Every year, the IRS discloses the 12 scams that it believes taxpayers are most susceptible to. It calls this list the Dirty Dozen and warns the public about these cons on their website. One of the most repeated scams over the last few years has been the imposter claiming to represent a charity as a means to steal money from unsuspecting victims.
Posing as a charity, or encouraging the public to contribute to a sham organization, is an effective trick for two reasons. One, people generally are willing to assist others in need, especially when directly asked. Secondly, the prospect of a tax deduction often entices donors to give.
On the latter of the two matters, we have previously written about the difference between a credit and a deduction, and someone should not give solely for the tax benefit. The former matter preys on the public’s willingness to help out, especially after natural disasters or other turmoil.
When someone gives money to a fake charity, both of the attractive features of giving to charity are nullified. Primarily, the money is not going to someone in need, but to a thief. Also, the donor will not get a tax deduction for his or her “donation.” Although the IRS does not require an itemized listing of each donation that a taxpayer includes on their personal return, if there were to be an audit of that return, the IRS will look for substantiation and legitimacy of gifts.
The best way for a person to protect themselves from unwittingly giving money to a fake charity is to do some quick due diligence. The IRS has an Exempt Organization verification tool that identifies legitimate charities and also discloses organizations that have lost their exempt status.
Once a potential donor has verified that the organization is indeed legitimate, he or she can find out more information about the charity on any number of watchdog sites, such as GuideStar or Charity Navigator.
Nearly every charity is thankful for any funding it receives, so very rarely will a charity give a hard sell or a guilt trip. An overaggressive solicitor could be sign of a fake charity. Also, real charities will hardly ever ask for cash or claim that they do not accept checks. Lastly, a nonprofit will be appreciative of a donor’s intent to give and will be glad to receive a donation a day or two later after the donor does his or her due diligence. Once the donor performs research, he or she can donate via mailed check or online contribution to that charity.
Overall, there are many worthwhile charities in the area covering multiple types of services and missions that deserve your money much more than a swindler does. Being vigilant will help the real charities succeed and the fake ones disappear.
By Dan Massey, CPA, Manager