GRAND RAPIDS, Mich. (WOOD) – A 501(c)(3) designation seems to add a bit of credibility to a charity, but Target 8 uncovered it’s not that difficult to get that tax designation.
“Very few requests for 501(c)(3) status are rejected by the IRS,” said analyst Stephanie Kalivas, who looks at charities and their financial data for Chicago-based independent watchdog group Charity Watch.
Target 8 found in an IRS yearly data book that in both 2012 and 2013, the agency approved about 99.7 percent of the tens of thousands of completed applications it received.
That translated to dozens of applications that were “disapproved.” That percent does not factor in the more than 8,000 applications that were incomplete or withdrawn for each of those years.
Target 8 decided to test the safeguards in the system by attempting to form a 501(c)(3).
A new 501(c)(3) requires a board of three distinct individuals, but never states those individuals have to be human or really anything more than a name on a piece of paper.
A 6-year-old Maltese dog named Dexter seemed to be the perfect choice to be the leader of the test 501(c)(3). Target 8 never signed his name on any documents.
Dexter’s 501(c)(3) supported a cause near and dear to his heart — his very own hungry dog association.
The mission? “To provide spiritual and physical nourishment to dogs associated with Dexter’s Hungry Dog Association.”
Target 8 asked Kalivas why she thinks the IRS doesn’t do more to check out who is on the boards of organizations that apply for tax exemption status.
“I think some of it has to do with the budget constraints, you know, of the governments and of the charitable section of the IRS,” Kalivas said. “And once you do garner the [501c3] status, you do have to continue to comply with tax filings and that sort of thing that will hopefully help legitimize the fact that you are an operating 501(c)(3).”
Target 8 obtained no legal advice, paid the $400 application fee and dropped it in the mail last August and then waited.
Target 8 didn’t solicit money, because fraud was not the goal of the test. However, Dexter’s Hungry Dog Association could have solicited funds, as the IRS states that if an organization is even in the process of applying for 501(c)(3) tax exempt status, it can act as a 501(c)(3).
About six months after sending in the application, Target 8 received a letter from the IRS that the application had been approved.
Kalivas was shocked at the results of the Target 8 test.
“So there was no verification as to who that CEO was?” Kalivas asked.
Target 8′s application didn’t raise a single red flag. To try to get answers as to why, Target 8 emailed and called the local media representative for the IRS for several months and even stopped by his Detroit office, where he was said to be out.
Usually, the next step for a new 501(c)(3) is to register with the state to solicit donations.
Target 8 asked Joy Yearout, a spokeswoman for the Michigan Attorney General, if charities that have received 501(c)(3) status are usually approved to solicit funds at the state level.
Yearout described it as a “pretty straightforward process” as long as the 501(c)(3) provides copies of financial information and discloses information and who sits on the non-profit board.
Target 8 then told Yearout about Dexter’s Hungry Dog Association.
Yearout’s first concern was for the people of the state of Michigan. She asked whether Target 8 had submitted an application to solicit funds. Target 8 hadn’t, since the goal was not to commit fraud.
However, as long as the charity is run by volunteers and doesn’t raise more than $25,000 a year, state law says charities don’t actually have to register with the state.
Target 8 asked if it would be easy for a charity that solicits less than $25,000 to “fly under the radar” for a period of time.
“That could be possible. It’s hard to say,” Yearout said. “You know, if someone is committing outright fraud, it’s very likely they’re going to be caught sooner or later — whether that’s reported to local police or us.”
Target 8′s test still highlights the need for donors to do some homework before donating.
“Who are the board members, who’s the president… make sure it’s a legitimate person and not a puppy dog, so that is going to take a little more work on the part of the donor,” Kalivas said.
Target 8 is currently in the process of dissolving Dexter’s Hungry Dog Association.