Your Disaster Relief Donation May Not Be Tax Deductible

Were you one of the thousands of Americans who last year donated to charities because of Super storm Sandy or the Newton, Connecticut school shooting? Then there’s bad news. You may not be able to get the tax benefit you were expecting.

Some were scams

It’s sad to think that some people took advantage of these disasters to scam folks. Unfortunately, it’s true. Some of the organizations that were soliciting funds were scams. Or they may not have ever received proper IRS approval to become what’s called a 501(c)(3) charitable organization so that any donations you made to these organizations would not be tax-deductible.

An example

On example of this is that in February, the New Jersey Attorney General filed a civil suit against the Hurricane Sandy Relief Foundation. This suit alleges that the group falsely claimed that any donations made to it would be tax-deductible. It raised more than $631,000 but gave less than 1% of this money to victims – or at least that’s what the Attorney General alleges. And about $13,000 in donations was allegedly transferred to personal bank accounts. If you go to the foundation’ S website, you will see that it now says it does not have 50(c)(3) status but that it has applied for it.

More than 1000 domains

More than 1000 Sandy-related Internet domains were registered just as the storm was approaching. You can just about bet that some of these are scams. The IRS has actually warned people to watch out for potential scammers that impersonate charities and especially those outfits that claim to be allied with legitimate nonprofits. The IRS won’t comment as to how many organizations got 501(c)(3) status. But if you search the IRS’s database for terms related to Super storm Sandy, you’ll find fewer than 10 organizations with the status. Of course, this does not include well-known national organizations such as the American Red Cross.

Even legitimate organizations have problems

Organizations that have the best of intentions can still have a tough time getting 501(c)(3) status. In fact, an application for this status can require months to be processed and even then there is no guarantee that it will be approved. There are times such in the case of Hurricane Sandy where the IRS will “fast-track” applications. As in example of this, the Hurricane Sandy New Jersey Relief Fund that was headed by Mary Pat Christie, the governor’s wife, got 501(c)(3) status just four weeks after the storm hit.

Funds for individuals or families

Unfortunately, funds that were set up to support a particular family or individual such as a victim of the Sandy Hook school shooting won’t qualify for tax-exempt status. You could be doing some good by contributing money to a specific family or person, but don’t expect to get a deduction for it.

Don’t try to stiff the federal government

You may remember the old TV commercial that included the phrase, “it’s not nice to fool Mother Nature.” It’s equally not nice to try to fool or stiff the federal government. For example, if you don’t report all of your income, you can expect to get a nasty letter from the IRS. If you fail to respond or refuse to pay the amount the IRS says you owe, you will be in default and can have a lien put on your house. You also can’t stiff the government when it comes to federally backed student loans. These are one of the several types of debts that a Chapter 7 bankruptcy can’t discharge. They fall into the same category as alimony and child support and loans obtained fraudulently.