“For $500,000 my child better be getting into Hogwarts, forget USC.”
Many people don’t realize that the college admissions scandal that made headlines last month had a charitable 501(c)(3) organization at its center.
The Key Worldwide Foundation, established by William “Rick” Singer in 2013, was used to collect money from wealthy parents to get their kids admitted into elite universities through bribes to school coaches and other staff. Among other things, around $2.7 million was apparently funneled as grant donations to sports teams in order to get wealthy students (who didn’t play sports) into schools to which they didn’t qualify. Money went in as donations and went out as bribes. Nine grants totaling $550,000 was paid to USC alone.
In addition to criminal prosecution, we can be certain that these parents are going to lose their charitable deduction.
Unlike the celebrities and other wealthy parents involved in college admissions scandals, most people who get tricked into giving their money to fake charities are not aware of the scam and are not seeking some benefit for themselves. The consequences, however, can still be severe.
Scam artists commonly employ the following techniques involving charities:
- Soliciting a cash, bank wire, or gift card donation for a charity and then pocketing the funds.
- Soliciting credit card donations and then using your credit card information for personal purchases.
- Trying to rush you into a donation (take time to do your research!)
- Charging your credit card more than the amount you agreed to contribute.
- Advertising for a fake charity that has a name very similar to one that is nationally known. To learn more about charity name confusion, visit the Charity Watch website.
- Setting up fake websites or otherwise soliciting funds for disaster victims using a nonexistent charity. Note that some of these scammers have also called the victims themselves – they pose as IRS agents to collect personal information for “casualty loss claims” and proceed to compound misfortune through identity theft.
- Trying to get you to provide them with your personal information, including your social security number (they don’t need it!).
Although not technically a tax scam, you should watch out for badge charities, in which donations are collected for a registered charity but most, if not all, of the money goes to professional fundraisers. You can check to see how much of your donation will be used for the purposes advertised – many charities publish this information and/or have been rated on the Charity Navigator website.
Advice for making charitable contribution
You can also use the IRS Tax Exempt Organization Search to research a charity before making a donation. If you request it, the charity should be able to immediately provide you with their employer identification number (EIN), a copy of their 501(c)(3) letter, and a receipt for tax deduction purposes.
If you are at all unsure about a particular organization, give to a different one that will use the funds responsibly. You don’t want to have your hard-earned money wasted on charity scams or on poor charitable organization management, nor should you lose your tax deduction after making a contribution. To learn more, see IRS Publication 526.