Private Foundation and Donor-Advised Fund Grantmaking Officially Made Easier
If there was ever any doubt in your mind about relying on third-party verification of a nonprofit organization’s non-private foundation status, worry no more. On June 30, 2009, the Internal Revenue Service (IRS) issued an official revenue procedure stating that private foundations, as well as sponsoring organizations that maintain donor-advised funds, may rely on third parties, such as GuideStar’s CharityCheck, for determining whether a designated 501(c)(3) organization is further classified under section 509(a)(1), (2), or (3) under the Internal Revenue Code.
This follows the issuance by the IRS of two notices providing interim guidance on new rules imposed by the Pension Protection Act (PPA) of 2006 for private foundation and donor-advised fund grantmaking to supporting organizations. Notice 2006-109, 2006-2 C.B. 1121, issued December 18, 2006, stated that a grantor, acting in good faith, might determine a potential grantee’s public charity classification for the purpose of the excise taxes imposed on grants to certain types of supporting organizations either directly from the IRS Business Master File (BMF) or from the organization’s current IRS letter.
Recognizing the complexities of obtaining this information from the BMF file, which due to its size must be downloaded and uncompressed in its entirety on a monthly basis, in March 2007 the IRS posted a document on its website with additional interim guidance specifying that BMF data from a third party may also be relied upon so long as the third party provides a report including: 1) the grantee’s name, EIN (Employer Identification Number) #, and public charity type [509(a) (1), (2), or (3)]; 2) proof that the information is from the most recently updated version of the BMF, along with that date, and 3) the date and time of the grantor’s search. Additionally, this report must be stored in hard copy or electronic format. Now, with the release of Rev. Proc. 2009-32, this alternative has been formalized and made official IRS policy.
Grantmakers, sleep peacefully tonight!