Abuse of charitable organizations
The tax code offers benefits for philanthropic taxpayers. It does not, however, reward those who set up improper nonprofit groups or illegally donate to them.
A common charitable scam is one that makes it seem like money or an asset was donated. Under these arrangements, the donations are claimed as tax-deductible gifts, but the donor still has control over the assets or income from the donated property.
Quick quiz: When is a gift not a gift? When you still control it. And that means this donation arrangement doesn't pass IRS charitable organization muster.
The legal, but less common contribution choice of noncash assets also comes into play in charity-related scams. These donations are often highly overvalued, says the IRS, or the organization to which the assets are given promises the donor that he or she can repurchase the gift later at a price the donor sets.
Because of this type of scam and other concerns about noncash contributions, tougher laws are now on the books. The Pension Protection Act of 2006 increased penalties for inaccurate property value assessments and set new standards for qualified appraisals.