Do your research before donating to charities
A 2022 New York Times article, “76 Fake Charities Shared a Mailbox. The IRS Approved Them All,” summarizes how one individual created dozens of tax-exempt entities, all of which achieved 501(c)(3) status. Individual donors and private foundations (PFs) need to know who the beneficiaries of their generosity are.
The organizations mentioned in the NYT article have all been granted tax-exempt status and are listed in the Tax Exempt Organization Search on the IRS website. So how does an individual or FP confirm that the charity is real and using donations to fund its stated mission?
Individuals and FPs should do their due diligence before making a charitable donation. Before the NYT article, it would make sense to start with IRS Publication 78 or the charity page on the IRS website. While the site can still be a good place to confirm whether the organization has obtained tax-exempt status and completed the required tax forms, it shouldn’t be where the search ends.
It is recommended that some type of investigation be done. The scope of the investigation may vary depending on the size and purpose of the grant, the period over which it is to be disbursed, and any previous experience the donor has had with the recipient.
A survey may include the identity, history and experience, management, activities and practices of the recipient organization and should be sufficiently complete to provide reasonable assurance that the recipient will use the grant for its intended purpose.
There are several recommended methods for performing the due diligence of tax-exempt organizations. For example, if possible, an on-site visit to an organization can be useful to gain first-hand knowledge of its day-to-day operations. The visit can provide the grantor with access to key decision makers and help build a lasting relationship.
Volunteering with a potential recipient organization can provide first-hand insight into its programs, operations, and leadership. While volunteering time, an individual or FP can learn more about the tax-exempt organization and determine whether to make a financial commitment. The individual or FP would be able to confirm that the mission of the tax-exempt organization is truly aligned with their own.
Researching online is also a great way to find out more about potential beneficiaries. Many organizations have their own websites or fall under organizations that collect information on all tax-exempt organizations. Confirm that the website is genuine by validating information from multiple sources.
Depending on the number of donations made and the information needed to make an informed decision, it is important to keep the information collected and establish a procedure that works for you or your organization.
If you have any questions, please contact [email protected] or visit Forvis.com to subscribe to FORsights, our award-winning thought leadership program focused on articles, webinars, podcasts and videos aimed at helping you navigate the financial landscape. .
• Bernadette Zita is a senior tax executive at Forvis. She is a board member of Chicago Women in Philanthropy and sits on several subcommittees.