‘Tis the season of giving. . . but from Santa skimming the Salvation Army pot to Twitter appeals for fake flood victim relief, the holidays often bring out criminals who definitely believe that it is better to receive than give. After dealing with three charity scam cases in the past month, I thought this would be a good time for a refresher course on how to figure out if a charity is legit. So, before you pull out your wallet, check out these six tips.
1. Call the IRS.
Most tax-exempt organizations are required to file an annual return – normally some variation of Form 990, with the IRS. Ask for literature from the charity, and check out the mission statement, board of directors and financial statements.
If the form isn’t available on the website, request a copy. Charities, except for churches and public charities whose annual gross receipts are less than $5,000, are also required to make form 501 (c) (3), which verifies their federal tax exempt status, available to the public.
When all else fails, sometimes it’s best to go straight to the source and call the IRS.
Yes, I was on hold for 45 minutes yesterday, but I was able to verify that the children’s organization I was checking out did NOT have federal nonprofit status. So the PayPal button on the ‘fundraiser’ bit of the website was most likely donating straight to the site owner’s shoe fund.
2. Check with watchdog groups.
Groups like the Better Business Bureau and CharityWatch have tips for giving wisely, and services that allow you to find legitimate charities. The CharityWatch Charity rating guide advises that legitimate charities have at least 60% of charitable donations going to program services.
More than 40% earmarked for administrative fees is often a red flag.
3. Beware of sound-alike names.
Many charities – especially those that pop up after natural disasters – mimic the names of reputable ones, and in at least one case flood victims were duped by scammers impersonating actual FEMA officers.
I never give out bank information, either over the phone or in person, to someone soliciting a donation. Instead, I ask the charity to email me information, or send it to my PO Box (more on this later).
4. Don’t be fooled by a figurehead.
Don’t let the fact that a charity is trendy, or everyone else on your Christmas card list is doing it, pressure you into not asking questions. Remember: This is how Madoff and Enron happened!
Fraud occurs at every level: The New York Times reports that a Jewish community leader was charged with stealing $7 million from one of the city’s most influential social service organizations.
5. Don’t be pressured into ’embedded giving’.
I first noticed this phenomenon when buying toilet paper at Whole Foods. At the checkout, right before I swipe my card I’m asked if I want to save the whales or stop genocide. At Petco, they phrase the appeal in a way in which it is almost literally impossible to say ‘no’: Will I give a dollar to help save a homeless pet?
I’ve had my weak moments, but since so-called ’embedded giving’ is often very hard to track, customers may be better off checking ‘no’ at the counter and sending a donation to a reputable pet charity or shelter instead.
6. Remember the difference between ‘non-profit’, ‘tax exempt’ and ‘tax deductible’.
A company can file with the California Secretary of State and be listed as a ‘non-profit’ corporation, but this has nothing to do with the charity’s federal tax exempt status. To find out if a company can legally take donations, it’s worth checking with the IRS.
And remember, some legitimate tax exempt groups that are politically active or involved in lobbying cannot receive tax deductible donations.