- Do you use GuideStar Premium or GuideStar Pro to verify a nonprofit's eligibility to receive grants and charitable distributions?
- Are you acting on behalf of a private foundation, community foundation, or other sponsor of donor-advised funds?
If you answered "Yes" to either of these questions, you're putting your organization at risk. GuideStar Premium and GuideStar Pro do not meet IRS criteria for qualifying nonprofits to receive grants or charitable distributions.
Why Do We Say This
How can you say that? you ask. Don't GuideStar Premium and GuideStar Pro identify what type of tax-exempt organization a nonprofit is? Don't they flag nonprofits that have lost tax-exempt status? Don't they highlight nonprofits the Office of Foreign Assets Control has listed as supporting terrorism?
Yes, yes, and yes. But what GuideStar Premium and GuideStar Pro don't do is show whether a nonprofit is a supporting organization. Even if they did, they don't meet IRS requirements for third-party sources of Business Master File (BMF) data.
The Pension Protection Act of 2006 requires private foundations and sponsors of donor-advised funds to determine whether a grant or distribution recipient is a supporting organization. If it is, the foundation or sponsor must determine what kind of supporting organization the recipient is, and whether the foundation or sponsor must exercise expenditure responsibility (i.e., determine that the money will be used for charitable purposes). A foundation or sponsor that fails to do this research, or does it in the wrong sources, before making a payout can find itself subject to excise taxes.
The Sources the IRS Allows
The IRS specifies foundations or sponsors of donor-advised funds can do this research in IRS Publication 78, the BMF, or a third-party source of BMF data. IRS Revenue Procedure 2011-33 states a third-party source of BMF data must provide a report to the grantor or contributor that includes:
- the organization’s name, EIN, foundation status under § 509(a)(1), (2), or (3) (including supporting organization type, if applicable)
- whether contributions to such organization are deductible
- a statement that the information is from the most current update of the BMF extract and the BMF extract revision date
- the date and time the information was provided to the grantor or contributor
Rev Proc 2011-33 also states the grantor or contributor must retain a printed or electronic copy of the report.
GuideStar Charity Check meets these criteria. GuideStar Premium and GuideStar Pro do not.
We thought you'd want to know.
Note: This post is provided for information only and is not intended to serve as legal or tax advice. For specific information about IRS regulations on verifying a nonprofit's eligibility to receive grants or charitable distributions, consult your attorney or tax advisor.
The preceding post is by Suzanne Coffman, GuideStar's editorial director.