Our charitable nonprofit has not actively solicited donations. We have survived on the service revenue we generate. We now have a prospective, unsolicited donor who is talking seriously about making a substantial (7 figure) donation because of the services we provide. What are the reporting requirements to the IRS and the State other than the Form 990 tax return? Since we have not been soliciting donations, we have not registered with the state. Do we have to register before we receive the donation since it is expected to be sizable?
There is no special requirement to report large gifts to the IRS, other than in the public support schedule on Schedule A if you are one of the organizations relying on broad public support to avoid classification as a private foundation. Depending on your other income, this gift could significantly reduce your public support fraction, but if it is so large as to adversely affect your public support qualification, you can consider it an unusual grant and omit it from your calculations.
I am not aware of any special state requirements to report large grants, but you might want to check with a local lawyer about that question.
Your other issue, of course, is charitable solicitation registration. Technically, you don’t need to register in those jurisdictions that have registration statutes unless you are soliciting there. You don’t have to register before you can receive a truly unsolicited gift. But since you are now “talking seriously” with the donor, it is certainly possible that you will submit a proposal or otherwise “ask” for the grant. You might want to register in the donor’s state, if required, before you conclude the deal. It can’t hurt and you can certainly afford it.
Once you get a gift, you have to register before you ask the donor for more. Although a few charities proclaim that they don’t re-solicit donors living in states where the charities are not registered, this sounds like too good a prospect to forego further requests for support.
Assuming the donor does not work for the Attorney General in a state with a registration requirement, you might make a business decision that it isn’t worthwhile to register for a single donor. A lawyer can’t recommend it, but some charities don’t bother. If you plan to publicize a gift of this size, however, the risks from not registering go up.
For more information on charitable solicitation registration considering listening to our recorded webinar: State Charitable Solicitation Statutes: Everything You Wanted to Know But Were Afraid to Ask.