Our guest blog comes from our pal Lisa Anne Thompson Taylor, from Taylor Strategic Partnerships, where she guides responsible philanthropy and improves non-profit board governance. If your board (or a board member) needs training, she's a certified governance trainer! She gives us the skinny on giving to charity:
It's the 501 "(G)" 3 that's about as fake as the snow your favorite charity purchased for the holiday party (with your generous donation). The "G" stands for "Grinch" - and if you're not careful, you'll be suckered into plunking down your hard-earned money for a lofty cause that spells C-R-O-O-K. Here's how to avoid scams and crooks who create ghost organizations to lure money and credit card data from trusting, well-intentioned people, like you.
Last year, tens of thousands of people unknowingly were denied the deductibility of their gift and made vulnerable to an audit by the IRS.
It takes three minutes to validate your favorite charity's credentials to ensure your donation goes to a legitimate cause. Most people assume that pertinent information on a charity's legitimacy is like finding a needle in a haystack: it's difficult and time-consuming. But knowing a few simple tricks using a helpful online resource can uncover a charity's deep, dark secrets. If you've been approached in the past to offer a charitable contribution with a false promise that it's tax deductible, or if you work with low profile organizations that make validation more challenging, then a quick background check is advisable. For larger donations or more sophisticated involvement, however, it's a good idea to hire professional philanthropic counsel to ensure involvement with the highest quality partnerships.
Pick virtually any cause and you'll find an organization that represents it on Guidestar.org, which helps you easily spot red flags like missing information or its absence on the site altogether. Two of the easiest ways to verify your charity is the IRS Determination Letter and a 990 Filing.
Is Your Charity Registered With The IRS?
Firstly, is the organization ACTUALLY a registered 501(c)(3) nonprofit? Type the name of the organization in the Guidestar.org search window. You may need to refine the search or select a specific state. Once the organization's page opens, scroll down to the GuideStar Summary and check to see whether item two is checked: Registered with IRS. If it's not verified, contact the organization request a copy of its IRS Determination Letter (which is a public document) that validates nonprofit status.
Form 990 Is Mandatory
The second basic indicator of a reputable charity is the Form 990. The IRS defines the Form 990 as " ... used by tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations to provide the IRS with the information required by section 6033." This form allows the IRS and the public to evaluate nonprofits and how they operate. Beginning with tax returns filed in 2009 for 2008, nonprofits must file the new Form 990 that requires more disclosure of potential conflicts of interest, compensation of board members and staff, and other details having to do with financial accountability and avoidance of fraud.
It is MANDATORY for nearly all organizations to file this form, regardless of size, structure or location. If it isn't on the site, it's likely that the organization has failed to file and may therefore be operating in violation of state and federal laws. Organizations that fail to file run the very real risk of having their tax exempt status revoked.
Last year, tens of thousands of people unknowingly were denied the deductibility of their gift and made vulnerable to an audit after approximately 50,000 charities' tax exempt status was revoked by the IRS, when they failed to file the IRS 990 for 3 consecutive years. If they had taken just a few minutes to validate their organization, these unwitting donors would have been assured at the validity of their donation. Make sure to check Guidestar.org any time you have a doubt about an organization, and regularly to ensure your charity stays on track.