Minnesotans are known for their generosity. While most charities provide important services and are prudent stewards of donated funds, people should be on guard against those who try to take advantage of the generous spirit of Minnesotans. By not falling victim to false charities, you make sure that your charitable dollars go toward helping those really in need.

“Charitable” appeals that are not from real charities. With the downturn in the economy, some businesses are finding new ways to market their products, including using charitable appeals to convince people that their purchases will help fund worthwhile programs. These organizations—which may include for-profit businesses and individuals—often use telemarketing to pitch their products, which may range from lightbulbs to garbage bags to other products. Some companies or even nonprofits may entice consumers to purchase products at marked-up prices by claiming that the proceeds will fund a good cause. People may be willing to pay for otherwise unwanted products (or pay more for them) believing that they are helping a worthy cause. In truth, some of the entities that use charitable appeals to sell products are not even real charities—and the only people who benefit from the sales are the owners.

Charities that provide few services. In other cases, nonprofit organizations may solicit donations for a charitable purpose, when little of the donated funds are actually used for that purpose. People may be asked to give money, donate their car, or purchase a product from an organization that promises to help support worthwhile causes. Upon closer review, however, most of the funds may actually be used to pay for high fundraising costs or executive compensation. These organizations may be nonprofits with tax-exempt status. This means that donors must take time to research all unfamiliar organizations before donating to find out how much of your money is actually going to worthwhile programs.

Follow these tips to be sure your money is spent as you intended:

1. Is the organization registered with the State? Charities must register with the Minnesota Attorney General’s Office before they may solicit donations in Minnesota if they have raised or expect to raise more than $25,000 or have paid staff. Before you give money, research whether the organization is registered by visiting the Attorney General’s website at www.ag.state.mn.us or calling (651) 296-3353 or 1-800-657-3787. It should be a big red flag if an organization calls you for a donation and is not registered with the Attorney General’s Office.
2. How does the organization spend money? Take time to research how the organization has spent money in the past. Charities that are registered with the State must file an annual financial statement showing how much money they have raised and how they have spent it. The financial statement is called a Form 990. You may obtain copies of the Form 990 from the Attorney General’s Office. You may also obtain from the office copies of contracts between charities and their professional fund-raisers so you can determine what percentage of your donation is going to charity.
3. Is the organization tax-exempt? Find out if the organization has been granted tax-exempt status by calling the IRS tax-exempt hotline at 1-877-829-5500 or searching Publication 78 on its website at www.irs.gov. It should be a red flag if an organization asks you for a donation for a supposed charitable purpose but does not have tax-exempt status from the IRS.
4. Know the basics. Under Minnesota law, a charity must do the following before asking for a donation: (1) identify itself by name and location; (2) tell you whether or not the contribution is tax-deductible; and (3) provide a description of the charitable program for which the solicitation campaign is being carried out. A professional fund-raiser that raises money for a charity must also disclose its name and the fact that the solicitation is being conducted by a professional fund-raiser. These requirements apply to mail, phone, and in-person solicitations. If you haven’t been told this information, be sure to ask for it. You can also ask the charity how it will use your gift and how much of your donation is going to a professional fund-raiser.
5. Don’t be pressured by emotional appeals. Take time to do your homework before you give. Some disreputable organizations may pressure you to give money immediately, in some cases making you feel like you are letting down a good cause if you don’t. Don’t be pressured— any reputable charity will appreciate your donation just as much if you take the time to research the donation first.

To file a complaint, consumers may contact the Attorney General’s Office at (651) 296-3353 or (800) 657-3787. Consumers may also download a complaint form by clicking here and return the completed form to: 1400 Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101-2131.

Phony Charities vs. Real Ones: How to Tell the Difference (PDF)