By Andras Kosaras, Arnold & Porter LLP
Even if your foundation collects an organization’s IRS determination letter (which is not required legally), your foundation must still ensure that the status is current through one of the methods below.
- IRS Exempt Organizations Select Check is a free online database that is updated monthly providing basic data on nonprofits. Choose the option for organizations eligible to receive tax-deductible contributions and enter the organization’s information. An organization’s tax status will be reported with a code such as PC, SO, and PF, as nonprofits with similar deductibility and paperwork requirements are grouped together in the database.
- Charity Check is a one-stop due diligence tool offered by GuideStar that provides up-to-date information on all nonprofits in a user-friendly format. ASF members can subscribe at a discounted rate.
Whichever tool you use, be sure your foundation documents the tax status by printing your search or storing it electronically.
The following table indicates the codes used in the Select Check tool for each type of nonprofit status as well as the respective paperwork requirements.
|Organization Tax Status||Select Check Code||Additional paperwork required?*|
|509(a)(1)||PC||Nothing additional is required.|
|509(a)(2)||PC||Nothing additional is required.|
||SO||Nothing additional required as long as no foundation insiders directly or indirectly control the supporting or supported organization.|
||SONFI||Grants to this type of organization require expenditure responsibility and will not count toward 5% payout.|
|509(a)(3) with an unknown status||SOUNK||Type must be established before you make a grant. ASF members: See Tear Sheet.|
|Private Foundation or Private Operating Foundation||PF or POF||Must exercise expenditure responsibility. Grants to private foundations have additional requirements to count grant toward 5% payout.|
*Note: This assumes the foundation will follow all other rules related to taxable expenditures. For instance, if a foundation is making a grant to a 509(a)(1) in the area of advocacy, it may have additional rules to follow due to the purpose of the grant.
The Select Check tool also provides information on organizations that have had their tax-exemption automatically revoked for failing to file a 990 for three consecutive years. Organizations whose exemption has been revoked will remain on the list of revoked organizations even after being reinstated, though they will have documentation showing reinstatement. A separate listing of small organizations that file a Form 990-N e-postcard is also available as part of the Select Check tool.
Checking a charity’s status is easier than ever, but it is still recommended that funders use a grant agreement that requires grantees to notify the foundation if the grantee’s tax-exempt status is changed or revoked. For more information about grant agreements, see the ASF FAQs (for ASF members).
Andras Kosaras is an associate in Arnold & Porter LLP’s Tax practice group and focuses his practice on tax and corporate matters affecting tax-exempt organizations, including public charities and private foundations on domestic and international grantmaking and activities. He is a member of ASF’s Tax and Legal Advisory Committee.