Finding your way among thousands of organizations seeking your donations is not always easy. How do you recognize a reputable donation organization? DONARE has compiled some information on what to look for to distinguish reputable charities from less trustworthy fundraisers. First of all, the humanitarian organizations selected on the website are all considered reputable and trustworthy. If there is reasonable doubt about this, the humanitarian organizations will no longer be featured, their fundraising will no longer be supported.
Charitable organizations (Section 501(c)(3)-organizations)
Tax exempt under Internal Revenue Code Section 501(c)(3)
A good resolution is to donate only to tax-exempt charitable organizations if possible. Organizations described in section 501(c)(3) Internal Revenue Code are commonly referred to as charitable organizations. Most of these organizations are eligible to receive tax-deductible contributions in accordance with Code section 170. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. Section 501(c)(3) organizations are restricted in how much political and legislative lobbying activities they may conduct, i.e., the organization may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Tax exempt means the organization does not have to pay taxes. Tax deductible means the donor can deduct contributions to the charity on his or her federal income tax return. An organization can be tax-exempt under section 501(c) (3) of the Internal Revenue Code, but it should also be eligible to receive contributions deductible as charitable donations for federal income tax purposes.
Check and confirm
But how does one find out whether an organization is pursuing charitable purposes? You can find the information on the website or in the official communication of an organization. First check if the donation will be tax deductible and then confirm that the organization, you’re donating to is registered with the Internal Revenue Service (IRS) as a tax-exempt organization. You can look up the organization in the IRS’s Tax Exempt Organization Search.
Is this enough?
Registration as a charitable organization is a prerequisite for donations to such an organization to be tax deductible. In addition, registration is an important prerequisite that an organization can be considered reputable. But this is not enough on its own. Even organizations recognized as charitable can operate in such a way that they must be judged to be less than trustworthy, for example, if only a small portion of the income is actually spent on charitable purposes, inappropriately advertising is used, or opaque organizational structures prevail.
There are well-founded exceptions for serious donations to organizations that are not recognized as Section 501(c)(3) -organizations in the United States. Such an exception can be private small initiatives, about which one knows well and trusts to make one's own picture. Or donations to charitable organizations abroad that might be not covered by US tax laws but are recognized as charitable in other countries. In both cases, however, the donations are not tax deductible in the United States.
Do some research on charitable organizations
Check out charity evaluation websites that try to help you finding trustworthy and reputable charity organizations. You can use one of the following organizations that help you research charities.
BBB Wise Giving Alliance
BBB Wise Giving Alliance is a standards-based charity evaluator that seeks to verify the trustworthiness of publicly-soliciting U.S. charities by completing evaluations based on 20 standards for charity accountability.
Charity Navigator is an organization that evaluates U.S.-based charitable nonprofits and awards them seals of approval if they meet certain criteria. The charities must be tax-exempt and disclose their finances annually.
Founded in 1992 as the American Institute of Philanthropy (AIP), CharityWatch is an independent charity watchdog in the United States.
Candid Guide Star
Candid Guide Star is an information service specializing in reporting on U.S. nonprofit companies.
Size and history
Another important yardstick for determining the seriousness of a humanitarian organization is simply its size and history. Well-known fundraising organizations that collect many millions in donations each year cannot afford to operate poorly and with a lack of transparency. They have a lot to lose. Moreover, these renowned organizations can prove the seriousness of their work over many decades. Caution is therefore more advisable with new organizations and small aid organizations.
Proportion of expenditure on administration and fundraising
One possible measure to judge an organization can be to look at its spending structure, i.e., how much money goes to program work versus administration and advertising. DONARE recommends the following distinction:
organizations that use more than 90 percent of revenue or donations for their purpose.
organizations that use more than 80 percent of revenues or donations for their purpose.
organizations that use more than 70 percent of revenues or donations for their purpose.
organizations that use more than 60 percent of revenues or donations for their purpose.
You can learn more and see for yourself in DONARE: Where does your money go?
Advertising practices and poor service
Aggressive advertising by mail, TV, Internet or on the street is not proof of a lack of seriousness in the work of a donation organization, but it does cast doubt on an organization and its practices. If you are affected by this, you may consider entrusting your money better to another donation organization. The same applies in the case of poor donor stewardship by an organization. There are always alternatives. You do not have to put up with this. If in doubt, cancel a permanent donation and find another organization.
If dubious practices become known or mistakes made by organizations, one should be careful not to demonize an organization. Critical reporting and public monitoring are important and helpful. In most cases, however, the work of the organization is not in danger. Particularly in the case of large international organizations, it is hardly surprising that individual member or country organizations may also make mistakes.
Donating has a lot to do with trust. The best way to do this is to inform yourself a little, trust your own instincts and don't be credulous.