Do your research before giving to charities

A 2022 New York Times article, "76 Fake Charities Shared a Mailbox. The I.R.S. Approved Them All," summarized how one individual set up dozens of tax-exempt entities, all of which were granted 501(c) (3) status. Individual donors and private foundations (PFs) need to know who the recipients are of their generosity.

The organizations mentioned in the NYT article were all granted tax-exempt status and listed in the charity lookup, Tax Exempt Organization Search, on the IRS website. So how does an individual or PF confirm the charity is real and using donations to fund its stated mission?

Individuals and PFs need to do their due diligence before making a charitable gift. Prior to the NYT article, it would make sense to start with IRS Publication 78, or the charity page of the IRS website. While the site might still be a good place to confirm if the organization has been issued tax-exempt status and filed its required tax forms, it should not be where the research ends.

It is recommended that some type of inquiry be made. The scope of the inquiry may vary depending on the size and purpose of the grant, the period over which it is to be paid and any prior experience that the granter has had with the grantee.

An inquiry may include the identity, history and experience, management, activities and practices of the grantee organization and should be complete enough to give reasonable assurance that the grantee will use the grant for the expected purposes.

There are several recommended ways to perform due diligence of tax-exempt organizations. For instance, if it is feasible, an on-site visit to an organization may be helpful to get firsthand knowledge of its daily activities. The visit may allow the granter access to the key decision-makers and help build a lasting relationship.

Volunteering at a potential grantee organization can provide firsthand insight into its programs, operations, and leadership. While offering time, an individual or PF can learn more about the tax-exempt organization and determine whether to make a financial commitment. The individual or PF would be able to confirm the tax-exempt organization's mission truly aligned with their own.

Online research also is a great way to learn more about potential grantees. Many organizations have either their own website or report to organizations that gather information on all tax-exempt organizations. Confirm the website is authentic by validating information from several sources.

Depending on the number of donations made and the information necessary to make a well-informed decision, it is important to retain the information gathered and establish a procedure that works for you or your organization.

If you have questions, please reach out to Bernadette.Zita@forvis.com 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 manager, tax, at Forvis. She is a board member of Chicago Women in Philanthropy and serves on several subcommittees.