Original Notice.

     Preproposal statement of inquiry was filed as WSR 10-15-073.

     Title of Rule and Other Identifying Information: Charities program tiered financial reporting and exempt filing requirements; some minor updates to terminology.

     Hearing Location(s): Office of the Secretary of State, Dolliver Building, 2nd Floor Conference Room, 801 Capitol Way South, Olympia, WA 98504, on October 26, 2010, at 9:00 a.m.

     Date of Intended Adoption: October 27, 2010.

     Submit Written Comments to: Pamela Floyd, P.O. Box 40234, Olympia, WA 98504-0234, e-mail Pam.Floyd@sos.wa.gov, fax (360) 586-4989, by October 26, 2010.

     Assistance for Persons with Disabilities: Contact Sharon Baker by October 25, 2010, TTY (800) 422-8683.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: To remove conflicts with federal guidelines regarding the definition of "review" as it pertains to financial reports required to be filed at the state level. These changes will also remove a fee for charitable organizations that are exempt from filing at the state level, but choose to do so. Some rules were amended to move towards plain talk, and to change confusing terminology from "fiscal" year to "accounting" year.

     Reasons Supporting Proposal: These changes will reduce costs for charitable organizations by doing away with a filing fee for exempt organizations and by removing the "review" for the first tier financial reporting.

     Statutory Authority for Adoption: RCW 19.09.540, 43.07.125.

     Statute Being Implemented: RCW 19.09.540.

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Division of corporations, office of the secretary of state, governmental.

     Name of Agency Personnel Responsible for Drafting: Pamela Floyd, 801 Capitol Way South, Olympia, WA 98504, (360) 725-0310; Implementation: Rebecca Sherrell, 801 Capitol Way South, Olympia, WA 98504, (360) 725-0310; and Enforcement: Jeff Even, Office of Attorney General, 1125 Washington Street S.E., Olympia, WA 98504-40100, (360) 586-0728.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed rules will reduce costs for charitable organizations by not requiring a review of financial reports. The fee for exempt organizations is removed.

     A cost-benefit analysis is not required under RCW 34.05.328. These rules are adopting by reference without material change, Washington state statutes and are not required to do a cost-benefit analysis per RCW 34.05.328 (5)[(b)](iii).

September 3, 2010

Steve Excell

Assistant Secretary of State

OTS-3590.1

AMENDATORY SECTION(Amending WSR 09-22-056, filed 10/30/09, effective 11/30/09)

WAC 434-120-107   Audited financial report -- Tiered reporting requirements (effective January 1, 2010).   (1) Tier one: Charitable organizations ((submitting an initial registration, shall)) with one million dollars or less in annual gross revenue averaged over the last three accounting years must meet the financial reporting requirements((,)) specified in RCW 19.09.075 ((or)) and WAC 434-120-105. ((If an organization does not file a federal form (990, 990PF, 990EZ, 990T), the organization must complete the solicitation report contained in the form prescribed by the secretary.))

     (2) Tier two: Charitable organizations with more than one million dollars and up to three million dollars in annual gross revenue averaged over the last three ((fiscal)) accounting years, ((shall have the federal tax reporting form (990, 990EZ, 990PF or 990T) prepared or reviewed by a certified public accountant or other professional, independent third-party who normally prepares or reviews the federal returns in the ordinary course of their business. If the federal tax form is not signed by a preparer who is so qualified, the charitable organization must, using a reporting form provided by the secretary, confirm that the federal tax form was reviewed by an independent third-party who normally prepares or reviews federal returns in the ordinary course of their business)) must provide one of the following:

     (a) A photocopy of the federal tax reporting form (990, 990EZ, 990 PF) that has been prepared by a certified public accountant or other professional, who normally prepares or reviews federal returns in the ordinary course of their business; or

     (b) A photocopy of an audited financial statement prepared by an independent certified public accountant for the preceding accounting year; or

     (c) For governmental entities, a photocopy of the most recent audited financial statement prepared by the applicable government auditing agency or other independent certified public accountant.

     (3) Tier three: Charitable organizations with more than three million dollars in annual gross revenue averaged over the last three ((fiscal)) accounting years, ((shall)) must submit ((an audited financial statement prepared by an independent certified public accountant for the year immediately following any year in which the organization achieves a three year average of more than three million dollars. For organizations with more than three million dollars in annual gross revenue averaged over the last three fiscal years, but directly or indirectly receive five hundred thousand dollars or less in cash contributions averaged over the last three fiscal years, the audit requirement is waived. Organizations with five hundred thousand dollars or less in cash contributions averaged over the last three fiscal years shall meet the financial reporting requirements described in subsection (2) of this section. For purposes of meeting the financial requirements in this section, "cash" includes currency, checks, credit card payments, donor advised funds, and electronic fund transfers, but does not include gifts of tangible, real, or personal property or in-kind services)) one of the following:

     (a) A photocopy of an audited financial statement prepared by an independent certified public accountant for the preceding accounting year; or

     (b) For governmental entities, a photocopy of the most recent audited financial statement prepared by the applicable government auditing agency or other independent certified public accountant.

