Difference between revisions of "Verify the 501(c)(3) Status of a Nonprofit"
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You might want to donate to a non-profit so that you can get a tax deduction. However, you need to verify whether the non-profit has received tax-exempt status from the IRS. In the United States, this status is called 501(c)(3) after the relevant part of the tax code. You can search for non-profit status by using the IRS Select Check database or by asking the non-profit you show you proof of their status. | You might want to donate to a non-profit so that you can get a tax deduction. However, you need to verify whether the non-profit has received tax-exempt status from the IRS. In the United States, this status is called 501(c)(3) after the relevant part of the tax code. You can search for non-profit status by using the IRS Select Check database or by asking the non-profit you show you proof of their status. | ||
| − | [[Category:Nonprofit Organizations]] | + | [[Category: Nonprofit Organizations]] |
==Steps== | ==Steps== | ||
===Checking the IRS Database=== | ===Checking the IRS Database=== | ||
| − | #Gather information about the non-profit. To properly check whether a non-profit has exempt status, you need to gather as much of the following information as possible:<ref>https://apps.irs.gov/app/eos/mainSearch.do;jsessionid=tVC0EbjNR43GlJnuc1CWUg__?mainSearchChoice=pub78&dispatchMethod=selectSearch</ref> | + | #Gather information about the non-profit. To properly check whether a non-profit has exempt status, you need to gather as much of the following information as possible:<ref name="rf1">https://apps.irs.gov/app/eos/mainSearch.do;jsessionid=tVC0EbjNR43GlJnuc1CWUg__?mainSearchChoice=pub78&dispatchMethod=selectSearch</ref> |
#*name | #*name | ||
#*city | #*city | ||
| Line 11: | Line 11: | ||
#*county | #*county | ||
#*Employer Identification Number (EIN) | #*Employer Identification Number (EIN) | ||
| − | #Visit the IRS Select Check website. The IRS maintains an Exempt Organization List, which you can check using the Select Check website.< | + | #Visit the IRS Select Check website. The IRS maintains an Exempt Organization List, which you can check using the Select Check website.<ref>https://cullinanelaw.com/nonprofit-law-basics-how-do-we-prove-that-our-nonprofit-has-501c3-tax-exempt-status-2/</ref> Visit here: https://apps.irs.gov/app/eos/. |
#*You need to select a database. Choose “Are eligible to receive tax-deductible charitable contributions.” | #*You need to select a database. Choose “Are eligible to receive tax-deductible charitable contributions.” | ||
| − | #Enter the requested information. Organizations will be listed under whatever name is on file with the IRS, either their legal name or their doing business as (or both). If you enter ''Red Cross'' then entries with either the word “Red” or “Cross” will show up. Put the name between quotation marks to search for the phrase.<ref>https://www.irs.gov/charities-non-profits/exempt-organizations-select-check-search-tips</ref> | + | #Enter the requested information. Organizations will be listed under whatever name is on file with the IRS, either their legal name or their doing business as (or both). If you enter ''Red Cross'' then entries with either the word “Red” or “Cross” will show up. Put the name between quotation marks to search for the phrase.<ref name="rf2">https://www.irs.gov/charities-non-profits/exempt-organizations-select-check-search-tips</ref> |
#*When searching, avoid using common words such as ''Foundation'' or ''the''. | #*When searching, avoid using common words such as ''Foundation'' or ''the''. | ||
#*You may also download the entire database of eligible organizations by clicking on the relevant link. | #*You may also download the entire database of eligible organizations by clicking on the relevant link. | ||
| Line 21: | Line 21: | ||
#*Alternately, download the entire database of organizations that have had their federal tax exemption revoked. | #*Alternately, download the entire database of organizations that have had their federal tax exemption revoked. | ||
===Using Other Methods=== | ===Using Other Methods=== | ||
| − | #Ask for a copy of the determination letter. A qualified non-profit will receive a determination letter from the IRS. You can ask for a copy of the letter.< | + | #Ask for a copy of the determination letter. A qualified non-profit will receive a determination letter from the IRS. You can ask for a copy of the letter.<ref name="rf1" /> If the organization hesitates to show you its letter, you should hesitate to donate to them. |
#*The organization might claim they can’t find their letter. Tell them they can request a new copy from the IRS at 1-877-829-5500. | #*The organization might claim they can’t find their letter. Tell them they can request a new copy from the IRS at 1-877-829-5500. | ||
