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. AB 488 makes changes to the Supervision of Trustees and Fundraisers for Charitable Purposes Act, which governs charitable corporations, unincorporated associations, trustees, commercial fundraisers, fundraising counsel, commercial coventurers, and other legal entities holding or soliciting property for charitable purposes over which the State or the Attorney General has enforcement and supervisory powers.

“Charitable corporation” means any nonprofit corporation organized under the laws of this State for charitable or eleemosynary purposes and any similar foreign corporation doing business or holding property in this State for such purposes.

Gov. Code §12582.1

Charitable corporations should be aware of how AB 488 may impact their filing requirements and operations. First, they may consider whether they fall within the definition of a platform charity, which includes charities that fundraise on internet platforms and represent that they will make grants to other charities.

Definitions

Platform charity” means a trustee as defined in Section 12582 or a charitable corporation as defined in Section 12582.1 that facilitates acts of solicitation on a charitable fundraising platform, which includes either of the following and any similar activity:

(A) Solicits donations through a charitable fundraising platform for itself from donors who use the charitable fundraising platform with the implied or express representation that the platform charity may grant donations to recipient charitable organizations.

(B) Grants funds to recipient charitable organizations based on purchases made or other activity performed by persons who use a charitable fundraising platform.

Gov. Code §12599.9(a)(5) (effective 1/1/23)

Notably, a platform charity excludes from its definition a donor advised fund (DAF) sponsoring organization that (1) solicits donors to open DAF accounts or similar accounts, and (2) receives recommendations from donors on charitable organizations that may receive grants of funds previously contributed to the sponsoring organization for a donor’s DAF account, so long as 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 are not donor advisors to a DAF of the sponsoring organization. In other words, generally, a DAF sponsoring organization is excluded from the requirements and obligations of a platform charity if it does not solicit on its fundraising platform (e.g., website) to anyone other than the donor advisors (and presumably the donor themself).

The foregoing exclusion does not cover DAF sponsoring organizations that solicit for public contributions on a charitable fundraising platform. The California Attorney General gives the example of PayPal Giving Fund in its publication on the Attorney General’s Guide for Online Charitable Giving.

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 §12599.9(a)(1) (effective 1/1/23)

Notably, a charitable fundraising platform excludes from its definition: (1) a charity’s own platform that solicits donations for itself; (2) generally, a vendor that solely provides technical or supportive services to a charitable fundraising platform; and (3) generally, a DAF sponsoring organization if it does not solicit on its fundraising platform (e.g., website) to anyone other than the donor advisors.

Requirements of a Platform Charity

Good Standing

  • A platform charity must maintain exempt status with the IRS and FTB and not be prohibited from soliciting or operating in the State by the Attorney General (collectively, “good standing”).
  • A platform charity must only solicit, permit, or otherwise enable solicitations, or receive, control, or distribute funds from donations for recipient charitable organizations or other charitable organizations in good standing.

Disclosures

  • A platform charity must, before a person can complete a donation or select or change a recipient charitable organization, provide conspicuous disclosures that prevent a likelihood of deception, confusion, or misunderstanding, including:
    • A statement that donations are made to the charitable fundraising platform, the platform charity, the recipient charitable organization, or the person engaging in peer-to-peer charitable fundraising, whichever is applicable.
    • A statement that a recipient charitable organization may not receive donations or grants or recommended donations, with an explanation identifying the most pertinent reasons under which a recipient charitable organization may not receive the funds. This disclosure is not required when there are no circumstances under which a recipient charitable organization 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 charitable organization with an explanation as to the length of time, unless the donation is sent contemporaneously to a recipient charitable organization 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 charitable fundraising platform, platform charity, or any other partnering vendor, other than digital payment processing fees. This disclosure is not required for acts of solicitation which 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 when no fees or amounts are deducted or added.

Additional Requirements

  • A platform charity that solicits, permits, or otherwise enables solicitations must obtain the written consent of a recipient charitable organization before using its name in a solicitation except for acts of solicitation described in (A), (B), or (C) in the definition of charitable fundraising platform above if certain other specified conditions are met, including:
    • A platform charity may only reference the following information of the recipient charitable organization: name, address, telephone number, internet website (including through a hyperlink), employer identification number, corporation or organization number, or registration number with the Attorney General’s Registry of Charitable Trusts, classification in the National Taxonomy of Exempt Entities system, publicly available information from the recipient charitable organization’s tax or information returns filed with the Internal Revenue Service, publicly available information from the recipient charitable organization’s reports filed with the Attorney General’s Registry of Charitable Trusts, or other information set forth in applicable rules or regulations.
    • A platform charity must conspicuously disclose before persons can complete a donation, or select or change a recipient charitable organization, that the recipient charitable organization 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.
    • A platform charity must remove any recipient charitable organization from its list or any solicitation regarding the recipient charitable organization upon written request by the recipient charitable organization, and verification that the request is legitimate. Requests must be promptly verified and it must take no longer than three business days for removal to occur after verification is completed.
    • A platform charity may not require that a recipient charitable organization consent to any solicitations as a condition for accepting a donation or grant of a recommended donation.
  • After donors contribute donations based on solicitations described in (A) or (B) in the definition of charitable fundraising platform above, the platform charity (or the charitable fundraising platform) must promptly provide a compliant tax donation receipt.
  • A platform charity must not divert or otherwise misuse the donations received through solicitation on the charitable fundraising platform, and must hold them in a separate account or accounts from other funds belonging to the charitable fundraising platform or platform charity.
  • When a platform charity contracts with vendors to solicit, receive, control, process, distribute, and otherwise account for donations on the charitable fundraising platform, the contracts must be available for inspection by the Attorney General.