     (4) If an organization has been in existence for less than three years, the organization must calculate its average gross revenue based on the number of years the organization has been in existence to determine which tier is applicable.

     (((4))) (5) Waiver of audit requirement: The secretary may waive the requirement to file audited financial statements prepared by an independent certified public accountant ((when the)) for organizations ((can demonstrate that they have reached a three year average of)) with more than three million dollars in gross revenue ((through unusual or nonreoccurring revenue received in a single year without which they would have not met the three year annual gross average threshold.

     (5) This rule becomes effective January 1, 2010)) averaged over the last three accounting years and that meet one of the following:

     (a) Directly or indirectly receive five hundred thousand dollars or less in cash averaged over the last three accounting years. Organizations with five hundred thousand dollars or less in cash averaged over the last three accounting years must meet tier two reporting requirements. For purposes of meeting the financial requirements in this section, "cash" includes currency, checks, credit card payments, donor advised funds, and electronic fund transfers received from all sources including, but not limited to, solicitations, investment income and tuition. "Cash" does not include gifts of tangible, real, or personal property or in-kind services; or

     (b) Organizations who can demonstrate that they have reached a three-year average of more than three million dollars in gross revenue through unusual or nonrecurring revenue received in a single year without which they would not have met the three-year annual gross average threshold.

[Statutory Authority: RCW 19.09.315, 19.09.540, and 43.07.125. 09-22-056, § 434-120-107, filed 10/30/09, effective 11/30/09. Statutory Authority: RCW 19.09.097, [19.09.]315, [19.09.]540, 43.07.125. 09-01-106, § 434-120-107, filed 12/17/08, effective 1/17/09.]

     (2) Charitable organizations choosing to register under this section ((shall)) may register by((:

     (a))) completing the registration form specified by the secretary((; and

     (b) Paying the appropriate registration fee per WAC 434-120-145)).

     (3) Charitable organizations registered under this section may change or update their registration by((:

     (a))) filing the ((update)) updated information with the charities program((; and

     (b) Paying the appropriate fee per WAC 434-120-145)).

     (4) Expedited processing under WAC 434-112-080 is available for registrations and updates under this section.

     (5) The secretary offers this optional registration because some grant making entities and programs require registration with the charities program.

[Statutory Authority: RCW 19.09.315, 19.09.540, and 43.07.125. 09-22-056, § 434-120-110, filed 10/30/09, effective 11/30/09. Statutory Authority: RCW 19.09.097, [19.09.]315, [19.09.]540, 43.07.125. 09-01-106, § 434-120-110, filed 12/17/08, effective 1/17/09. Statutory Authority: RCW 23B.01.200(2), 24.03.007, [24.03.]008, 25.15.007, 19.09.020(15), [19.09].315, 19.77.115, and 43.07.170. 04-04-018, § 434-120-110, filed 1/23/04, effective 2/23/04.]

[Statutory Authority: Chapters 34.05, 19.09, 11.110 and 43.07 RCW and 1993 c 471. 94-01-004, § 434-120-115, filed 12/1/93, effective 1/1/94.]

     (1) The gross amount of the contributions pledged and the gross amount collected.

     (2) The amount thereof, given or to be given to charitable purposes represented together with details as to the manner of distribution as may be required.

     (3) The aggregate amount paid and to be paid for the expenses of such solicitation.

     (4) The amounts paid to and to be paid to commercial fund-raisers or charitable organizations.

     (5) Copies of any annual or periodic reports furnished by the charitable organization, of its activities during or for the same ((fiscal)) accounting period.

[Statutory Authority: RCW 19.09.097, [19.09.]315, [19.09.]540, 43.07.125. 09-01-106, § 434-120-130, filed 12/17/08, effective 1/17/09. Statutory Authority: RCW 19.09.075, 19.09.079 and 19.09.210. 97-16-035, § 434-120-130, filed 7/30/97, effective 8/30/97. Statutory Authority: Chapters 34.05, 19.09, 11.110 and 43.07 RCW and 1993 c 471. 94-01-004, § 434-120-130, filed 12/1/93, effective 1/1/94.]

