How do you verify a nonprofit's charitable status? This isn't a rhetorical question; we have a serious reason for asking.
Do you look up the nonprofit on GuideStar using our no-fee search and, when you find it, say, "Aha! It's on GuideStar, so I know it's OK to make a distribution to it"?
If you do and you're with a private foundation, community foundation, or other organization that sponsors donor-advised funds, you're putting your organization at risk, because:
Our nonprofit profiles do not meet IRS requirements for determining if an organization is eligible to receive a charitable distribution (grant).
What the IRS Requires
At this time, the IRS requires that grantmakers do two things before making a charitable distribution:
- Verify the grantee's charitable status in IRS Publication 78 and
- Determine whether the grantee is a supporting organization using:
- the nonprofit's current IRS letter of determination or
- the IRS Business Master File (BMF) or
- a third-party source of BMF data that meets certain criteria.
These are the only resources the IRS allows grantmakers to use to qualify grantees. If you don't do this research, or you do it using the wrong resources, and the IRS disallows the distribution, or if you're required to exercise expenditure responsibility and fail to do so, your organization will be subject to excise taxes. (Expenditure responsibility basically means ensuring that a payout is used for charitable purposes.) In other words, failing to follow IRS procedures could cost your organization money.
FYI, we expect that once the IRS publishes the Nonfiler Revocation List, it will also require funders to determine that grantees are not included on that list, but right now, that requirement doesn't exist. Learn more about the Nonfiler Revocation List
Who Needs to Be Concerned
Funders Required to Use the Resources Identified Above
- Private foundations
- Organizations that sponsor donor-advised funds, including community foundations
Funders Who Can Also Benefit from Using These Resources
- Corporate giving programs
- Companies that give a high volume of nonprofit discounts
- Wealth advisors
GuideStar Charity Check does this research for you, presenting Publication 78 and BMF data in a single date- and time-stamped report you can use to document your due diligence. GuideStar Charity Check is 100 percent compliant with IRS requirements for verifying charitable status and identifying supporting organizations. It also checks organizations against the OFAC list (the list of entities that may be associated with terrorism published by the Office of Foreign Assets Control at the U.S. Department of the Treasury) and will flag nonprofits named on the Nonfiler Revocation List when that information becomes available.
GuideStar Charity Check will keep your grantmaking in compliance with IRS requirements. With just a couple of clicks, you'll get a report that:
- verifies charitable status in IRS Publication 78;
- uses BMF data to identify supporting organizations;
- confirms whether a grantee has been named on the OFAC list;
- will confirm whether a grantee has been named on the Nonfiler Revocation List when that information becomes available;
- is date- and time-stamped; and
- can be printed or saved in PDF to document your due diligence.
View a sample GuideStar Charity Check report
Suzanne E. Coffman, April 2011
© 2011, GuideStar USA, Inc.
Suzanne Coffman is GuideStar's editorial director and editor of the GuideStar Newsletter.