With so many groups and causes asking for your money, it's important to realize that not every group that requests support from donors is truly working on behalf of a charity. As a donor, you should take care to make sure that the organizations you choose to support are really legitimate and that the money you give is going where you think it is. There are various ways to tell if an organization is on the up and up so you can be assured the money you donate will actually benefit a cause you support.
Is a Nonprofit Organization Legitimate?
It can be difficult to determine if a nonprofit organization is legitimate but it's easier than it used to be. By using the information provided on the internet by consumer watchdog agencies and professional organizations that monitor the activities of hundreds of thousands of philanthropic groups, you can find out most details about any nonprofit organization.
Without delving into years of financial statements, you can get an overview of a nonprofit's activities by utilizing several sources.
Form 990 Disclosures
All nonprofit organizations must file a Form 990 with the Internal Revenue Service (IRS) that is supposed to provide details of where and how contributions are spent. However, in recent years the IRS has reported that over two-thirds of the submitted Form 990s listed no fundraising expenses and instead called such outlays monies for public education, program development, etc. The form should still reveal the general outlay of funds, including how much the top officers of the group earn. You have the right to as a nonprofit organization to provide you with a copy of this form. If you are thinking about donating money to an organization that you are not familiar with, it is a good idea to do so. If an organization balks at providing this information, proceed with extreme caution.
Consumer Protection Groups and Professional Organizations
Organizations like GuideStar, the American Institute of Philanthropy and the Better Business Bureau are likely to have the most up to date information on major nonprofit organizations.
- GuideStar - If you complete GuideStar's free registration form, you will have free access to Form 990s for major nonprofit organizations. There are over 850,000 IRS-recognized nonprofit groups listed. The website also has a search tool that finds charities by name, reveals their mission statements, impacts and background information. GuideStar gives nonprofits an overall rating based on a range of analytical data. GuideStar is a purely informational site that avoids making judgments on charities but provides more than enough data for you to make an educated decision on where to make your charitable contributions.
- American Institute of Philanthropy - The American Institute of Philanthropy (AIP) provides extensive information about charities and grades the top 500 in the country from A through F in a nominally priced publication called the Charity Rating Guide. The site explains the grading system and reveals for free who makes the highest salaries, what the latest causes and trends are and which charities have questionable practices or structures.
- Better Business Bureau (BBB) - The BBB has an Alliance for Wiser Giving division that provides online reports on over 600 charities. Their information is not nearly as detailed as the AIP's and they don't give out grades but the Alliance does reveal which charities meet their standards and which ones fail.
Examples of Questionable Nonprofits
Nonprofits with dubious allocations of funds and debatable fundraising practices can be based nationally or locally. Some charitable causes and themes are popular across the country in both urban and rural areas.
Public Servant Pleas
Requests for donations to police officer and firefighter funds are common because the solicitors play on the human desire to be protected from harm. While it's hard to say no to someone asking for funds to help out these protective services, they are frequently scams that give little, if any, money to these public servant groups. Call your local fire or police department to confirm their affiliation with these charities before agreeing to make a donation or purchase tickets for a so-called fundraiser. If you want to provide support to local public agencies, consider contacting them directly to make donation arrangements so all of your money goes straight to them.
Organizations that solicit vehicle donations often prey on people desperate to get rid of old cars, boats and recreational vehicles by offering them tax deductions for their donations. Normally the only people who profit from these donations are the commercial junkyards and auction houses that sell the vehicles. The collecting charities usually get only around $100 per vehicle and the IRS audits many of these tax deduction claims because contributions are often overvalued. Remember that the promised deduction only applies to people who itemize deductions and provides no benefits for people who take the standard deductions, which most taxpayers do. See IRS Car Donation Rules to learn about requirements for vehicle donation tax deductions. If you want to donate a vehicle, it is best to give directly to a charity that you are familiar with that can use it or sell it directly.
Charitable contributions are a great way to help out causes you support and give back to the community, which is why exercising caution in giving is so important. Avoid giving donations over the phone or providing credit card or bank information to callers. Telemarketers can be persistent and some people make donations just to end their calls. Politely decline parting with your money until you have a chance to research the validity of the charity.