How do you confirm public charity status for potential grantees?
Private foundations are authorized to provide grants to organizations officially recognized by the Internal Revenue Service (IRS) as public charities. To verify a grantee's status, the IRS provides an online tool called the Tax Exempt Organization Search (TEOS), which includes Pub 78 data. This user-friendly resource allows you to check whether a potential grantee is eligible to receive tax-deductible charitable contributions by searching for the organization’s name, location, or employer identification number (EIN).
As part of responsible due diligence, private foundations can also consult the "Automatic Revocation of Exemption List." This list identifies organizations whose federal tax exemption has been revoked due to a failure to file annual tax returns for three consecutive years. Checking this list helps foundations avoid supporting entities that have lost their tax-exempt status.
It is important to note that certain groups, such as churches, synagogues, mosques, and other religious organizations, are automatically considered tax-exempt under Section 501(c)(3) of the Internal Revenue Code and do not need to apply for IRS recognition. Their tax-exempt status is further supported by the First Amendment, which guarantees religious freedom. As a result, these religious groups may not appear in the IRS database of public charities because they do not need to apply with the IRS for tax-exempt status. Similarly, government-related entities, such as public schools, parks, and municipalities, generally qualify to receive grants but are often not listed in the IRS database, as they serve public purposes rather than having a 501(c)(3) designation.
For private foundations, it is crucial to ensure the recipient organization is an officially recognized public charity, religious group, or government-related entity. Grants made to organizations outside these categories may not count toward the foundation's annual 5% minimum distribution requirement and could result in severe IRS penalties as taxable expenditures. By conducting thorough research and using IRS resources, private foundations can confirm the eligibility of the organizations they wish to support, ensuring compliance with IRS regulations and maintaining accountability.
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