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What is IRS Publication 78, and why is it important?
IRS Publication 78, also known as Cumulative List of Organizations, is the IRS publication that lists all organizations to which charitable contributions are tax deductible. Inclusion of an organization in Publication 78 signifies that it has received a ruling or determination letter from the IRS. To remain listed in Publication 78, an organization's status must not be suspended or revoked. For more information, view the IRS Publication 78 help file.
What is the Internal Revenue Bulletin, and why is it important?
Updates to Publication 78 are issued regularly in the Internal Revenue Bulletin. The Internal Revenue Bulletin lists any status changes since the last Publication 78 release. The date of the most recent Internal Revenue Bulletin is listed in the Charity Check report, along with the date of the most recent IRS Publication 78.
Can grantmakers rely on information from IRS Publication 78 and the Internal Revenue Bulletin?
Yes. IRS Revenue Procedure 2011-33, June 20, 2011, states that "grantors and contributors may rely on the classification of an organization listed in or covered by Publication 78" or the IRS Business Master File (BMF). Rev. Proc. 2011-33 supersedes Rev. Proc. 82-39 and Rev. Proc. 2009-32.
Why is it important for private foundations to verify a potential grant recipient's status in Publication 78?
There are several reasons why it is best practice for private foundations to verify a potential grant recipient's status in Publication 78:
What is the IRS Business Master File, and why is it important?
The IRS Business Master File (BMF) lists all tax-exempt organizations registered with the IRS. The IRS has specified in Revenue Procedure 2011-33 that grantmakers can use BMF or IRS Publication 78 data to verify a grantee's public charity classification under section 509(a)(1), (2), or (3). At this time, however, Publication 78 does not 509(a) information.
The IRS BMF is updated monthly, and the most recent IRS BMF date is incorporated into the body of the GuideStar Charity Check report.
What does the Pension Protection Act of 2006 require grantmakers to do?
The Pension Protection Act (PPA) created a new nomenclature to clarify the types of supporting organizations and added three provisions to the tax code that impose excise taxes on sponsors of donor-advised funds and on private foundations for distributions to supporting organizations under certain circumstances.
To avoid the excise tax, grantors must determine whether grantees and contribution recipients are supporting organizations under section 509(a)(3) and, if they are, what type of supporting organization.
Where can I find more information on supporting organizations?
See "A Brief Overview of Supporting Organizations."
What are the IRS criteria for using a third-party source of BMF data to comply with the Pension Protection Act of 2006?
The third-party source must present BMF information in a report that shows:
Does GuideStar Charity Check meet all of the criteria of IRS Revenue Procedure 2011-33?
Yes. GuideStar Charity Check is 100% compliant with the requirements of IRS Revenue Procedure 2011-33 concerning reliance on third-party sources of IRS Business Master File data, such as GuideStar, for identification of supporting organization status and supporting organization type.
Does GuideStar Charity Check help grantmakers identify supporting organizations?
Yes. GuideStar Charity Check includes a "reason for non-private foundation status" for every 501(c)(3) public charity in the GuideStar database.
If the reason for non-private foundation status reads, "Section 509(a)(1) organization as referred to in Section 170(b)(1)(A)(vi)" or "Section 509(a)(2) organization," the nonprofit is not a supporting organization and is automatically eligible to receive charitable distributions.
If the reason for non-private foundation status says, "Section 509(a)(3) organization," the organization is a supporting organization, and further research is necessary to ensure that a contribution to the organization would be a qualifying distribution, and if so, under what circumstances.
Where the IRS Business Master File (BMF) lists type of supporting organization for a charity, that information appears in the organization's GuideStar Charity Check report. Data on type of supporting organization will appear in more reports as the IRS adds this information to the BMF.
I’m already registered with GuideStar (or subscribe to GuideStar Premium) and have been using charities’ GuideStar Reports to verify their 501(c)(3) status. Why do I need GuideStar Charity Check?
Although every organization in the GuideStar database was at one time recognized as exempt organization by the IRS, that may no longer be the case. Even if the nonprofit remains tax exempt, merely finding it on GuideStar does not fulfill a grantmaker's pre-grant due-diligence responsibilities. To avoid tax penalties and burdensome paperwork requirements, at a minimum grantmakers need to (1) verify a potential grantee's eligibility to receive tax-deductible contributions, (2) confirm the reason for non-private foundation status, (3) insure that the organization remains in good standing with the IRS, and (4) confirm that the nonprofit has not been listed by the Office of Foreign Assets Control (OFAC) as a Specially Designated National (SND) engaged in or supporting terrorism.
What does "in good standing with the IRS" mean?
In this context, that the IRS continues to recognize a nonprofit as a tax-exempt organization. The Pension Protection Act of 2006 requires automatic revocation of the exemptions of nonprofits that are required to file an annual return (Form 990, 990-N, 990-EZ, or 990-PF) but fail to do so for three consecutive years. The act also requires the IRS to publish a list of the organizations whose exemptions were revoked for failure to file. Any organization appears in the list does not qualify to receive tax-deductible contributions.
The IRS also revokes nonprofit exemptions on a case-by-case basis for serious noncompliance with the U.S. Tax Code. These revocations are announced in the Internal Revenue Bulletin, and these nonprofits do not qualify to receive tax-deductible gifts.
Does GuideStar Charity Check include revocation data?
Yes. GuideStar Charity Check includes both Automatic Revocation of Exemption List data and Internal Revenue Bulletin notices about individual revocations. New information from these sources is automatically imported into the GuideStar database upon publication by the IRS.
The GuideStar Charity Check report for a revoked organization prominently displays information about the revocation. If the revocation was announced in the Internal Revenue Bulletin, the report will link directly to the issue in which that information was published.
Does GuideStar Charity Check flag organizations listed as SDNs on the OFAC list?
Yes. The GuideStar Charity Check report for any organization named a Specially Designated National (SDN) by the Office of Foreign Assets Control (OFAC) prominently displays that information. Additions to or removals from the OFAC list are incorporated into the GuideStar database upon their publication by OFAC.
Why does the Charity Check report contain two unique sections…one for IRS Publication 78 details and another for IRS Business Master File details?
Publication 78 and the IRS Business Master File each contain unique pieces of information that are critical to performing two different types of due diligence. Although Publication 78 may be consulted to verify an organization's charitable status, the IRS Business Master File must be tapped in order to confirm an organization's reason for non-private foundation status.These two data sources are discreet and independently maintained by the IRS. GuideStar Charity Check displays relevant information from both sources to ensure that grantmakers can perform comprehensive due diligence for (1) verification of charitable status (via Publication 78) and (2) determination if an organization is a supporting organization based on its reason for non-private foundation status (via the IRS Business Master File).
Does GuideStar modify any of the data contained in Publication 78 or the IRS Business Master File?
No. GuideStar Charity Check marries these data sources to provide one comprehensive report but never modifies the IRS data, ensuring compliance with IRS Revenue Procedure 2011-33. Nor do we alter data from the Automatic Revocation of Exemption List, Internal Revenue Bulletin, or the OFAC list of organizations engaged in or supporting terrorism.
I am a potential grantee and my organization is not appearing in the IRS BMF section of Charity Check. What can I do to correct this?
Because GuideStar Charity Check presents the exact data that appear in the IRS BMF, organizations should work directly with the IRS to ensure that their information is updated and accurately reflected in the IRS database.GuideStar cannot and will not modify the IRS BMF database in any way. Contact IRS customer service directly at 1-877-829-5500.