‘Tis the Season: Checking a Charity’s Tax-Exempt Status

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March 19, 2013; Source: KELO-TV

It’s tax time, as if you needed another reminder. If you are one of the approximately one-third of the population that itemizes deductions on your federal tax return, one popular deduction is for charitable gifts. How can you be sure your gifts are deductible? Are the causes you support recognized by the IRS as charities? The IRS recently participated in a story on KELO-TV in Sioux Falls, S.D. encouraging viewers to check the IRS website and to get the facts. The IRS website helps, but it’s not easy.  In fact, IRS website data may confuse some donors.

IRS.gov includes an “Exempt Organizations Select Check” page to allow searches for tax-exempt entities, nonprofits that have had their tax-exempt recognition revoked, and those that file the Form 990-N, also known as the “postcard return.” Of course, if you don’t already know about it, you’ll have to do a keyword search, as the IRS homepage no longer includes a link for “Charities and Non-Profits.” This link formerly served as a gateway for all things nonprofit, including searching for charities. Also, if you are looking for a charity on the list, a charity that has had its status revoked, or a charity that files the Form 990-N, you will need to be prepared to undertake three separate searches.

A user can search by organization name or keyword, location, Employer Identification Number (EIN), or even by deductibility status. Each search field includes a pop-up help link to define the search term and to describe the codes. The search results page also includes pop-up help links, so users can see whether a nonprofit is a public charity, private foundation, etc., as well as what that means for gift deductibility.

What if a user discovers a charity or another type of nonprofit has had its status revoked? There are over 450,000 entries in the revocation database. About half of these are charities, with the rest being other types of nonprofits, such as recreation clubs, business leagues, cemeteries, etc.  Many of the revoked charities in the database, however, are still in operation and are still in good standing with the IRS. How is that possible? Because many local chapters of national organizations have given up their local corporate status to be covered under the “group exemption” issued to the national charity with which they are affiliated. Thus, a charity in the revocation database is not necessarily “bad.” More research would be required to make such a determination.

The KELO-TV news story mentions that a revoked charity may apply for reinstatement, and that donors can ask them for a copy of the letter in which the IRS recognizes them as a public charity. It would have been even more helpful for the story to note that anyone can ask any charity for a copy of their IRS determination letter, or that many charities issue annual gift receipts to donors which include information about the deductibility of gifts. In fairness to KELO-TV, any tax topic can become complicated, and TV news generally operates within time constraints that make it difficult to discuss topics in depth. Still, a more thorough treatment would likely have left fewer taxpayers scratching their heads. –Michael Wyland