| − | #Check with your Secretary of State. In the U.S., a charity typically needs to register with the state where it is located before it can start fundraising. Check with the Secretary of State for the state where the charity is located.< | + | #Check with your Secretary of State. In the U.S., a charity typically needs to register with the state where it is located before it can start fundraising. Check with the Secretary of State for the state where the charity is located.<ref>https://www.stopfraudcolorado.gov/fraud-center/charitable-giving/fraud-subtype</ref> You can visit their website or call. |
| − | #Identify whether a religious organization is tax exempt. Religious organizations such as churches, mosques, and synagogues do not need to apply for tax-exempt recognition. Instead, they are automatically tax exempt if they meet the IRS requirements.<ref>https://www.irs.gov/pub/irs-pdf/p1828.pdf</ref> For this reason, many will not appear in the IRS Exempt Organization List. Check whether the religious organization meets the following requirements: | + | #Identify whether a religious organization is tax exempt. Religious organizations such as churches, mosques, and synagogues do not need to apply for tax-exempt recognition. Instead, they are automatically tax exempt if they meet the IRS requirements.<ref name="rf3">https://www.irs.gov/pub/irs-pdf/p1828.pdf</ref> For this reason, many will not appear in the IRS Exempt Organization List. Check whether the religious organization meets the following requirements: |
#*It has been organized exclusively for religious purposes. | #*It has been organized exclusively for religious purposes. | ||
#*Net earnings do not benefit any private individual or shareholder. The organization can pay a minister or other faith leader a reasonable salary. However, it cannot pay an excessive salary or transfer property to any insider for less than market value. | #*Net earnings do not benefit any private individual or shareholder. The organization can pay a minister or other faith leader a reasonable salary. However, it cannot pay an excessive salary or transfer property to any insider for less than market value. | ||
| Line 31: | Line 31: | ||
#*The organization’s purpose and activities cannot be illegal. | #*The organization’s purpose and activities cannot be illegal. | ||
===Researching a Non-Profit=== | ===Researching a Non-Profit=== | ||
| − | #Ask for information about the non-profit. Legitimate charities should be willing to provide substantial information to potential donors. For example, they should share the following information:< | + | #Ask for information about the non-profit. Legitimate charities should be willing to provide substantial information to potential donors. For example, they should share the following information:<ref>https://www.consumer.ftc.gov/articles/0074-giving-charity</ref> |
#*the charity’s identity | #*the charity’s identity | ||
#*its mission | #*its mission | ||
| Line 37: | Line 37: | ||
#*how donations will be used | #*how donations will be used | ||
#Look at the financial statements. You can learn a lot about a non-profit by reviewing their financial statements. Many non-profits put their financial information online for you to look at. You may also check a website such as GuideStar. Pay attention to the following: | #Look at the financial statements. You can learn a lot about a non-profit by reviewing their financial statements. Many non-profits put their financial information online for you to look at. You may also check a website such as GuideStar. Pay attention to the following: | ||
| − | #*Are the statements audited? If not, then that’s a red flag.<ref>https://www.bridgespan.org/insights/blog/give-smart/nonprofit-due-diligence-financial-red-flags</ref> | + | #*Are the statements audited? If not, then that’s a red flag.<ref name="rf4">https://www.bridgespan.org/insights/blog/give-smart/nonprofit-due-diligence-financial-red-flags</ref> |
#*Do sources of revenue change dramatically year to year? That’s atypical for a non-profit. | #*Do sources of revenue change dramatically year to year? That’s atypical for a non-profit. | ||
| − | #Resist high-pressure sales tactics. If you feel like the charity representative is a used-car salesperson, then you are probably not dealing with a legitimate charity. Avoid any charity that tries to pressure you into giving a donation.<ref>https://www.stopfraudcolorado.gov/fraud-center/charity-fraud/red-flags</ref> | + | #Resist high-pressure sales tactics. If you feel like the charity representative is a used-car salesperson, then you are probably not dealing with a legitimate charity. Avoid any charity that tries to pressure you into giving a donation.<ref name="rf5">https://www.stopfraudcolorado.gov/fraud-center/charity-fraud/red-flags</ref> |
#*For example, the rep might insist time is of the essence and not let you do proper research. There is no reason for a non-profit to apply pressure to get you to donate. | #*For example, the rep might insist time is of the essence and not let you do proper research. There is no reason for a non-profit to apply pressure to get you to donate. | ||
