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Review charitable organizations before donating to ensure legitimacy

12/20/99

By Pamela Yip / The Dallas Morning News

'Tis the season to give to the less fortunate and reap a tax benefit at the same time.

But before you write that check, do your homework.

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While there certainly are legitimate charities asking for donations, shadowy ones can creep into the mix. You can't let your altruism cloud your good judgment.

"I know it's hard for people to conceptualize that there are people out there who will take the charitable impulse and distort is to their end, but there are some bad actors out there," said Michelle Monse, program director at the Dallas Foundation, the oldest community foundation in Texas.

What's unusual about Texas is that it's one of the few states that doesn't have overall regulations on charitable activities, said Jeannette Kopko, senior vice president of the Better Business Bureau of Metropolitan Dallas and director of the organization's Philanthropic Advisory Service.

"There's not a comprehensive statute in Texas requiring charities to register or disclose certain information," she said. "You just can't assume that because you're being solicited that the group has been checked out and has disclosed certain information. It's up to donors to find out whom they're giving to."

Research funds

It's important to do your homework because you want your money to go to the organization you wish and for the purpose you intend. But the question is, how much research do you have time to do?

"There is a lot of information you can get from the charity, and if you can't, that's a red flag," said Ms. Monse, who evaluates grant requests that the foundation receives.

At a minimum, you should understand the charity's activity and be sure the organization's appeals clearly identify the charity's programs. Ask the organization to send you written materials. If it refuses or tries to stall, walk away.

For example, a solicitation asking to help abandoned animals should describe how this is being done, such as through a shelter, veterinary care or pet adoption.

Perk up your ears if a charity says it's involved in "education." Some charities' education programs consist of only the information they mail to prospective donors, Ms. Monse said.

Be sure you distinguish between similar sounding names of charities. For example, the American Cancer Society vs. the "American Cancer Institute."

Check IRS filings

A key document to obtain is the charity's Internal Revenue Service Form 990, which tax-exempt organizations file each year with the IRS. Religious institutions such as churches and certain church-affiliated charities aren't required to file a 990 form.

"Tax-exempt organizations are required to provide a copy to anyone who wants it," said Phil Beasley, IRS spokesman in Dallas.

The form, also known as "Return of Organization Exempt from Income Tax," is a gold mine of information on a charity. It lists the organization's officers, directors, trustees and key employees.

It also provides information on revenue, expenses, changes in net assets or fund balances, and balance sheets of an organization.

Look at how much money is going to charitable activities vs. administrative expenses. You want more money to go toward actually helping people.

"At least 50 percent of their expenses should be program expenses," Ms. Monse said. "I like to see 60 to 70 percent going to program services."

If the number is lower, it doesn't automatically mean that the charity is involved in questionable activities.

"There may be a legitimate reason why that number is lower," Ms. Monse said. "It may be a new agency that just got started, but you want to ask why. It's kind of a trigger."

Also ask for a copy of a charity's "Determination Letter" from the IRS, which says the agency recognizes the organization as tax-exempt. The law also requires charities to give you a copy of the letter.

There are organizations such as the National Charities Information Bureau and Philanthropic Research Inc. that will do the bulk of the homework on a charity for you.

For tax-planning purposes, be sure that your contributions to a charity are tax-deductible. Some organizations used the terms "tax-exempt" and "tax-deductible" interchangeably, and they don't mean the same thing.

"Tax-exempt" simply means the charity doesn't have to pay income taxes. "Tax-deductible" means you can deduct your contribution on your federal income tax return.

"Someone says, 'We're a tax-exempt organization,' " Ms. Monse said. "It doesn't mean contributions to them are tax-deductible."

If you get a pitch through the telephone, avoid making a financial pledge immediately. Many organizations hire a telemarketer to raise money for them, and anytime a third-party is involved, you can bet it gets a cut of the funds.

Ask the person on the phone whether he or she is an employee of the charity, a volunteer or an employee of a telemarketing firm.

"It's not uncommon for 80 percent of what you give to go to the telemarketing company and maybe 20 percent to the sponsoring organization," Ms. Kopko said. "We often find with telemarketing that there can be pressure to give and there can be misleading statements or misrepresentations of how funds will be used."

Online cautions

With online charity appeals, apply the same safeguards as you would in the physical world.

"Contributors should not assume that 'high-tech' guarantees 'high ethics,' " said Bennett M. Weiner, vice president and director of the Philanthropic Advisory Service of the Council of Better Business Bureaus, the umbrella organization for the Better Business Bureau system.

As in the physical world, information on a charity's Web site should be clear and understandable.

