Nothing makes me madder than hearing about phony charities or those unscrupulous actors who take advantage of the nonprofit sector for personal gain. They hurt all of the hard-working nonprofits doing amazing good work and lessen the public's—including well-meaning donors'—confidence in the entire sector. But it's not always easy to determine what is a legitimate charity. With more than 1.5 million tax-exempt organizations in the United States and the number growing at nearly 5 percent a year, there's a lot to research and consider.
In an effort to streamline this important responsibility, GuideStar created Charity Check, an on-line service that enables grantmakers to perform their due diligence quickly and efficiently by providing instant access to different kinds of IRS data in a single report. Due diligence—determining whether a nonprofit qualifies to receive a grant or contribution—has always been an essential part of grantmaking. Like all donors, grantmakers want to ensure that their organizations' funds are going to nonprofits that will make good use of them. Grantors also must ensure that recipients qualify to receive grants under the law and according to each grantor's guidelines.
Last summer, the Pension Protection Act of 2006 added a new wrinkle to grantmaking due diligence: private foundations and sponsors of donor-advised funds must now determine whether potential recipients of grants and contributions are supporting organizations under section 509(a)(3) of the tax code. Grantmakers who make a grant or contribution without doing this research may have to pay excise taxes.
The IRS has advised grantmakers that they can rely on Business Master File (BMF) data to determine whether or not a charity is a supporting organization. (See more information.) In late March, the IRS issued guidance allowing grantmakers to rely on a third-party source of BMF data, as long as it meets certain criteria. Read the guidance
Although Charity Check already met most of the criteria for a third-party source of BMF data, we needed to change how the information displayed and to add the date of the most recent BMF update to every Charity Check report. The IRS guidance on obtaining BMF data through a third-party source was posted March 23; we launched the Charity Check upgrade April 6. The upgrades were provided to all Charity Check subscribers at no additional cost.
It was an intense two weeks for GuideStar's staff, but the results were worth it. The changes made a valuable, time-saving tool even more useful. Grantmakers can use Charity Check with full confidence that it meets all IRS criteria for a third-party source of BMF data.
Charity Check is a simple solution for an increasingly complex process. As 2007 continues, we will refine other services and introduce new ones. Some of these tools will be available at no cost to users; others, like Charity Check, will be subscription services. All will share one goal: to make it easier for you to find the information you need, when you need it.
President and CEO
Bob Ottenhoff, on 5/1/07 8:00 AM