The IRS Dirty Dozen: Fake Charities
Written by Jack Erickson, Tax Staff
August 13, 2021
Each year, the IRS compiles their “Dirty Dozen” – a list of common scams that taxpayers could encounter throughout the year, particularly during filing season. This year, there is one item on the list that we feel is relevant to our clients and deserves some extra attention: fake charities.
As you may know, taxpayers can take a deduction for contributions of money or property made to qualified charities. This deduction provides an incentive for taxpayers to donate to various causes that they support – unfortunately, some people may try to take advantage of your generosity. While scammers are always something to be cautious of, we recommend being particularly attentive after tragedies and disasters such as the COVID-19 pandemic. With this in mind, here are some tips to help you feel confident that your donation is genuine:
Ensure my charity is qualified for tax deductible donations.
The tax deduction for charitable contributions is only valid when made to qualified organizations. The IRS provides a tax-exempt organization search tool that can be used to verify whether the organization you wish to donate to is qualified for the tax deduction. Note: If you are concerned that the qualified charity requirement will limit your options, don’t be – there are over 2.6 million organizations included in the IRS database.
Be wary of phone call pressure.
If you receive a phone call asking you to donate to an organization, don’t feel pressured to write a check before doing some research – genuine charities will never rush you to donate, and will appreciate a donation whenever you are able to make it. Phone calls are one of the most common ways scammers try to reach you, so it’s good to know some of the rules that legitimate charity callers must follow:
- They can only call you between 8 am and 9 pm. If you receive a call asking for a donation outside of this time range, it is likely a scam.
- They are required to disclose their name and the purpose of the phone call. If this is not mentioned at the beginning of the phone call, ask – if they don’t answer or fumble to answer, there’s a good chance that it’s a scam.
- They cannot use a pre-recorded message unless you are a member of the charity or are a previous donor. If you receive a pre-recorded message soliciting donations but you don’t recognize the source, be suspicious.
Research the organization.
Apart from using the IRS search tool to make sure your donation will be tax-deductible, you can use resources like CharityNavigator.org to further research a charity’s mission, programs, and overall performance.
One financial metric that can be easily overlooked is a charity’s Program Expense Ratio, which indicates the percentage of income received by the organization that goes directly towards the programs and causes they support. A high program expense ratio (> 70%) generally means that your money is going directly towards the cause that you want to support – on the other hand, a low program expense ratio (< 60%) might suggest that the organization is spending more on salaries and administrative expenses than the programs that they provide.
Pay the right way when you donate.
If someone asks you to donate via wire transfer or gift card, you are almost certainly being scammed. These payment methods are hard to trace and should raise suspicion. The safest way to donate is via check or credit card – after you’ve done your research and confirmed the charity’s exact name and address.
Donating to a charity that supports the causes you care about is always a good thing to do, and the charitable contribution tax deduction might provide that extra motivation you need to give a little. Scammers want to take advantage of your generosity and willingness to help those in need. Regardless, always do your due diligence before making a donation. Follow the guidelines we’ve provided here, and you can rest assured that your donation is going towards the cause that you care about – not to mention, your tax bill might be a bit lower too!