Have you been contacted by a charity that pulls on your heartstrings and persuades you to open your wallet? There are a multitude of reputable charities doing good deeds and supporting worthy causes. But be aware of a proliferation of scams designed to separate you from your hard-earned money without actual performance of charitable services.
Could This Happen to You?
You might think that you’re too street savvy to be scammed by a bogus charity. But it’s easier to fall victim than you might think. Here’s 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’re otherwise familiar with. But it’s not legit.
Once you’ve 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 tax scams” for the year.
If you fall for the scheme, you get no tax deduction because the organization doesn’t exist or qualify for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. And you’re 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’re 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’d reasonably expect for the situation at hand. Most qualified charitable organizations will use a “soft sell” approach that doesn’t force you to make on-the-spot decisions. Don’t 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’re approached by an organization out of the blue, don’t 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’s the organization’s mission and tax ID number? Visit the website of the charity to dig deeper — and bail out if they don’t have one.
3. Inaccurate history of contributions. If you’re being thanked for a prior donation, don’t assume that it’s actually the same organization you previously gave money to. 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’s 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 doesn’t have a favorable rating — or even worse, if it’s not listed at all — it’s 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 isn’t on this list, any donations won’t 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’ll be victimized:
Be direct. In some cases, the charitable organization may be legitimate, but the caller doesn’t actually represent the charity. Don’t 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’s 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’re 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’ve 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.
Don’t blindly follow the crowd. Crowdfunding efforts generally have good intentions, but scammers may try to pilfer funds illegally. Unlike qualified charitable organizations, these campaigns aren’t 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, your tax advisor can help you evaluate the legitimacy of organizations and the resulting tax consequences. It’s important to stay vigilant, but it’s reassuring to know that you can rely on your advisory team to steer you in the right direction.
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