"A huge red flag is if you can't understand after reading it what happens to the money," said Richard Cox, chief executive and co-founder of Entango in San Jose, Calif., which provides electronic fund-raising tools for nonprofit organizations. "There's nothing that needs to be difficult about online philanthropy."

When making an online donation on a charity's Web site, make sure the site is secure so your personal financial information won't be exposed for all the cyberworld to see.

"There's even a little bit more potential for abuse because there's a greater degree of anonymity that's possible on the Internet," Ms. Monse said. "Internet fund-raising is really wide open."

Make sure you get a confirmation or transaction number so you can track your online donation, Mr. Cox said.

"Stick to donating on the nonprofit's Web site because you know it's going to the nonprofit itself," said Cathryn Poff, Entango director of marketing and business development.

That's preferable to going to an online shopping site that says purchases will benefit charities, experts said. The same advice applies to retail stores in the physical world that make such statements.

"You're making a purchase, not making a donation," Ms. Kopko said.

"You're relying on the company that's making that assurance to make that donation. It should be clearly labeled the amount and portion that's being donated, the name of the charity and how to contact the charity."

Efficient donations

The bottom line in your research should be how to get the biggest bang for your charitable dollar.

"You can have the best agency in the world, but maybe you give money to them in a way that's not very efficient, like buying magazines where they only get a small cut," Ms. Monse said.

"The better way is to write them a direct check. On the other hand, you can have an agency that's not very effective, but you can make a gift in an efficient way."

Before you donate

*Check out the organization's background. Make sure it has a clearly stated purpose and a program consistent with that purpose. Don't be afraid to ask lots of questions.

*Make sure the charity has reasonable expenses. You want the bulk of the money to go toward the people the organization is aiming to help.

*Ask the charity to provide you with a copy of its Form 990 that its files each year with the Internal Revenue Service. The law requires charities to give you a copy of that document, which contains detailed information on the organization's finances, leaders and key employees.

*See if you can make direct donations to a charity instead of going through third-parties such as telemarketers, which get a cut of the funds.

SOURCE: Dallas Morning News research

RESOURCES

There are many resources available to check out a charity before you give your money. Here's a list you should keep handy:

*Texas Attorney General's Office

The attorney general's Web site has a free brochure on charitable giving. The Web site is at http://www.oag.state.tx.us/. Click on "Consumer Protection," then "Online consumer protection brochures" and "Giving to Charities." If you have a complaint about a specific charitable solicitation, contact the Charitable Trusts Section of the attorney general's office at 1-800-621-0508.

*Council of Better Business Bureaus

The umbrella organization for the Better Business Bureau system has published a free special holiday edition of its quarterly newsletter "Give But Give Wisely." You can download a copy of the brochure at http://www.bbb.org/, then clicking on "Charity Reports & Standards."

You may also send a self-addressed, stamped envelope to "Holiday Giving," Council of Better Business Bureaus, 4200 Wilson Blvd., Suite 800, Arlington, VA 22203-1838.

The organization's Web site also has reports on charities and other soliciting and nonprofit organizations. These reports typically include information on the group's background, current programs, governing body, fund-raising practices, tax-exempt status, finances and indication of whether the organization complies with the 23 voluntary bureau standards for charitable solicitations.

National Charities Information Bureau

The New York organization issues reports on charities and evaluates whether they meet the bureau's standards, which include an active and responsible governing body, a clear statement of purpose, a program consistent with that purpose, and ethical publicity, fund-raising and promotion.

The bureau doesn't accept donations from organizations it evaluates and derives half of its funding from individual contributors. It doesn't advise you whether to give to any particular charity, leaving that decision to you.

The bureau's Web site is at http://www.give.org/. Reports on a charity are $9.95 each and may be ordered by using a credit card and calling 212-929-6300.

You may also mail your report request and payment to NCIB, 19 Union Square West, New York, N.Y. 10003. You'll need to indicate the number of the report you want. The number is a four-digit code following each charity listed on the "Quick Reference Guide" link on the Web site.

Philanthropic Research Inc.

The organization's Web site at http://www.guidestar.org/ has information on more than 620,000 public charities. Charities listed on this site come directly off Internal Revenue Service records and have tax-exempt status.

Consumers will find enhanced data on many of these organizations, along with the group's current financial documents.

*American Institute of Philanthropy

The institute is a nonprofit charity watchdog and information service that helps donors make informed giving decisions. The institute, which is funded by the public, has on its Web site at http://www.charitywatch.org/ tips for giving wisely, as well as information on charities it rates and its method of grading charities.

SOURCE: Dallas Morning News research

Pamela Yip covers personal finance for The Dallas Morning News. Is there a personal finance subject you'd like to read more about? E-mail her at pyip@dallasnews.com



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