GoFundMe Scam Offers Good Lessons for Charitable Donors | #phishing | #scams

In 2017, we couldn’t get enough of the feel-good story of Katelyn McClure and the man who “saved” her.

It was fall in Philadelphia when McClure said she ran out of gas one evening on her way home to New Jersey. She was scared, she claimed, and had no cash on hand. A homeless man eventually identified as Johnny Bobbitt Jr., who had been sitting on the side of the road near an exit ramp holding a sign, came to her rescue. He offered her some of his own cash so that she could get a can of gas. As a thank you, she said she would come back and repay him. They later struck up a friendship, she said.

I know that exit ramp—it’s not too far away from my old law school apartment. It’s a busy area where drivers often rush to make their way out of the city. The streets are configured so that you always seem to hit a traffic light. And there are usually clusters of folks waiting by the roads, offering to sell you newspapers or an occasional flower, while others beg for cash with handwritten signs.

So, the story didn’t seem particularly out of place for those of us who knew that intersection. And for others who didn’t know the area? They were pulled in by the story of a frightened young woman who caught a break from a man who was down on his luck. McClure had snapped a photo of Bobbitt to memorialize what had happened that evening, and it quickly went viral.

The GoFundMe Campaign

Shortly after that, McClure and her boyfriend, Mark D’Amico, started a GoFundMe account to raise money for Bobbitt called “Paying it Forward”—the photo would be their advertising for the campaign. McClure emphasized that she “Truly believe that all Johnny needs is one little break. Hopefully with your help I can be the one to give it to him.” She added, “Any little bit will help.”

In response, more than 14,000 donors contributed more than $400,000 to help Bobbitt, a recovering drug addict, get back on his feet. And that would have made for a fantastic end to the story—except that it was all a scam.

MEGYN KELLY TODAY — Pictured: Mark D’Amico, Kate McClure and Megyn Kelly on Monday, August 27, 2018

Photographer: Nathan Congleton/NBCU Photo Bank/NBCUniversal via Getty Images

The Scam

The story began to unravel when Bobbitt claimed he was again homeless and had received very little of the money from the GoFundMe account. He suggested that McClure and D’Amico had spent it on themselves. The pair initially denied the accusations, but by that time, they had attracted the interest of more than just potential donors—law enforcement was investigating.

It turns out that Bobbitt really had been homeless and an addict, and he did hang out at the exit ramp where the photo was taken. But the chance meeting with McClure and the gas can never happened—the three initially met at a nearby casino.

As for the money? It was spent quickly. Prosecutors allege that just a few months after the account was created, McClure and D’Amico had blown through nearly all of it on a luxury car, trips, jewelry, and gambling. And, prosecutors say, D’Amico wasn’t worried about their dwindling bank account because they supposedly had a book deal lined up.

The lies caught up with them, and D’Amico, Bobbitt, and McClure each pleaded guilty to their roles in the scheme. Justice has moved slowly, but earlier this year, D’Amico was sentenced to 27 months in prison. Bobbitt is currently awaiting sentencing, scheduled for next month. And last week, McClure learned her fate: She was sentenced to one year and one day in prison. She must also make restitution.

Tips to Avoid Charitable Scams

The scam startled donors. Friends who contributed to the campaign were disheartened, suggesting they couldn’t trust anyone anymore. I wouldn’t go that far, but the saga is a good reminder that you should take care before handing over your hard-earned cash, even if it’s for a great cause. Here are a few tips to consider.

Do Your Homework

Use care when donating online or over the telephone, especially when it comes to emotional giving—making a contribution based on an event or storyline. It’s helpful to take a pause and gather some additional facts. Don’t be rushed into making a donation.

Use an Established Platform

If you donate to an individual cause, consider donating through an established platform like GoFundMe. While it’s not foolproof, such platforms do offer an additional layer of protection. For example, GoFundMe notes that its team “proactively monitors our platform for any form of misuse or abuse and investigates all reported issues.” They also offer a limited guarantee.

Know the Rules

Remember that donations made to an individual are never tax-deductible for federal income tax purposes; that’s true no matter how deserving the person might be. Similarly, contributions to a group fund to benefit an individual for any use, including charitable-minded ones like helping with burial costs or paying for housing, are not tax-deductible simply because the end result feels charitable.

Work with a qualified charitable organization if the tax deduction is important to you. While not perfect, the IRS charitable organization review process and reporting requirements are in place to help ensure that money gets where donors intend and is used for the purposes donors expect. Donors can regularly check to ensure that an organization is properly tax-exempt and currently registered. In some instances, donors can also view financial records and returns online.

Ask Questions

If you’re not sure your deduction would be tax-deductible, ask to see the organization’s determination letter from the IRS. You can also check its status using the IRS’s Tax Exempt Organization Search tool. You’ll need to know a few facts about the organization, like the location, to easily find it. Remember that churches, synagogues, temples, and mosques are considered de facto charitable organizations and may be eligible to receive deductible donations even if they’re not on the list. Some exceptions apply, so always ask if you’re not sure.

Pay Attention to Language

Although we sometimes use the terms interchangeably, remember that tax-exempt doesn’t always mean that deductions are tax-deductible. An organization can be tax-exempt, meaning that it doesn’t have to pay federal income taxes, even if donations are not tax deductible. A good example is a section 501(c)(6) organization, such as a business league, that is considered tax-exempt but whose donations are not tax-deductible.

Be Careful, Not Cynical

There will always be people willing to take advantage of your good nature—but that shouldn’t stop you from donating to deserving causes. Slow down and consider your options before handing out your cash. If you aren’t sure about the potential tax consequences of a donation, ask questions. And always check with your tax or legal professional if you need a gut check or more information.

This is a regular column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.

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