GuideStar, a nonprofit organization that maintains a database of information about tax-exempt organizations, released a new publication on August 19, 2011, reviewing the rules for making grants to charities and deductible charitable contributions. The publication can be downloaded here.
The GuideStar report reviews the ways in which grant-making organizations and donors can determine the tax classification of a charity under the procedures set forth by the IRS in Revenue Procedure 2011-33, the steps needed to comply with IRS requirements, and the consequences if grantors and donors fail to follow the IRS rules.
Grant-making organizations and donors are required to determine the eligibility of an organization to receive a grant or tax-deductible charitable contribution before making a gift to that organization. As of June 20, 2011, the IRS allows such eligibility to be determined only by (1) examining a copy of the organization’s determination letter, (2) checking Publication 78 as maintained on the IRS website, (3) checking the IRS Master List, as available on the IRS website in spreadsheets divided by state, or (4) checking a third-party’s source of the information from the IRS Master List. Grantors may use the information contained in these resources to determine an organization’s foundation status and deductibility status. Grant-making organizations may need to do additional research if the recipient is a supporting organization because the type of supporting organization is not yet indicated on the IRS lists for most organizations.
Before making a grant or contribution, donors should also confirm that a potential donee remains in good standing with the IRS by checking the Automatic Revocation of Exemption List. For more information on the organizations that had their exempt status revoked for failure to meet the filing requirements, see “ IRS Posts List of Organizations That Lost Tax-Exempt Status and Announces Procedures for Reinstatement of Exemption.”
Finally, grant-making organizations and donors are prohibited from making gifts to organizations linked to terrorism. A list of organizations and individuals suspected of having such ties is available on the website of the Office of Foreign Assets Control.
Failure to correctly determine the status of an organization can lead to penalties for the grant-making organization or donor making a gift to such organization, so organizations and donors should document their determinations before making grants or gifts.