Guide For Grantmaking Foundations

CHARITABLE LAW SECTION

GUIDE FOR GRANTMAKING FOUNDATIONS

INTRODUCTION Ohio’s vibrant, diverse grantmaking foundations have a long history of providing financial support to communities across the state. These foundations number more than 3,000 and hold more than $12 billion in assets, according to a report recently released by Ohio Grantmakers Forum. From 1998 through 2002, Ohio’s grantmakers gave more than $4 billion to nonprofit organizations to aid our most vulnerable citizens, protect the environment, nurture the arts, improve health, strengthen education and contribute to the quality of life throughout the state. Most of Ohio’s foundations are modest in size. Those with less than $5 million in assets account for almost 90 percent of the total foundations in the state, whether they are private, community or corporate foundations. About twothirds of the foundations hold less than $1 million. Ohio consistently ranks high in the nation’s count of foundations, with about 5 percent of the country’s nearly 65,000 foundations. Ohio’s foundations are governed by both federal and state law that outline how they operate as charitable organizations, providing benefit to their communities, the nation and the world. This brochure details the state of Ohio’s registration and reporting requirements for these charitable foundations.

OHIO LAW REGARDING REGISTRATION AND REPORTING The Ohio Revised Code contains two separate but related laws that set out registration and reporting requirements for grantmaking foundations operating in Ohio. These two statutes are the Ohio Charitable Trust Act, which applies because of the charitable nature of the foundation, and the Ohio Charitable Organizations Act (the solicitation statute), which applies to those foundations that engage in soliciting contributions. OHIO CHARITABLE TRUST ACT The Ohio Charitable Trust Act (ORC Section 109.23, et seq.) requires all charitable trusts, unless otherwise exempted, to register and file annual financial reports with the Attorney General's Office. The statute includes almost any person or entity responsible for holding and using funds for charitable purposes, and specifically recognizes corporations, foundations and other types of entities within its definition. The Attorney General has adopted a rule that defines charitable trusts for registration purposes as comprising those persons and entities that are recognized or treated by the Internal Revenue Service as 501(c)(3) organizations. These entities are required to register and report to the Attorney General. The meaning of the term “charitable trust” is quite broad and applies whether a foundation is structured as a nonprofit corporation or as a trust. In Ohio law, a charitable trust is defined as “any fiduciary relationship with respect to property arising under the law of this state or of another jurisdiction as a result of a manifestation of intention to create it, and subjecting the person by whom the property is held to fiduciary duties to deal with property within this state for any charitable, religious or educational purpose.”

CHARITABLE TRUST REGISTRATION Foundations must register using the Charitable Trust Registration Form, which can be obtained online at the Attorney General’s web site. Registration is a free, one-time obligation, but should be updated any time there are modifications to the information collected in the registration form. Examples of such changes that should be reported include alterations to the foundation’s charitable purposes, amendments to its governing documents, or even a change of the foundation’s e-mail address. While there are a number of provisions that exempt certain organizations from these requirements, most do not pertain to Ohio’s foundations. However, foundations that make grants or have other activities in Ohio, but operate from another state are not required to register with the Attorney General if the foundation has neither assets nor a majority of the governing body located within Ohio.

CHARITABLE TRUST FINANCIAL REPORTING Foundations that are required to register must file an annual financial statement with the Attorney General in any year when they had either gross receipts of more than $5,000 or gross assets of more than $15,000. Note that this filing threshold is lower than that of the Internal Revenue Service. The financial reporting requirement is satisfied as described below: •

Foundations headquartered in Ohio that file federal tax forms file the Attorney General’s Verification Form, certifying that the foundation has submitted the required forms (990, 990-PF or 990-EZ) to the Internal Revenue Service. As of May 2004, the Attorney General no longer requires that Ohio foundations submit hard copies of these federal tax forms.

•

Foundations headquartered outside of Ohio file complete copies of the federal information returns (990, 990-PF), complete with all attachments and schedules except the list of donors.

•

A foundation that is not required to file with the Internal Revenue Service files the Attorney General’s Annual Financial Report of Charitable Organization.

The annual financial statement is due on the 15th day of the fifth month following the close of a foundation’s taxable year. If a foundation files the Verification Form or a copy of the federal return, an extension granted by the IRS for the filing of the federal return will be recognized by the Attorney General. The annual financial statement must be accompanied by a fee based on the foundation’s assets at the end of the taxable year for which the financial statement is filed. A $200 penalty may be assessed for late payment of the fee.

