Avoiding Charity Fraud
Protect Your Tax Dollars from Illegal Charities and Exemption Scams
Feb 19, 2009
In the current economy more and more scams come out of the woodwork in order to manipulate the average citizen out of their all too precious financial resources. Although their goals may seem lofty, their feet need to be on the ground when it comes to handling business. Therefore, all charities have to be a legally recognized organization and must operate within the letter of the law, inclusive of having a business license and articles of incorporation. This is not a gray area. All charities must have a legal identity in order to operate. So, be confident in requesting to see a charity's proof of appropriate business licenses and or published articles of incorporation. If they do not have adequate legal documentation, then this is a sign to walk away.
Spot the Illegal Charity
One of the benefits of charitable contributions is the tax writeoff they provide at the end of the year. All too citizens have given in good faith only to find out that the organization they contributed to does not have the legal tax status in order to make their contributions count at tax time. According to the IRS, in order for a taxpayer to be able to deduct their charitable contributions, a charity including religious organizations, must have the 501(c)(3) tax status. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization "must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. "
The organization is required to advertise and prove that they have this status. Under no circumstance can a charity and or religious organization be operated as a "sole proprietorship" regardless of the number of people running the organization. If an individual claims that they are operating in this manner, it is fraud as outlined by the Internal Revenue Service and the contributions to this individual will not be deductible.
The fallout from this can cost the unsuspecting taxpayer several thousands of dollars in back taxes and penalties should an audit prove the organization did not have this status. Thankfully, the IRS has made it very clear as to what does and does not constitute a legal operating charity. The IRS website contains valuable information that is designed to protect you, the taxpayer.
Protect Your Tax Dollar
Although an organization may have all their ducks in a row from a legal standpoint, financial malfeasance can still occur. Therefore, you want to ensure your money is being spent in the manner being claimed by the organization. Ask to see a spending report. All charities are required to demonstrate where their money is spent. All charities are required by law to have a governing body of directors who they are accountable to, inclusive of the administrating of monies and resources. This information is public and will enable you to make an educated decision on whether or not your money is directly impacting the people you wish to assist.
Avoid High Pressure Sales
Too often one gives due to emotional pressure put upon them by either manipulative language and or heart tugging imagery. If someone is pressuring you to give, this is a potential indication that something is awry. Although it is an understandable desire to give to those who hurt, especially when you yourself are hurting, it is not hard hearted to protect your money. Remember those who engage in fraudulent activity are uncannily perceptive on how to snare the good natured and kind hearted into funding their schemes.
Charity Fraud Recourse
Unfortunately, fraud does occur. Depending on the offense there are three main avenues of recourse where one can report the potential charity scam. Please be advised that these agencies take these matters very seriously, therefore make sure your claim is true before proceeding. The first avenue would be the IRS. On their website, they have steps to follow in order to report organizations operating without the proper tax status. Another avenue is your local district attorney, who can be easily be contacted through your local yellow pages. Finally, the Federal Bureau of Investigations has an entire division dedicated to investigating fraud and scams. On the site, the FBI provides a section where the average citizen can make an anonymous tip for the purpose of investigation.
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