Is it a Qualified Charity to Take a Deduction?

The IRS will allow individuals and businesses to deduct charitable contributions, but only if the organization that receives the contributions qualifies as described in IRS Publication 526ⁱ. Despite these qualifying rules, the IRS says: “If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive.”

Now that the basic rule is defined, here are the qualified and non-qualified organizations as defined by the IRS.

Qualified Organizations

Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization.

1. Community chest, corporation, trust, fund, or foundation created in the U.S. or its possessions and organized only for charitable, religious, scientific, literary, or educational purposes. Those formed for the prevention of cruelty to animals or children also can qualify, as well as some organizations that foster national or international amateur sports competition.

2. Organizations for War Veterans or their benefit, including posts, auxiliaries, trusts, or foundations. Again, only those formed in the U.S. or its possessions can qualify.

3. Domestic associations, fraternal societies, or orders can qualify, but only if they meet the other requirements in (1) above.

4. Some nonprofit cemetery companies or corporations can qualify. However, your contribution is not deductible if it goes to the care of a specific lot or crypt.

5. If your contribution is to be used only for public purposes, you can deduct contributions to the United States, any state, the District of Columbia, or political subdivisions of those entities.

6. Churches, associations of churches, temples, synagogues, mosques, or other religious organizations are qualified.

7. Most nonprofit organizations such as the American Red Cross and United Way.

8. Many nonprofit educational organizations, colleges, museums.

9. Organizations such as scouting organizations.

10. Many childcare or daycare centers can qualify if they provide childcare to all children that enable parents to be employed. However, if your contribution is a substitute for tuition or enrollment fees, it is not deductible.

11. Nonprofit medical research organizations or nonprofit hospitals.

12. Civil defense organizations, volunteer fire companies, utility company energy programs if the utility company is acting as an agent of a charitable organization.

13. Organizations that create or maintain public parks and recreation facilities.

14. Non-U.S. charities may qualify in Canada, Mexico, and Israel, but rules are complicated, so consult your accounting or tax expert.

That is a long list, so every business should be able to find one or more charitable organizations that they want to help.

Nonqualified Organizations or Entities

Organizations that are usually not qualified include:

1. Many state bar associations if they are not a political subdivision of the state, have both public and private purposes, or if your contribution can be used for private purposes.

2. Business leagues and chambers of commerce.

3. Civic associations and leagues.

4. Country clubs, social and other clubs.

5. Foreign organizations, excepting those covered under (14) above.

6. Homeowner associations.

7. Political organizations or candidates.

8. Labor unions.

All of these are in IRS Publication 526, but there are nuances and exceptions, so a tax consultant is a good idea before making significant contributions with the expectation of deductibility.

i IRS Publication 526, Charitable Contributions