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Rachel Kosmal McCart is a lifelong horsewoman and the founder of Equine Legal Solutions, PC, an equine law firm based in the Portland, Oregon area. Rachel is a member of the New York, California, Oregon and Washington State bars and is admitted to practice before the U.S. District Court for the District of Oregon and the U.S. District Court for the Central District of California. Rachel currently competes in three-day eventing.

Wednesday, July 28, 2010

Legit or Not? Check Out that Horse Organization Before Reaching for Your Checkbook!

In my last post, I highlighted two new horse-related organizations whose purpose for existence is to make money, not serve their members.  Several people emailed to ask how they could check out an organization to see if it was "legit" before joining or donating money.  This is an excellent question!

What Is a Non-Profit Organization?

Lots of organizations call themselves "non-profits."  But are they the real deal?  "Non-profit" doesn't mean the organization doesn't make a profit - many charitable organizations make quite substantial profits.  Rather, "non-profit" means that because an organization meets certain IRS regulations defining what a charity is, the organization is exempt from paying federal income taxes.  To become tax-exempt, an organization must apply to the IRS and qualify.  Qualifying with the IRS as a 501(c)(3) non-profit organization is hard work - the application is many pages long, and it requires the organization to provide very detailed information about where its money comes from, and how it spends that money, as well as the people involved with the organization. And the IRS doesn't just rubber-stamp approve 501(c)(3) applications - the organization must demonstrate in its application that it clearly meets the various IRS requirements for exemption.

To qualify for tax exemption, the IRS requires that the organization have a very specific type of purpose.  It must be able to clearly demonstrate that its primary purpose is one of the following.   "Charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals."  The IRS defines "charitable" as "relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency."

How Can I Tell if It's Really a Non-Profit?

A quick search of the IRS charity database is all it takes to find out whether an organization is really a 501(c)(3) or not. If the organization has registered with a state as a non-profit organization but hasn't qualified with the IRS, it's not a "non-profit." What about if an organization says it has submitted its application for tax-exempt status, but it hasn't been approved yet?  The good news is that if the application is ultimately approved, contributions made at any time after the application was originally submitted to the IRS will become tax-deductible.  The bad news is that if the organization's application isn't approved (and many aren't), contributions will not be tax-deductible.
Where Will Your Money Go?
As noted above, many non-profit organizations earn substantial profits and have large operating budgets.  You might be shocked at what a small percentage of contributions goes toward the actual persons or animals in need versus the organization's administration and fund-raising efforts.  Fortunately, you can find this out before you donate! 
501(c)(3) organizations are required to make certain financial information available to the public.  For example, you are legally entitled to visit the organization's offices and obtain copies of its tax returns and application for tax exempt status.  You can also request copies from the IRS.  Here's more information.
Even if you aren't concerned with whether your contribution is tax-deductible, you probably still care how your money will be used.  Organizations that aren't tax-exempt non-profits aren't legally required to make any financial information public.  But, you should ask anyway!  Just keep in mind that because there is no legally required public disclosure of the organization's financial information, there probably won't be a way for you to check.  What does the organization say about how donations will be used?  If the organization offers memberships, what benefits come with your membership, and are they worth the price?  If the organization touts its donations to charities and that is part of the attraction for you to donate or join, why would you not just donate directly to the charity instead?
Who's Behind the Organization?
An organization is no better than the people who run it.  If you're considering donating to or joining an organization, check out who's in charge of it first.  The organization's website should clearly state who the members of its board of directors are, and who its officers are.  The website may provide a bio of each such person, but you should also Google the people's names.  Doing so can yield a wealth of information, such as arrest records, lawsuits and other red flags.  At the very least, Googling can help you fact-check the bios on the organization's website - are they accurate, or do they stretch the truth, exaggerate, or leave out important facts?  If the organization can't even be forthcoming about who its people are, imagine how much less forthcoming they will be about how they spend their money!  Check to make sure the directors and officers are obviously well-qualified to run the organization, both in terms of business background and relevant horse experience.  The number of officers and directors should be proportionate to the size of the organization. A local organization with 15 board members probably won't be able to make decisions efficiently.
Is the Organization Real or Virtual?
The Internet has offered con artists a wealth of new ways to separate horse people from their money.  Perhaps the most appalling offenders are the "Internet farms."  These outfits offer horses for sale that they don't own.  In fact, they have often never laid eyes on the horses before, despite the glowing descriptions and lovely videos.  While Internet farms' websites often suggest that they have palatial horse facilities, with all the sale horses on-site, Internet farms usually exist only on the Internet.  What they do is find horses for sale (often horses overseas who are not advertised to the general public), then advertise those horses on their website (often without the seller's knowledge).  The horses are listed at asking prices far more than the current sellers are asking for them. If the Internet farm generates a buyer, the Internet farm either buys the horse from the seller and then immediately resells it to the buyer at a huge markup, or the Internet farm approaches the seller and offers to introduce the buyer to them (for a fee, of course!).  Either way, the buyer pays way more than they should for the horse, and might very well get a horse that has been recklessly misrepresented.

