April 2018 JD Supra
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Watch out for those who Promise Bogus Charitable Giving Tax Schemes was published by JD Supra on 4/25/18.

In the US, there are promoters of phony companies that pose as registered charities and solicit charitable contributions by individuals or corporations. The Donor will provide a receipt that is later refused by the tax authority (IRS) as a claim against taxable income because the charity is non-existent or is not registered. IRS has warned Taxpayers against scam groups masquerading as charitable organizations and lure individuals and/or corporations to make donations to charities that don’t actually qualify for a tax deduction.

Some of the promoters of charitable giving tax schemes present themselves as qualified professionals such as attorneys, CPAs, Certified Financial Planners or Certified Valuation Analysts.   For instance, in a recent case (Case No.: 0:18-cv-60704) of the US Department of Justice (DOJ), an attorney (Michael L. Meyers), was caught making false statements about his experience and credentials.  This included claiming that he was a  licensed Certified Public Accountant and Certified Valuation Analyst, and by making false statements about the legality of his charitable tax scheme.  Meyer’s charitable tax scheme entailed claiming unwarranted charitable deductions for contributions to charities that Meyer controlled.  The complaint alleges that the donations were made on paper only and the participants never actually surrendered dominion or control of the donated property to the charities. Some of the contributions consisted of backdated promissory notes created by Meyer as well as fabricated intellectual property.  The complaint alleges that Meyer prepared baseless appraisals and false federal tax forms to facilitate the scheme.  The DOJ has filed a civil complaint seeking to permanently bar Mr. Meyer from providing federal tax advice for compensation because Meyer allegedly promotes, organizes, and executes a national charitable giving tax scheme that has cost the US Treasury more than $35 million. 

Be careful who you do business with

IRS annually compiles the “Dirty Dozen” list which represents the worst of the worst tax scams.  For 2018, Abusive Tax Shelters, Fake Charities and Tax Return Preparer Fraud made the list. 

Under US law, any person or group can establish a charitable organization.  The organization may apply to the IRS for recognition of tax-exempt status provided it shows that it meets the requirements of section 501(c)(3) of the Internal Revenue Code (IRC).  Unfortunately, the US has identified instances of tax evasion, tax crimes and money laundering involving charities. 

Individuals and Corporations ought to exercise caution when choosing tax preparers, tax specialists and getting involved in charitable giving.  Some of the activities undertaken by Meyer noted in the DOJ Meyer complaint are:

  • Making or furnishing or causing another person to make or furnish a statement with respect to the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit, or otherwise providing tax advice, in exchange for compensation;
  • Preparing (or assisting others in preparing) appraisals in connection with any federal tax matter;
  • Acting as federal tax return preparers, or filing, assisting in, or directing the preparation or filing of federal tax returns, amended returns, or other related documents or forms for any person or entity other than his own tax returns;
  • Organizing or assisting in the organization of a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement concerning charitable contribution deductions.

False Misrepresentations

The DOJ Meyer complaint states that in order to gain the trust of financial planners and CPAs and access to their clients, Meyer made false statements about his experience and credentials, the legality of his tax scheme, and the structure of the charitable giving tax scheme that violated Internal Revenue Laws as follows:

  • Misrepresenting his Experience and Credentials
  • Inducing Participation in His Scheme by Misrepresenting Its Legality
  • Misrepresenting the Structure of His Tax Scheme
  • Advising Others that He Established Donor Advised Funds
  • Advising Participants to Improperly Deduct Pledges or Promises to Pay
  • Advising Participants to Unlawfully Backdate Documents
  • Scheming Participants’ Purported Charitable Deductions
  • Relying on Bogus Appraisals Performed by Meyer
  • Preparing False Correspondence and IRS Forms for Participants and the Bogus Charities

Don’t be a victim of your own making

IRS encourages Individuals and Corporations to:

  1. Donate to qualified charities. IRS.GOV provides a search engine for legitimate and qualified charities (https://apps.irs.gov/app/eos/).
  2. Be wary of charities with similar names.  Some phony charities use names that are similar to familiar or nationally known organizations. They may use names or websites that sound or look like those of legitimate organizations.
  3. Don’t give out personal financial information.  Do not give your Social Security number, credit card and bank account numbers and passwords to anyone who solicits a contribution from you. Scam artists use this information to steal your identity and money.
  4. Don’t give or send cash.  For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the donation.
  5. Report suspected fraud.  Taxpayers suspecting tax or charity-related fraud should visit IRS.gov and perform a search using the keywords “Report Phishing.”

Consult your tax specialist when deciding to make charitable contribution and or when participating in charitable donation programs.