#Identify other red flags. A fraudulent non-profit might be hard to spot. However, there are common red flags you should be aware of, including the following: | #Identify other red flags. A fraudulent non-profit might be hard to spot. However, there are common red flags you should be aware of, including the following: | ||
| − | #*The non-profit has a name that is similar to a better known organization.<ref | + | #*The non-profit has a name that is similar to a better known organization.<ref name="rf3" /> They may be trying to confuse the public. |
| − | #*The non-profit thanks you for a donation you don’t remember giving.< | + | #*The non-profit thanks you for a donation you don’t remember giving.<ref name="rf5" /> |
#*The non-profit asks for cash donations. You should be able to donate using a check or credit card. | #*The non-profit asks for cash donations. You should be able to donate using a check or credit card. | ||
#*The charity attempts to collect the donation quickly. For example, they ask for overnight delivery service. There’s no reason a legitimate charity would need a donation that quickly. | #*The charity attempts to collect the donation quickly. For example, they ask for overnight delivery service. There’s no reason a legitimate charity would need a donation that quickly. | ||
| − | #Beware of sweepstakes. Some non-profits employ sweepstakes to raise funds. Under this scheme, you get a chance to win the sweepstakes in exchange for a donation. However, federal law in the U.S. prohibits making eligibility contingent on giving a donation.<ref | + | #Beware of sweepstakes. Some non-profits employ sweepstakes to raise funds. Under this scheme, you get a chance to win the sweepstakes in exchange for a donation. However, federal law in the U.S. prohibits making eligibility contingent on giving a donation.<ref name="rf3" /> Avoid any non-profit that employs this scheme. |
| − | #Find information online. Fortunately, there is a wealth of information on the Internet about non-profits that is easy to access. Perform thorough research before donating to any organization. Check the following sources:<ref>https://www.consumer.ftc.gov/features/feature-0011-charity-scams</ref> | + | #Find information online. Fortunately, there is a wealth of information on the Internet about non-profits that is easy to access. Perform thorough research before donating to any organization. Check the following sources:<ref name="rf7">https://www.consumer.ftc.gov/features/feature-0011-charity-scams</ref> |
| − | #*'''Better Business Bureau’s Wise Charity Alliance'''. BBB accredits charities that meet its standards for accountability. You can search by charity at its website.<ref>http://give.org/</ref> | + | #*'''Better Business Bureau’s Wise Charity Alliance'''. BBB accredits charities that meet its standards for accountability. You can search by charity at its website.<ref name="rf8">http://give.org/</ref> |
| − | #*'''Charity Navigator'''. This watchdog organization grades charities based on their financial health and their accountability.<ref>https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=628</ref> | + | #*'''Charity Navigator'''. This watchdog organization grades charities based on their financial health and their accountability.<ref name="rf9">https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=628</ref> |
| − | #*'''Charity Watch'''. This organization analyzes the financial reports of non-profits to determine how efficiently they will use your donation. It sometimes conducts special investigations of charities.<ref>https://www.charitywatch.org/about-charitywatch/charitywatch-difference/3113/3118</ref> However, you must become a member to access their information. | + | #*'''Charity Watch'''. This organization analyzes the financial reports of non-profits to determine how efficiently they will use your donation. It sometimes conducts special investigations of charities.<ref name="rf10">https://www.charitywatch.org/about-charitywatch/charitywatch-difference/3113/3118</ref> However, you must become a member to access their information. |
| − | #*'''GuideStar'''. Use this site to obtain balance sheet data for up to five years and IRS filings for up to three years. You can also find revenue and expense data for the current year.<ref>https://www.guidestar.org/Home.aspx</ref> | + | #*'''GuideStar'''. Use this site to obtain balance sheet data for up to five years and IRS filings for up to three years. You can also find revenue and expense data for the current year.<ref name="rf11">https://www.guidestar.org/Home.aspx</ref> |
==Tips== | ==Tips== | ||
*You can report a charity scam to your state’s Attorney General’s office. Provide them with as much information about the charity and the scam as you can. | *You can report a charity scam to your state’s Attorney General’s office. Provide them with as much information about the charity and the scam as you can. | ||