How can you find out if an organization has an actual physical location?  You can start by looking at the contact information on its website.  Is it a PO Box or a street address?  You can't always tell by looking, as some mailing centers allow their customers to use the mailing center's street address.  And sometimes instead of using a box number, the organization will call it a "suite" instead.  Even if the address looks like a perfectly normal street address, use Google Earth to see if it actually exists, and what it looks like - is it a Mailboxes, Etc. store or a real place?  And then Google the address to see what information comes up that might prove suspect, such as that 20 other organizations have the same address.  For example, there are several "breed registries" listed in the American Horse Council's directory that have the exact same address, the exact same website and the exact same person listed as a contact.  Hmm.  The women's horse organization discussed in our previous blog post lists no address on the contact page of its website, and the address for sending in advertising payment is a PO Box.  The trail rider's organization discussed in our previous blog post lists a PO Box as its mailing address.  Neither organization has an actual physical office, it seems.

Phone numbers can also yield a wealth of information.  Don't be fooled by the mere fact that an organization has a toll-free number - anyone can get one, and thanks to the miracle of Internet telephony, anyone can get one cheaply, too.  Look up the phone number in a reverse directory search and find out whether it's a cell phone or a land line.  If it's a land line, reverse directory results will generally tell you whose name the number is registered in, the physical address, and even who the phone company is.  If it's a mobile phone, that fact alone might be a red flag. The phone number on the women's organization's website comes back as a land line registered to the organization's founder (not the organization itself). And when I called it at 9:30 p.m. Eastern time (long after business hours), a rather breathless-sounding woman answered and background noise did not sound like a business. 

Email addresses can also be telling.  Does the organization list its email address as being at its domain name, such as office@organizationsdomain.com, or is its email address hosted by Yahoo, MSN, AOL or similar?  Most organizations that have been around for anly length of time and are well organized will not list personal email addresses as their contact information.  Rather, they want to make sure that even if the contact person moves on, the organization will still receive important email.  The women's organization lists the founder's personal email address as its contact email. 

Finally, the organization's website itself can yield important information.  Is the overall look and feel professional, or does it look like a website that someone made at home?  Checking to see who owns the organization's website domain and when the domain was registered can be interesting as well.  The women's organization domain is registered to The Women's Horse Racing Association - different organization, but the founder is listed as the contact person.  Apparently, after registering the domain in June of 2009, she quickly realized the horse industry as a whole was a much broader market than just the racing industry. 

Is There Anybody Home?

Before donating money or joining an organization, see if you can get to a real live person and ask a question.  If you call, do you get a knowledgeable person who sounds like they're in the United States?  Or do you get an automated phone tree and/or have to leave a voicemail?  If you leave a voicemail, do you get a prompt return call?  If you email, do you get a prompt response?

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