Comprehensive due-diligence tool protects grantmakers from excise taxes

Release Date: July 21, 2009

Washington, D.C., and Williamsburg, Va.—GuideStar, the leading source of nonprofit information, is pleased to confirm that GuideStar Charity Check, its due-diligence tool for grantmakers, meets all of the criteria outlined in IRS Revenue Procedure 2009-32 for third-party providers of information that verifies whether a potential grantee is a supporting organization.

The Pension Protection Act of 2006 imposes new requirements on private foundations and donor-advised funds that make distributions to certain types of supporting organizations; a public charity’s classification under section 509(a) of the U.S. tax code identifies whether or not it is a supporting organization. Grantmakers may be required to pay excise taxes on grants and distributions made to certain supporting organizations and to exercise additional due diligence on such grants and distributions; to avoid these taxes and additional due-diligence requirements, the grantmaker must confirm a grantee’s section 509(a) status before making the payout.

Released June 30, 2009, IRS Revenue Procedure 2009-32 provides IRS guidance for determining whether a grantee is a supporting organization. It allows grantmakers to rely on a third-party source of IRS Business Master File (BMF) information for this purpose, as long as that information is provided in a report that shows:

1. "the grantee’s name, Employer Identification Number, and public charity classification under § 509(a)(1), (2), or (3)";
2. "a statement that the information is from the most current update of the BMF and the BMF revision date"; and
3. "the date and time the information was provided to the grantor."

For full compliance, the report must also be "in a form that the grantor can store in hard copy or electronically."

"GuideStar Charity Check meets all of the criteria outlined in Revenue Procedure 2009-32 for a third-party provider of BMF information," stated Bob Ottenhoff, GuideStar’s president and CEO. "Grantmakers can rely on Charity Check to ensure compliance with the Pension Protection Act. A Charity Check report also presents IRS Publication 78 data, which IRS regulations require grantmakers to use to verify grantees' public charity status. By using GuideStar Charity Check to verify grantees' charitable status, grantmakers can protect their organizations from excise taxes on their payouts."

"Previously, IRS guidance on the use of third-party information to verify charitable status was available only on the IRS Web site," noted Suzanne Ross McDowell, a partner with Steptoe & Johnson in Washington, D.C. "It was hard to find and of questionable precedential value, causing some grantmakers to shy away from using third-party data at all. Revenue Procedure 2009-32 formalizes this guidance, making it clear to grantmakers that it is safe to rely on third-party sources of BMF information to comply with the Pension Protection Act of 2006."

About GuideStar

GuideStar, www.guidestar.org, provides information on the programs and finances of more than 1.8 million IRS-recognized nonprofits.