There are a multitude of reputable charities doing good deeds and supporting worthy causes, but scams designed to separate you from your hard-earned money without actual performance of charitable services also exist. You might think that you are too street savvy to be scammed by a bogus charity, but it is easier to fall victim than you might think. Knowing what to look for can keep you from falling victim.
Could This Happen to You?
Here is a common scenario: You receive a phone call, email, or text from someone purporting to represent a qualified charitable organization. This person tries to enlist you to help victims of a recent event, such as a natural disaster or foreign conflict. They solicit funds to be used for this charitable purpose and promise you a federal tax deduction in return for your generosity. Frequently, the bogus charity will have a name similar to a nationally known organization or one that you are otherwise familiar with. But it is not legit.
Once you have been hooked, the person who contacted you (or a so-called “associate”) arranges to receive the money or obtains sensitive personal information and uses it for illegal means. They may even claim to be working for or on behalf of the IRS to aid victims. This type of scam perennially appears on the IRS’ list of the “Dirty Dozen” for the year.
If you fall for the scheme, you get no tax deduction because the organization does not exist or qualify for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, and you are out the money as the trail quickly grows cold.
5 Signs of a Scam
The best defense against charitable scams is a good offense. Here are five warning signs that you are being targeted by a criminal:
1. Aggressive tactics. Be wary if a scammer uses inordinate pressure and arm-twisting to solicit a contribution. They may preach urgency that exceeds what you would reasonably expect for the situation at hand. Most qualified charitable organizations will use a “soft sell” approach that does not force you to make on-the-spot decisions. Do not be coerced into making a fast donation.
2. Sketchy details. Any organization worth its salt will be glad to provide detailed information about the operation. If you are approached by an organization out of the blue, do not make an online donation without getting answers to some basic questions. For example, how will the funds be used, what percentage of the money goes directly to the program, and what is the organization’s mission and tax ID number? Visit the website of the charity to dig deeper — and bail out if they do not have one.
3. Inaccurate history of contributions. If you are being thanked for a prior donation, do not assume that it is actually the same organization where you previously gave. Scammers will bank on you taking them at their word that you contributed to their organization before. Ask them to verify the information before you make any current commitments. Check to see if the answers correspond to your tax records.
4. Alternate payment methods. Generally, a reputable organization will provide easy means to make donations online through its website. So there is no need to use apps or sites like Venmo or PayPal or other methods to contribute. Similarly, if the contact person says that you must donate in cash, walk away.
5. Unfavorable ratings. A number of entities, including Charity Watch and Charity Navigator, monitor charitable organization activities and provide reviews. If a charity does not have a favorable rating — or even worse, if it is not listed at all — it is probably best to steer clear. Also, the Better Business Bureau offers some accountability information.
Additionally, the IRS has a listing of qualified charities that you should review before making a contribution. If a charity is not on this list, any donations will not be deductible on your federal income tax return.
Tips for Avoiding Scams
The best way to avoid charitable giving schemes is to be proactive and alert. Here are steps you can take to minimize the risk that you will be victimized:
Be direct. In some cases, the charitable organization may be legitimate, but the caller does not actually represent the charity. Do not automatically click on a link or send money to a third party. Try to cut out the middleman when you can. For example, you may open a new browser and access the charity’s website. Then you can make a direct donation.
Give with your head as much as your heart. It is easy to let your emotions get the best of you when you hear about a disaster or the unfortunate plight of a group of people. But try to keep a level head and look beyond the emotional appeal. Consider how much you can afford to contribute, how your money will be helping, and whether the information you are able to obtain all adds up.
Be skeptical of outlandish claims. Frequently, a bogus charity will go to great lengths to show the good deeds they have accomplished while obscuring any financial reporting and accounting aspects. They may try to cover their tracks by trumpeting their triumphs. You can see through a potential ruse by investigating the claims the charity is making. Be wary of postings about third-party ratings that seem too good to be true.
Do not blindly follow the crowd. Crowdfunding efforts generally have good intentions, but scammers may try to pilfer funds illegally. Unlike qualified charitable organizations, these campaigns are not subject to strict regulations, filings, and IRS scrutiny. Again, you may be advised to skip any middleman and give directly to the charity’s website. If you do decide to take a leap of faith, obtain confirmation for your records.
Do your homework. Charitable scams are an ongoing problem, so the onus remains on you to conduct the necessary research. Fortunately, there are a multitude of resources available online that can help you navigate these waters.
Be Generous, But Careful
When it comes to identifying bogus charities, our tax advisors can help you evaluate the legitimacy of organizations and the resulting tax consequences. It is important to stay vigilant, but it is reassuring to know that you can rely on our advisory team to steer you in the right direction.
Reporting Charitable Scams
Suppose you have been contacted by someone who appears to be a scam artist representing a bogus or nonexistent charity. Or maybe you have already been scammed out of some money. It is important to report the incident to the proper authorities. A criminal investigation may protect others from becoming victims and bring justice against the alleged perpetrator.
On the federal level, contact the Federal Trade Commission. On the state level, find out the entity responsible for regulating charitable affairs. Each state has its own procedures to follow. The National Association of State Charity Officials (NASCO) is a logical starting point for your research. NASCO is an association of state offices (attorneys general, secretaries of state, and other offices) charged with the regulation and oversight of charitable organizations and charitable solicitation in the United States.
When you submit a report to the proper federal or state authorities, provide as much information as you can. This may include the name, address, email, and/or phone number of the organization that contacted you, how they contacted you, and what the caller or writer stated. If possible, attach supporting evidence in writing.
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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.
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