Assets Under $25,000

Fee 0

$25,000 but less than $100,000

$ 50

$100,000 but less than $500,000

$100

$500,000 or more

$200

OHIO CHARITABLE ORGANIZATIONS ACT The Ohio Charitable Organizations Act (ORC Chapter 1716) requires registration and filing of an annual financial report by any charitable organization that intends to solicit contributions or have contributions solicited on its behalf in Ohio. Since most family and corporate foundations do not solicit contributions, the provisions of Chapter 1716 may not apply to those foundations. However, a community foundation would likely be subject to the act’s requirements. According to this statute, a charitable organization includes any 501(c)(3) organization and any person or entity that holds itself out to be

established for charitable purposes or who employs a charitable appeal. Solicitation means a direct or indirect request for something of value while representing that all or a portion of it will benefit a charitable organization or be used for a charitable purpose.

REGISTRATION FOR SOLICITATION Any foundation planning to solicit contributions in Ohio must register and submit financial reports, unless it falls within one of three exemptions: 1. Any foundation that meets all of the following conditions: •

It has been in continuous existence in Ohio for at least two years.

•

It is a 501(c)(3) organization.

•

It is registered with the Attorney General under the Charitable Trust Act.

•

It is current in filing its annual financial statements and paying fees under the Trust Act.

This exemption eliminates duplicate filing requirements for Ohio foundations that are registered with the Attorney General under the Charitable Trust Act. Newer foundations may be required to file under both the Charitable Trust Act and the Charitable Organizations Act for the first two years of their existence. 2. Any foundation that meets both of the following conditions: • It did not receive gross revenue in excess of $25,000 in the previous year (excluding government grants and grants from other 501(c)(3) organizations). • The foundation did not compensate anyone primarily to solicit contributions for the foundation, including paid employees as well as any outside fundraiser who may have been paid by the foundation to solicit contributions. 3. Any foundation that limits its solicitation to its existing membership, current or former employees, or present and former trustees. If the foundation does not qualify for an exemption, the Charitable Organization Registration Statement should be filed with the Attorney General annually and prior to any solicitation of contributions. A renewal registration is required on or before the 15th day of the fifth month following the close of the fiscal year in which the foundation solicited contributions in Ohio.

FINANCIAL REPORTING A foundation that is required to register must also submit an annual financial report. The requirement for filing an annual financial report is satisfied by filing the appropriate form as described under the Ohio Charitable Trust Act. The annual reporting fee is based on the contributions the foundation received from persons in Ohio during the past year and must be submitted with the annual registration form. It is useful for foundations to consider ways to track their contributions so they may accurately assess the fee owed to the Attorney General’s Office. Contributions

Fee

$5,000 but less than $25,000

$ 50

$25,000 but less than $50,000

$100

$50,000 or more

$200

OTHER STATE REQUIREMENTS FOR CHARITABLE FOUNDATIONS Foundations incorporated as Ohio nonprofit corporations are also required to file a statement of continued existence with the Ohio Secretary of State every five years. Failure to file this statement could result in the cancellation of the foundation’s articles of incorporation. Foundations headquartered outside Ohio should check with the Secretary of State regarding registration and reporting requirements. Information and forms are available on the Secretary of State’s website at:

www.sos.state.oh.us

RESOURCES FOR FOUNDATIONS OHIO ATTORNEY GENERAL'S OFFICE Charitable Trust and Solicitation registration forms, the Attorney General’s Annual Financial Report Form, and the Verification Form are available on the Attorney General’s web site at www.ag.state.oh.us or by calling (614) 466-3180. The site also contains other information of interest to charitable foundations, listed under the Charitable Law Section.

OHIO GRANTMAKERS FORUM Ohio Grantmakers Forum (OGF) is a membership association of foundations, corporate contributions programs and other grantmaking organizations. Its mission is to provide leadership for organized philanthropy in Ohio and to enhance the ability of its members to fulfill their charitable goals. OGF offers programs and services for foundations, including workshops and conferences, knowledge and information services and a forum for foundation leaders to exchange information, discuss common interests, sharpen their grantmaking skills and establish networks of important relationships. For more information, please contact OGF at:

www.ohiograntmakers.org (614) 224-1344

OHIO GRANTMAKE RS FORUM Serving Grantmakers. Promoting Philanthropy.

Attorney General Mike DeWine CHARITABLE LAW SECTION 150 E. GAY ST., 23RD FL. COLUMBUS, OH 43215 614-466-3180 FAX: 614-466-9788 www.ohioattorneygeneral.gov