     (1) Each contributing entity that collects individual donations from an employee or member group or a business, turning them over to the charitable organization as a single sum, such as the United Way;

     (2) Each corporation that contributed; and

     (3) Each individual who contributed more than twenty-five dollars.

     The records must be retrievable and compilable for a period of three years and ((shall)) must be turned over within ten working days upon written request of the attorney general or the county prosecutor, although the organization is not required to keep the names in a standard list format at all times.

[Statutory Authority: Chapters 34.05, 19.09, 11.110 and 43.07 RCW and 1993 c 471. 94-01-004, § 434-120-135, filed 12/1/93, effective 1/1/94.]

     (2) Annual renewal:

     (a) An entity ((shall)) must renew its charitable registration by no later than the fifteenth day of the fifth month after the end of its ((fiscal)) accounting year.

     (b) The renewal ((shall)) must include the same information required for registration as described in WAC 434-120-105 and RCW 19.09.075, except that a determination letter from the Internal Revenue Service need not be attached if it was previously filed. The solicitation report will be based on the most recent filing with the Internal Revenue Service or if the organization does not file with the Internal Revenue Service, the solicitation report will be based on the most recently completed ((fiscal)) accounting year. No organization may submit the same ((fiscal)) financial information for two consecutive years.

     (c) No change in an entity's ((fiscal)) accounting year ((shall)) may cause the due date of a renewal to be more than one year after the previous registration or renewal. For purposes of renewals that include financial information for a partial year, due to a change of ((fiscal)) accounting year, threshold levels for registration and financial statement requirements ((shall)) must be determined on a prorated basis.

     (3) An organization ((shall)) must notify the charities program of a change in organization name, mailing address, organization structure, principal officer, Washington representative, tax status, ((fiscal)) accounting year, or any other information filed under RCW 19.09.075 or WAC 434-120-105.

     (4) The organization ((shall)) must submit changes using the form available from the charities program within thirty days after the change ((and include the appropriate fee per WAC 434-120-145)).

[Statutory Authority: RCW 19.09.315, 19.09.540, and 43.07.125. 09-22-056, § 434-120-140, filed 10/30/09, effective 11/30/09. Statutory Authority: RCW 19.09.097, [19.09.]315, [19.09.]540, 43.07.125. 09-01-106, § 434-120-140, filed 12/17/08, effective 1/17/09. Statutory Authority: RCW 19.09.315 and 19.09.075. 96-10-021, § 434-120-140, filed 4/24/96, effective 5/25/96. Statutory Authority: RCW 11.110.070 and 19.09.315. 95-11-135, § 434-120-140, filed 5/24/95, effective 6/24/95. Statutory Authority: Chapters 34.05, 19.09, 11.110 and 43.07 RCW and 1993 c 471. 94-01-004, § 434-120-140, filed 12/1/93, effective 1/1/94.]

     (2) Annual renewal: Organizations must pay a renewal fee of forty dollars; organizations choosing to register as exempt per WAC 434-120-110, are not required to renew.

     (3) Information changes: Organizations filing changes of information described in WAC 434-120-105 will file at no charge.

     (4) Photocopy fees: For copy of a charitable organization registration form or letter, including the finance and solicitation reports, the fee is five dollars.

     (5) The fee for expedited service is twenty dollars for single on-line transactions within each new or existing charity's program file. The fee for expedited service of paper documents (in-person, mail or fax) is fifty dollars for single or multiple transactions within each new or existing charity's program file. In addition, the filing fee for each transaction will apply.

     (6) For service of process on a registered charity, commercial fund-raiser, or charitable trust, the fee is fifty dollars.

[Statutory Authority: RCW 43.07.125 and chapter 19.09 RCW. 10-15-036, § 434-120-145, filed 7/13/10, effective 8/13/10. Statutory Authority: RCW 19.09.097, [19.09.]315, [19.09.]540, 43.07.125. 09-01-106, § 434-120-145, filed 12/17/08, effective 1/17/09. Statutory Authority: RCW 23B.01.200(2), 24.03.007, [24.03.]008, 25.15.007, 19.09.020(15), [19.09].315, 19.77.115, and 43.07.170. 04-04-018, § 434-120-145, filed 1/23/04, effective 2/23/04. Statutory Authority: RCW 11.110.070 and 19.09.315. 95-11-135, § 434-120-145, filed 5/24/95, effective 6/24/95. Statutory Authority: Chapters 34.05, 19.09, 11.110 and 43.07 RCW and 1993 c 471. 94-01-004, § 434-120-145, filed 12/1/93, effective 1/1/94.]

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