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No
doubt about it -- Americans are generous. Seventy percent to 80 percent of us contribute
to at least one charity each year, says the American Association of Fundraising
Counsel.
However,
if you've ever found it difficult to figure out exactly how the organizations
that solicit support are using your funds, you're not alone. Seventy percent of
the people surveyed by the Council of Better Business Bureau's Wise Giving Alliance said it was hard to know if a charity is legitimate and operates ethically.
With
a bit of legwork, you can determine which charities are most likely to use your
contributions prudently. As a starting point, you'll want to verify that an organization
actually is a charitable group. Not all nonprofit groups are charities. Many trade
and lobbying organizations, for instance, are nonprofit groups, but not charities.
While you can support these groups, your donations are not tax-deductible.
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990
proof
To find out if a group is a charity,
you'll want to see its Form 990. The charity files a Form 990 with the federal government.
This financial report provides information on the organization's tax status and
programs, and shows how it is using its funds.
Charities
are required to provide Form 990 when requested, although they can charge a reasonable
fee for it, says Daniel Borochoff, president of the Chicago-based American Institute
of Philanthropy.
One exception: Churches,
synagogues and other places of worship generally do not need to file Form 990.
Don't be misled by organizations
providing what's known as a "tax ID number." These numbers do not show
that an organization is a charity; they're simply IRS-required employer identification
numbers. Michael Nilsen, public affairs manager with the Association of Fundraising
Professionals in Alexandria, Va., says he would be suspicious of any group whose
members tried to use its tax ID number to gain your support.
Also
take a discriminating look at the organizations' marketing materials.
"Watch
out for appeals that make you cry vs. think, or if they go on about the problem, but
don't tell you what the charity is doing," says Bennett Weiner, chief operating
officer with the Wise Giving Alliance. Solicitations for contributions should
accurately convey the work the charity is doing.
Checking
the numbers
How can you tell how effectively a group uses its resources?
Again, Form 990 can help, as it shows how much the group spent on programs, administration
and fundraising activities.
However, the forms can be overwhelming.
Those submitted by national charities often run dozens of pages, and the charities
typically have more than one.
Borochoff recommends asking
for the organization's combined audited financial statement, which includes financial
information on all of an organization's entities. Many states require audits from
charities that receive more than $100,000 in donations.
However,
charities are not required to release audits. If that's the case, you can get
one from your state; typically you would contact the secretary of state or attorney
general. However, this is likely to be an involved process. In addition, you may
want to re-think your support of an organization that won't provide a financial
statement. Reputable charities should encourage your interest in them.
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