 2021, California passed a new set of laws (referred to as AB 488) regulating charitable crowdfunding that go into effect on January 1, 2023. While regulations to fully implement AB 488 have yet to be finalized, the Attorney General published a notice earlier today noting the key provisions that take effect starting January 1, 2023:

  • Charitable Fundraising Platforms and Platform Charities should ensure compliance with the law’s good standing requirements for charities.  (Gov. Code, § 12599.9, subds. (a)(3) and (d).)  The Attorney General’s Registry of Charitable Trusts maintains a list of charities that may not operate or solicit in California. For information on using this list, see Section 316 in the latest proposed regulations. The Internal Revenue Service’s list can be found here.
  • Donations cannot be diverted or misused, and shall be maintained in a separate account from other funds belonging to a Charitable Fundraising Platform or Platform Charity.  (Gov. Code, § 12599.9, subd. (h).)
  • Charitable Fundraising Platforms and Platform Charities are required to make disclosures that prevent the likelihood of donor deception or confusion, when applicable. (Gov. Code, § 12599.9, subds. (e) and (f)(2)(B).)  For information on the proposed regulations on this, see Section 314, subdivision (a), in the latest proposed regulations.
  • Solicitations for “non-consenting” charities must comply with Government Code section 12599.9, subdivision (f)(2).

Charitable fundraising platform means any person, corporation, unincorporated association or other legal entity that uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur, which includes the following and any similar activity:

(A) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by donors who use the platform.

(B) Permits persons who use the platform to solicit donations for or recommend donations to be granted to one or more recipient charitable organizations through peer-to-peer charitable fundraising.

(C) Permits persons who use the platform to select one or more recipient charitable organizations to receive donations or grants of recommended donations made by a platform, platform charity, or other third party person, based on purchases made or other activity performed by persons who use the platform.

(D) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform.

(E) Provides to charitable organizations a customizable internet-based website, software as a service, or other platform that allows charitable organizations to solicit or receive donations on or through the platform, including through peer-to-peer charitable fundraising. The customizable platform provided by the charitable fundraising platform does not include the charitable organization’s own platform, but may integrate with the charitable organization’s platform.

Gov. Code Sec. 12599.9(a)(1)

Excluded from the definition of a charitable fundraising platforms are:

(A) A charitable organization’s own platform that solicits donations only for itself.

(B) A vendor that solely provides technical or supportive services to a charitable fundraising platform so that the charitable fundraising platform can function and operate, including vendors used for hosting or domain services, security certificates, internet access, internet application development, or digital payment processing. If that vendor also performs, permits, or otherwise enables acts of solicitation described by paragraph (1) on its own platform to persons in this state, it is a charitable fundraising platform for its own platform.

(C) A sponsoring organization of donor-advised funds, as defined in subdivision (d) of Section 4966 of the Internal Revenue Code, that solicits donors to open donor-advised fund accounts or similar accounts, receives recommendations from donors on charitable organizations that may receive grants of funds previously contributed to the sponsoring organization for a donor’s donor-advised fund account, and the sponsoring organization does not list or reference by name one or more recipient charitable organizations for solicitation purposes on its platform for persons who do not have advisory privileges with respect to the granting of funds in a donor-advised fund of the sponsoring organization.

Further, a person or entity that meets the definition of both a charitable fundraising platform and either (1) a commercial fundraiser for charitable purposes or (2) a commercial coventurer must pay careful attention to a more limited application of being treated as a charitable fundraising platform.

Some Quick Compliance Tips for Charitable Crowdfunding Platforms*

* Platform charities may find helpful our earlier post: Crowdfunding Laws: Platform Charities

  • A person or entity should first determine whether they fall within the definition of a charitable fundraising platform (CFP) or platform charity (PC). Note that a charity may be a CFP.
  • A CFP must only solicit, permit, or otherwise enable solicitations, or receive, control, or distribute funds from donations for recipient charitable organizations (Recipient Charities) or other charitable organizations in good standing. Good standing in such context means that the charitable organization’s tax-exempt status has not been revoked by the Internal Revenue Service, or the Franchise Tax Board, and the organization is not prohibited from soliciting or operating in the state by the Attorney General. To determine good standing of Recipient Charities or other charitable organizations, a CFP may rely on electronic lists periodically published by the Internal Revenue Service, the Franchise Tax Board, and the Attorney General’s Registry of Charitable Trusts.
  • A CFP must not divert or otherwise misuse the donations received through solicitation on the CFP, and must hold them in a separate account or accounts from other funds belonging to the CFP or PC. The CFP must promptly ensure donations and grants of recommended donations are sent to Recipient Charities with an accounting of any fees imposed for processing the funds.
  • A CFP that performs, permits, or otherwise enables certain covered acts of solicitation must, before a person can complete a donation or select or change a Recipient Charity, provide conspicuous disclosures that prevent a likelihood of deception, confusion, or misunderstanding, including:
    • A statement that donations are made to the CFP, the PC, the Recipient Charity, or the person engaging in peer-to-peer charitable fundraising, whichever is applicable.
    • A statement that a Recipient Charity may not receive donations or grants or recommended donations, with an explanation identifying the most pertinent reasons under which a Recipient Charity may not receive the funds. This disclosure is not required when there are no circumstances under which a Recipient Charity may not receive the funds. The explanation may be provided through a conspicuous hyperlink, so long as the disclosure is conspicuous when the hyperlink is selected.
    • The maximum length of time it takes to send the donation or a grant of the recommended donation to a Recipient Charity with an explanation as to the length of time, unless the donation is sent contemporaneously to a Recipient Charity after the donation is made. The explanation as to the maximum length of time may be provided through a conspicuous hyperlink, so long as the disclosure is conspicuous when the hyperlink is selected.
    • The fees or other amounts, if any, deducted from or added to the donation or a grant of the recommended donation that are charged or retained by the CFP, PC, or any other partnering vendor, other than digital payment processing fees, and a statement as to the tax deductibility of the donation. These disclosures are not required for acts of solicitation which permits persons who use the platform to select one or more Recipient Charities to receive donations or grants of recommended donations made by a platform, PC, or other third party person, based on purchases made or other activity performed by persons who use the platform when no fees or amounts are deducted or added.
  • A CFP must conspicuously disclose before persons can complete a donation, or select or change a Recipient Charity, that the Recipient Charity has not provided consent or permission for the solicitation, and has not reviewed or approved the content generated by persons engaging in peer-to-peer charitable fundraising, when applicable.

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