Michigan Non-Profit Organizations - Complying with Michigan Law

Charitable Nonprofit Organizations

Complying with Michigan Law

By

Brian P. McMahon, Attorney at Law

(Originally published in the Troff, Petzke & Ammeson Fall 2008 Newsletter at www.tpalaw.com/Newsletter)







The following is a non-exhaustive list and summary of some of the Michigan laws all charitable nonprofit organizations ("charitable organization(s)") need to understand and with which they need to comply.



• Michigan Supervision of Trustees for Charitable Purposes Act. This Act gives the Michigan Attorney General's Office ("AGO") the responsibility and authority to supervise charitable organizations operating in Michigan; and requires all charitable organizations to register with the AGO (whether the organization has offices in Michigan or not). All nonprofit organizations are presumed to be "charitable" unless determined otherwise by the AGO. If you are not sure if your nonprofit organization is a "charitable" organization it should submit a completed Questionnaire to the AGO. The AGO will then inform the organization of its determination. If the nonprofit organization is determined to be a "charity," it will likely be required to comply with the remaining laws discussed below. If your organization is already a "501(c)(3) tax exempt organization" it will be determined to be a charity and therefore required to register and comply with all the remaining laws discussed below.



• Michigan Charitable Organizations and Solicitations Act. This Act requires all charitable organizations that solicit contributions from the public to obtain a Charitable Solicitations License. The Act defines a "charitable organization" as "a benevolent, educational, philanthropic, humane, patriotic, or eleemosynary organization of persons which solicits or obtains contributions solicited from the public for charitable purposes." Certain organizations, although "charitable organizations" are exempt from the licensing requirement. The most common charitable organizations that are exempt from this Act include religious organizations, organizations that receive less than $8,000 a year in contributions (Legislation is pending to increase this amount to $10,000 a year) and funds collected in relief of a named person or family (i.e. spaghetti dinner fundraiser for house fire victims, Note: Donations are not tax deductible by donor). To view a list of other exempt organizations, go to Exempt. The license is good for one year and must be renewed 30 days prior to its expiration. Obtaining a license is a very simple process and, in Michigan, there is no fee. If there is any chance you will receive $8,000 in charitable donations and your organization is not exempt, I recommend your organization obtain a license. If your organization solicits (i.e. receives) funds from out-of-state citizens, the organization may need to register with that State as well. Be especially mindful of this requirement if your organization accepts donations on its website. If multi-state registration is necessary your organization should consider using a Unified Registration Statement ("URS"). The URS can be used to register with every state (including Michigan) that requires registration except Colorado, Oklahoma and Florida. The organization will still have to comply with other requirements specific to each of these States. The URS and each State's requirements can be found at multistatefiling.org.



• Michigan Dissolution of Charitable Purpose Corporations Act. Under this Act, any charitable organization that dissolves (or merges or combines with another organization) is required to file a Dissolution Questionnaire with the AGO. I recommend any organization considering dissolution to retain a business attorney to assist in this process. The filing of the Dissolution Questionnaire is only one of many steps that need to be considered.



• Michigan Uniform Management of Institutional Funds Act. This Act applies to endowed funds. The Act defines "endowed funds" as funds that are subject to a written agreement between the donor and a recipient institution. The Act defines "institutions" as an "incorporated or unincorporated organization organized and operated exclusively for educational, religious, charitable, or other eleemosynary purposes." In short, the definition applies to all 501(c)(3) tax exempt organizations and those that would probably qualify under this section of the code but probably not other tax-exempt organizations. For example a 501(c)(6), Chamber of Commerce, Homeowners Associations, etc. If the donations are endowed funds (i.e. given pursuant to a written agreement), the recipient institution cannot use the endowed funds for any purpose other than as set forth in the written agreement unless the donor agrees to alter the terms. This can be more troublesome than it may appear especially if the donor cannot be found or has died. If this is the case, the only choice for the recipient institution is to file a petition with the probate court asking the court to alter the terms - a remedy the probate court does not often grant. Note: Only the probate court can do this - i.e. not the personal representative, conservator or any other person. Institutions need to be careful they do not accidently create a written agreement when one was not intended. For example, if the organization sends out a general mailing soliciting funds and the mailing/solicitation says the funds will be used for a new office building, the mailing/solicitation may cause the donations to be considered "endowed funds" when that may not have been the organization's intent. This problem can be avoided by careful drafting and/or use of disclaimers. Clearly solicitations which are "capital improvement campaigns" (e.g. to build a new office) are endowed funds and any monies not used (either because the building is not constructed or the organization receives more than it needs) must be returned.



• Charitable Gaming Laws. Charitable organizations are permitted to engage in certain gaming activities that are otherwise prohibited. For example charitable organizations may be permitted to have bingo tournaments, sell raffle tickets, sponsor poker/millionaire parties and the like. Charitable organizations intending to engage in gaming to raise money must first qualify with the Michigan Lottery Bureau. Assuming the charitable organization qualifies, it is typically required to obtain a license each time it sponsors a gaming event and may be limited as to the number of events it can sponsor each year. There are numerous rules and regulations with which the organization must comply and that are frequently changed. Just because you have been having a particular event "for years," your organization should periodically review the rules and regulations to ensure continued compliance. For more information go to Gaming. Note: The money raised by gaming activities (except for bingo, oddly enough) is considered "unrelated business income" and therefore subject to income tax. Additionally, the IRS will "review" organizations that raise "too much" of its money through gaming activities.



In my experience the Charitable Trust Section of the Michigan Attorney General's Office has been extremely helpful in answering questions. I recommend organizations that have additional questions contact the AGO (517-373-1152) or visit its mich.gov/ag/0,1607,7-164-17334_18095---,00.html. Another website I have found to be extremely helpful is stayinglegal.org. But be careful. Knowing one law without having knowledge of other laws (profit and nonprofit) and how each law relates to the other can lead to trouble. If you have questions unique to your organization, please feel free to contact me. Unfortunately I am not a charitable nonprofit organization (sorry, my attempt at humor).





UPCOMING EDITION: The next Newsletter will contain a discussion about the new IRS Form 990 and corporate governance issues. Sign up for the Newsletter to receive a copy of this article. If your non-profit organization has more than $1 million in gross receipts or $2.5 million in total assets, it will be required to use the New 990 Form for its 2008 return (i.e. filed in 2009). If you are such an organization a, please contact us by Telephone if you have questions. By 2010 many more nonprofit organizations will be effected when those organizations with more than $200,000 in gross receipts or more than $500,000 in total assets are required to file the new IRS Form 990. The Newsletter will discuss a number of corporate governance issues and policies organizations should have in place and/or reviewed before the end of 2009.



To view this article with hyperlinks or to subscribe to our Quarterly Electronic Newsletter go to: www.tpalaw.com



For more information contact :



Brian P. McMahon, ,Esq.

Partner

Troff, Petzke & Ammeson

811 Ship Street/ Suite 202

St. Joseph, MI 49085

(269) 983-0161



or



Brian P. McMahon, Esq.

Partner

Troff, Petzke & Ammeson

121 W Merchant Street

New Buffalo, MI 49117

(269) 469-9388