990 HOWTO

I’m following up on Kate’s post for charity.

One of the requirements for a tax deduction is that the charity must qualify under section 501 (c)(3) of the IRS code.

So your dues to a fraternal organization are not. While the Sororal Order of Wombats is a not-for-profit as far as IRS is concerned, it is not a 501 (c)(3). This why yesterday my donation of books was made to the Friends of the Yardley-Makefield Library. The library itself is an instrument of the Commonwealth of Pennsylvania and so does not qualify.

The IRS requires a tax return from these charities, and it is a public document. (Your tax return is not.) The form itself (990) is complicated, having been developed by government accountants. However, it contains much useful information.

So I went to http://foundationcenter.org/find-funding/990-finder. The name on my receipt got nothing; as is fairly common, Friends of the Library is part of an umbrella group. Entering 232096799 (no dashes please) got me the tax return (990EZ) for Pennsylvania Citizens for Better Libraries. (Note: We looked at form 990EZ—the EZ really means something. The same information can be gleaned from a 990, but it’s arranged differently.)

Second, from part I, Citizens for Libraries is small. Total expenses were $20,621, of which $3,500 was grants. No fundraising fees were paid.

I looked at part III on page 2, Statement of Program Service Accomplishments:

Advocate for support of local libraries by collaborating with other library associations, agencies and community groups in order to improve library funding and related services lead efforts to encourage, train and support library friends,

The advantage of a small charity is right here in part III. Things can quickly get out of control. Planned Parenthood, which I also searched, is an umbrella group whose members have a variety of goals—I got 677 results across the states. The national organization filed a 158-page return. Where to send your money?

Back to the library. Also in part III, just to the right of the accomplishments, is the cost: $16,271. That is, 79% of its budget is expenses related to program.

The board of directors is all volunteers; compensation, of which they receive none, is listed on this part IV schedule.

I skipped over part V because all the answers were either blank or no. If you see a yes answer, read the question. [Or pick another charity. —KD]

Part VI is a different matter. Here you will find highly compensated employees. PCBL has no employees, but most do.

Schedule A is a complex form to determine whether the charity continues to qualify as a 501 (c)(3). Once one of my clients formed a new charity to build a low-income housing. In her first year she received a large grant for that purpose and for the following four years she worked at getting the approvals and additional funding needed. She flunked one of the tests on Schedule A because after year 1 all of her revenue was derived from investments.

The short answer: Look at section D of part III. Is 19a checked?

We’ve discovered several things. First is who we are dealing with. My receipt says Friends of the Yardley-Makefield Library and gives the EIN (employer identification number), which led to the actual charity.

Second, the size and scope. There are no employees, so expenses are small.

Third, the charitable purpose. We were lucky; it is understandable. [As Planned Parenthood’s is not; it consists of one 86-word sentence to accommodate all 677 member organizations. We thought of reproducing it here, but you don’t want to read it anyway. —KD]

Fourth, who is active in this charity—the board of directors. They are not compensated, nor do they work for a related organization. [This means the charity is not a shill for a soulless corporation. —KD]

Fifth, 79% of the money it spent went toward its stated purpose.

These are all good signs: all-volunteer labor, a readable mission statement, high proportion of revenues going to program, independence from overweening corporate influence. I bask in my glow of virtue.

 

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