Innovative in a Bad Way: Scam Charges Result from Canadian Audit

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November 15, 2012; Source: Hamilton Spectator

The Hamilton Spectator quotes Toronto charity lawyer Mark Blumberg to say, “If a charity came to me and asked, I’d say stay as far away as possible from these schemes.” He’s talking about certain charitable tax shelters that he says might be “too good to be true.” As the NPQ Newswire has warned along with Blumberg, if it seems too good to be true, “it probably is.”

In this case, the article is referencing a Canada Revenue crackdown on a plan floated by The Animal’s Charity (TAC), which was created in 2001 with the stated purpose of supporting and protect animals. According to the Spectator, TAC had a fundraising arrangement with a company called Innovative Giving Inc. (IGI) and an audit discovered that 90 percent of $1 million raised by IGI for TAC went back to IGI. Canada Revenue said that TAC operated “primarily for the purpose of supporting, promoting and participating” in an alleged IGI scheme, and according to an Ontario Superior Court (OSC) judge, IGI’s conduct was fraudulent.

The OSC charges that IGI developed a scheme in which participating charities would receive stock shares from a Swiss philanthropist who would match Canadians’ cash donations. However, there was allegedly no Swiss philanthropist. An audit found that $9 million worth of donation receipts did not qualify as charitable gifts. Blumberg pointed out that a donor who expects a larger tax break than permitted under Canadian tax law won’t get the tax receipt but will “have to pay interest and penalties on any taxes [that the donor thought had been saved].”

While some charities presumably were taken in by the alleged IGI scheme, there are questions as to whether TAC may have been another case altogether. According to the Spectator, “TAC failed to show it had actually received the tax-receipted property, failed to report the fair market value of the shares purportedly gifted, and failed to issue receipts according to regulations or to file accurate information returns…[And] there was inadequate bookkeeping and record-keeping.” A Canada Revenue audit discovered that more than 90 percent of TAC’s expenditures since 2007 went to non-charitable purposes. According to the Spectator, TAC’s executive director compensated himself via the TAC debit card. The charity says that the ED was paid via ATM cash withdrawals because the organization didn’t have checks.

Blumberg is right. If something looks too good for the donor and the donee, there’s probably something amiss.—Rick Cohen