Where Are Your Charitable Gifts Really Going?

Tips for Wise Giving

November 2013

Americans are generous people. Each year individuals contribute billions to worthy organizations and causes. That’s about 80% of all charitable giving in the U.S. Unfortunately, such generosity attracts fraudsters and profiteers. As a wise donor, you want to make sure that your charitable gift dollars are used wisely and responsibly. You also want to avoid those scam artists and phony charities that prey on people's generosity.

The resources in this report can help you check out a nonprofit organization (NPO) or charitable cause before you give as well as educate yourself more fully as a donor. If you take a little time to check out organizations and causes that interest you, your gift dollars can have the impact you desire.

Be an Informed Donor

  • Never give on impulse.
  • Don't immediately say yes or give personal information to an unsolicited phone call or email.
  • Check the charitable organization's record of accountability.
  • Give by check or credit card, not cash.
  • Keep a record of the gift.
  • Stay alert for names that are similar to well-known organizations.
  • Consider planning your regular giving in advance.

First, Be an Informed Donor

  • Never give on impulse. For example, you may be moved to donate quickly to help victims of a natural disaster or a tragedy. Or you may get a holiday phone call from what sounds like a well-known nonprofit organization. Never say yes without checking out the organization.
  • Don’t immediately say yes or give financial information to an unsolicited phone call or email. Phony charities specialize in using phone calls (and emails) to spin a rosy picture of their programs. If you like the cause, insist on written information about the organization and how your gift will be used. Phone calls and emails aren't enough. Written materials should include the organization's name, address, phone number and mission; how your gift will be used; and proof that gifts to the organization are tax-deductible (or a clear statement that they are not). Unwillingness to send written information is a red flag; hang up.
  • Check the charitable organization's record of accountability. Use one or more of the monitoring sites in the next section to review the organization's record. Don't fall for a touching story not backed-up by facts and a track record. There are many organizations that have properly registered with the IRS as a not-for-profit and have filed appropriate forms but give to their stated mission or program only a very small percentage or none of the money donated.
  • Give by check or credit card, not cash. This is a good practice whether you are responding to a solicitation or have identified the organization yourself. Make a check out to the organization, never an individual. Say no to any solicitation that offers to pick up the check immediately in person—this is a classic scam technique. Using a credit card, not a debit card or direct checking account transfer, when giving online (or over the phone) may provide more protection from fraudsters.
  • Keep a record of the gift. Such records include a receipt from the recipient, cancelled check, and bank or credit card statement. Use these to support the deduction on your tax return.
  • Stay alert for names that are similar to well-known legitimate organizations. Some phony charities will pick such similar names to duck under a donor's radar. Check these groups out very carefully.
  • Consider planning your regular giving in advance. Many financial planning experts recommend that you plan ahead for most of your annual giving. Identify and research the types of programs and organizations you support as part of your annual budgeting process. Then make the planned donations part of your budget. You can reserve a certain amount to respond to emergency needs such as providing natural disaster relief.

Next, Research Charitable Organizations

Even if you request written information from an organization or thoroughly review their website(s), you will want to do some independent research. The following organizations and websites provide a variety of information to help you assess charitable organizations.

BBB Wise Giving Alliance, offers reports on individual charities, a discussion of standards, a way to request information or file a complaint, and many other resources.

CharityWatch, formerly known as the American Institute of Philanthropy, describes itself as a charity watchdog and information service. They provide reports on individual charities and general information.

GuideStar is a national database of nonprofit organizations that is produced by Philanthropic Research, Inc., itself a nonprofit organization that provides information on hundreds of organizations. Free registration is required for detailed information.

The following resources provide more tips:

Charity Scams has lots of articles including Before Giving to a Charity which includes the Charity Checklist from the Federal Trade Commission

Tips for Giving Wisely from the American Institute of Philanthropy

America’s Worst Charities is a 2013 three-part investigative report from the Tampa Bay Times in collaboration with the Center for Investigative Reporting and CNN. It profiles 50 not-for-profit charities that are properly registered with the state and IRS but give less than 10% of proceeds (often 1% to 3% or even zero) to the people or causes they claim to benefit. The report can help you see what to look for as you evaluate charities.

Beware of These Red Flags That May Signal Fraud

Phony charities and even some seemingly legitimate organizations may use these deceptive practices. We suggest you think carefully before giving to any group that uses any one of these tricks.

  • Calling the organization "tax exempt" to imply that your gift will be "tax deductible." An organization's being tax exempt doesn't automatically mean that gifts to it are tax deductible. An organization to which gifts are tax deductible typically will have a 501(c)(3) designation from the I.R.S.
  • Formatting appeal letters as a bill or invoice. In our opinion, this practice is deceptive even if the material states somewhere that it is not a bill.
  • Mentioning (in a call or letter) a pledge that you did not previously make. Hang up on the call or tear up the letter.
  • Demanding payment for merchandise you didn't order. This practice is illegal—if they actually sent something you did not order, you don't have to pay for or return the merchandise.

    This is true, too, of the notepads, address labels, and even nickels or dimes some fine organizations may send. These organizations, however, clearly state that the merchandise is a gift to thank you for considering their appeal, not a demand for payment.

Be Smart When Giving Online

Many legitimate organizations are turning to “crowdfunding” to support specific projects or even their general program. Such giving opportunities may come through specific crowdfunding organizations and websites or from stand-alone websites. Such websites promise that giving is "quick" and "easy" and “just a few clicks.”

There are many different kinds of sites, however, and the reliability of the field as a whole is largely untested. Among the sites are useful services, unreliable sites, and scam artists. How can you tell the difference? Do your homework. Find out who's behind the site. Is it a for-profit site? Does it charge a fee for its services? How much of your donation goes to the charity? Is the charity you wish to give for comfortable receiving gifts through the site? What's the status of tax deductibility?

At present the smartest way to give online is probably to give directly through your charity's own website if possible. (Even if you receive an email or text from a charity you’ve previously donated to, we recommend not clicking on any links in the email or text, but go independently to the charity’s website to give.) If you can’t give directly through the charity’s website, check out the e-giving service carefully.

Additional Resources for Becoming a More Informed Donor

What You Need to Know to Donate Safely Online offers tips from CharityWatch.org.

How to Read the New IRS Form 990, written by Peter Swords for the Nonprofit Coordinating Committee of New York, explains how to read and interpret the Form 990 that nonprofit organizations are required to file each year with the I.R.S. These forms provide donors a primary means of checking on accountability.

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