New IRS Guidelines Alter Grantmaking Practices

GuideStar Charity Check facilitates compliance with the Pension Protection Act of 2006
Release date: April 12, 2007
Williamsburg, Va., and Washington, D.C.—GuideStar, the leading provider of nonprofit information, has upgraded its Charity Check service to meet recently released IRS guidelines for verifying an organization’s public charity classification under section 509(a) of the U.S. tax code, as required by the Pension Protection Act of 2006.

The act adds three new 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, private foundations and sponsors of donor-advised funds must determine whether potential grant recipients are supporting organizations under section 509(a)(3).

The IRS has advised grantors to use IRS Business Master File (BMF) data to verify a charity’s 509(a) status. Late last month, the IRS issued guidance allowing grantmakers to rely on third-party providers of BMF data, as long as the information is presented in a report that shows:

  1. "the grantee’s name, Employer Identification Number, and public charity classification under section 509(a)(1), (2), or (3)";
  2. "a statement that the information is from the most-currently available IRS monthly update to the BMF, along with the IRS BMF revision date"; and
  3. "the date and time of the grantor’s search."
For full compliance, "the report must also be in a form which the grantor can store in hard copy or electronically."

GuideStar Charity Check meets all of these criteria. Charity Check provides instant, on-line access to BMF data, and BMF updates are seamlessly integrated into the service. Grantmakers can search for organizations by name or EIN (Employer Identification Number), determine at a glance whether a charity is a supporting organization, and print date- and time-stamped reports or save them to PDF.

"Private foundations and donor-advised funds play a critical role in the nonprofit sector," stated Bob Ottenhoff, GuideStar’s president and CEO. "They provide the seed money for new initiatives, funds to sustain and expand existing programs, and money to support the sector’s infrastructure. I am proud that GuideStar Charity Check can help these vital organizations work more efficiently and effectively and to ensure that their activities are in full compliance with the law."

"The new IRS guidance will make it much easier for grantmakers to comply with new requirements," said Suzanne Ross McDowell, a partner with Steptoe & Johnson in Washington, D.C. "The IRS is to be commended for responding promptly to comments requesting that grantmakers be permitted to rely on third parties to obtain information from the IRS Business Master File."

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