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Fraudulent Charities: How to Protect Yourself

Giving is worthwhile only when your money reaches the cause you intended. A little verification up front protects both your donation and your tax deduction.

How states regulate charities

Most state governments regulate charitable organizations, typically through a division of the state Attorney General or Secretary of State. States don't endorse or approve charities as "good," but most do require registration and annual reporting: filing the organization's name, address, and purpose, and submitting financial statements each year, often satisfied by the same IRS Form 990 the charity files federally.

Churches and very small charities are frequently exempt from these registration and reporting rules. Some states also regulate professional fundraisers directly, requiring them to register and post a bond, sometimes as high as $50,000, to cover potential fines or penalties. Before donating to an unfamiliar organization, contacting the relevant state agency is the fastest way to confirm it's properly registered and see its financial filings.

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How the IRS regulates charities

To receive federal 501(c)(3) tax-exempt status, an organization must file documents proving it operates for a qualifying charitable, educational, religious, scientific, or literary purpose. The IRS evaluates whether the paperwork meets the Code's technical requirements; it does not evaluate whether a charity is well-run or worthy of your support. When approved, the organization receives a formal Determination Letter and becomes eligible to receive tax-deductible contributions. Churches and very small charities, generally those with under $5,000 in annual income, aren't required to apply for exemption at all.

You can request copies of three public documents for any charity: Form 1023 (its original exemption application), its IRS Determination Letter, and its Form 990 (the annual financial return, which discloses income, expenses, assets, and the salaries of its five highest-paid employees). The IRS's Tax Exempt Organization Search tool at irs.gov is the fastest way to confirm current status before you give.

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How to file a complaint

Complaints are uncommon but do happen, typically when promised materials or sweepstakes prizes never arrive, or when a donor wants off a charity's mailing list. To file one effectively: put it in writing, attach copies of any relevant documents such as canceled checks or mailing labels, and send it to the BBB Wise Giving Alliance or your state attorney general's office. If the complaint involves potential misuse of funds rather than simple wastefulness, contact the IRS directly. Mail-based solicitation fraud can also be reported to the U.S. Postal Inspection Service.

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Where to verify a charity

Before giving to an organization you don't already know well, a few minutes of checking can save real disappointment. Your state's charity registration office (usually under the Attorney General) can confirm registration status and share financial filings. Your local Better Business Bureau can tell you whether complaints have been lodged. And the IRS's own search tool confirms current federal tax-exempt status directly.

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Frequently asked questions

Does IRS tax-exempt status mean a charity is trustworthy?

No. The IRS confirms an organization meets the technical requirements for 501(c)(3) status; it doesn't evaluate whether the charity spends donations efficiently or as promised.

Are small, local charities required to register with the state?

Often not, small charities and churches are frequently exempt from state registration and annual reporting requirements, though this varies by state.

Where can I see how much of my donation actually goes to the cause?

A charity's Form 990 discloses income, expenses, and staff salaries. Many charities also make it available directly on request, since they're required to have a copy on hand for public inspection.

This guide is for general informational purposes only and is not tax, legal, financial, or investment advice. Every business situation is different, so consult a licensed professional before making decisions based on this content.