Beware of Fake Charities

As we approach the end of the year, people are likely to increase charitable giving during the holiday season. This makes it a good time to take a closer look at the organizations receiving these contributions. Fake charities are one of the IRS’s “Dirty Dozen Tax Scams” and it is important to be on the lookout for them, otherwise you run the risk of wasting your good deed — and your money.

What to Look for

Here are several indications that an organization’s motives might be questionable:

Confusing name. Often a fake charity’s name is confusingly similar to that of a reputable group, or is linked to such a group.

Lack of solid information. The organization provides few details about itself, the money it takes in or how it uses its funds.

High pressure. Its representatives engage in high-pressure sales tactics, including phone solicitations. Fake organizations need the people they contact to make contributions as quickly as possible so that they don’t have time to conduct research on the organization.

Exploitative. Fake charities often spring up in the aftermath of a natural disaster or tragedy. While not all organizations that form after a disaster are suspect, of course, scammers have been known to use such events to take advantage of people’s desire to help.

What to Do

In order to determine a charity’s legitimacy and effectiveness, you should first conduct an Internet search on it. Look for valid reports which might show questionable behavior. You can also research the organization through one of the groups that evaluate charities based on their governance policies, financial performance and transparency. These include Charity Navigator (http://www.charitynavigator.org) and Guidestar (http://www.guidestar.org).

Next, ask to see the charity’s Forms 990 from the past several years (also often available for free on Charity Navigator and/or Guidestar). Many charitable organizations also provide these forms on their own websites. These are informational returns most tax-exempt organizations file with the federal government, and they will list the organizations’ missions, revenues and expenses. They show whether charities are using the majority of funds received to accomplish their missions or are spending those funds on salaries or administrative costs. (Note that places of worship typically don’t file a Form 990.)

From there, you can use the IRS’s “Exempt Organizations Select Check” (https://www.irs.gov/charities-non-profits/exempt-organizations-select-check) to verify that the group is still eligible to receive tax-deductible charitable contributions.

Many states, such as New York, also have documentation online for charities registered in their state.  For New York you can access the NYS Charities Bureau information at https://www.charitiesnys.com which is run by the New York State office of the Attorney General.

Give Wisely

Most charitable organizations endeavor to make prudent use of their resources. But fake charities are always there to take advantage of our best impulses — some even use donors’ personal information to steal identities and/or money. The above steps can help you to be better informed and better able to give wisely and ensure that your generosity reaches those in need.

© 2016

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