Grantmakers searching for more detailed information about the charitable status of their potential grantees may find the answers they need in the IRS’ Select Check tool.
This IRS online search tool allows the user to:
(1) search the IRS public charity list, known as IRS Publication 78, for data to determine if an organization is charitable,
(2) determine if an organization has filed a Form 990-N (required for smaller charities), or
(3) identify if an organization has had its tax-exempt status automatically revoked because it has not filed its Form 990 for three consecutive years.
This search portal also allows grantmakers to search organizations by a number of categories. An added bonus is that the data is updated monthly, instead of quarterly. This should provide grantmakers access to more timely and accurate information.
Help for Grantmakers to Supporting Organizations
One updated feature expected to be popular to many grantmakers is the ability to see the IRS’ classification of a grantee’s supporting organization status. Previously, grantmakers often could not learn a supporting organization’s exact type through Publication 78. Using Select Check, grantmakers are able to view whether a potential public charity grantee is a (1) Type I, Type II, or functionally integrated Type III supporting organization; (2) a non-functionally integrated Type III supporting organization; or (3) a supporting organization of an unspecified type. Unfortunately, many supporting organizations will be listed as “unspecified type.“ Despite this limitation, the new data may allow foundations to avoid having to search the more cumbersome EO Business Master File to determine whether a grantee is a supporting organization. This is important for private foundations and public charities making grants from donor advised funds because grants to some of these types of public charities require the grantor foundation to follow the expenditure responsibility rules and not count the grants toward their minimum distribution requirement. These restrictions apply if the grantee is:
- A Type III non-functionally integrated supporting organization
- Any type of supporting organization, if one or more disqualified persons of the private foundation control directly or indirectly either the supporting organization or an organization supported by the supporting organization.
Users may rely upon the data in Select Check to determine if these additional steps are required. The Council's online Pension Protection Act resources provide additional background on these rules.
Reliance on Search Tools
IRS guidance (Revenue Procedure 2011-33) provides that grantors may rely on the data found using Publication 78 data, or the Exempt Organizations Business Master File data to determine if the organization is a charitable organization and whether or not it is a supporting organization. However, the guidance is clear that grantors cannot rely on such data if the IRS has subsequently publicly announced the change in status through the Internal Revenue Bulletin, its website or other means. For this reason, grantors should consult the automatic revocation list available from Select Check when conducting their due diligence. The one caution with the automatic revocation list is that once an organization is placed on that list, it will not be removed from the list even if its charitable status is later reinstated by the IRS (unless the initial listing was erroneous). For this reason, if a potential grantee appears on the automatic revocation list, and believes its public charity status has since been reinstated, prior to making a grant, foundations should obtain documentation of the grantee's reinstatement. Such documentation could include evidence that the grantee is currently listed on Publication 78, or a ruling date in the Business Master File or on the grantee's new letter of determination that is dated later than the automatic revocation date. Foundations can also confirm an organization's status by calling the IRS (toll-free) at 1-877-829-5500.
IRS guidance also confirms that organizations may continue to rely on data obtained from third parties like Guidestar so long as the grantor receives and retains a report that includes:
(A) the potential grantee's name, employer identification number, foundation status under § 509(a)(1), (2), or (3) (including supporting organization type, if applicable), and whether contributions to such organization are deductible;
(B) a statement that the information is from the most current update of the Exempt Organization's Business Master File (BMF) extract and the BMF extract revision date; and
(C) the date and time the information was provided to the grantor.
The Council encourages all private foundations and public charities making grants from advised funds to understand the rules for grants to supporting organizations and put due diligence procedures in place to determine when expenditure responsibility is required. Hopefully this new tool will make the process a little easier.
For more information, see the IRS’s Select Check Frequently Asked Questions.