Beware of Scam Artists Exploiting Colorado Floods

When disasters strikes, unfortunately so do scam artists!  Coloradoans should beware of possible charity scams in the wake of the floods affecting many parts of Colorado.   Colorado Secretary of State Scott Gessler offers some guidance to help citizens raise funds legally or donate wisely to help survivors, their families, and affected communities recover from this disaster.

Raising Funds

Under Colorado law, most charities that solicit contributions in Colorado are required to register with our office. The law also makes two important distinctions:

• Volunteers who have written authorization from a charity to raise funds on the charity’s behalf are exempt from the registration requirement.
• Individuals exclusively making an appeal for funds on behalf of a specific individual named in the solicitation are exempt from the registration requirement, as long as all of the proceeds of the solicitation are given to or expended for the direct benefit of the specified individual. Any money destined for a specific individual or family is considered a private gift, not a charitable donation, and they are not tax-deductible.

If you wish to establish a fund to assist those affected by a tragedy, be especially careful to respect the wishes of the individuals’ family and friends. The law requires that you have written permission to use the names or photographs of any person or organization in your fundraising appeals, so be aware that your well-intentioned efforts could be derailed by harsh criticism from affected parties’ families if you fail to obtain their permission first.

Be specific and transparent about how the funds will help affected parties or their families and how quickly collected funds will be spent. A best practice is to post an accounting of the fund on your website and update the receipts and expenditures frequently in order to head off any concerns about transparency. Donors may not be satisfied to wait for the results of a financial audit of the funds.

Any private assistance fund should be received and administered by a responsible third party, such as a bank, CPA, or attorney.

For additional assistance, you may want to contact a regional nonprofit resource center or an association, like the Colorado Nonprofit Association, the Center for Nonprofit Excellence, or Community Resource Center. These organizations offer educational materials and advice for nonprofits, including volunteering for relief efforts and forming a 501(c)(3) charitable organization.

The IRS has resources on its website to help people involved in providing disaster relief through charities.

If you wish to start a nonprofit to help raise funds, our office has also created a checklist of issues to consider when forming a business or nonprofit. Before starting a nonprofit, you may want to seek guidance from an attorney, tax, or business consultant.

Making a Donation

When considering gifts to an individual or family it is strongly recommended that you do not give cash. Contribute by check that is payable to a charity or fund, not to an individual, and mail directly to the charity. Before making a donation, ask the fundraiser or charity whether there is a trust or deposit account established for their benefit. Contact the banking institution to verify the existence of the account, and check locally to confirm that there really is such a need.

You cannot deduct contributions earmarked for relief of a particular individual or family, even if they are made to a qualified charitable organization. Ask whether the charitable contribution is tax deductible, and verify with your tax advisor or the IRS. The fact that a charity has a tax identification number does not necessarily mean your contribution is tax-deductible. Ask for a receipt showing the amount of the contribution and stating that it is tax-deductible.

Ask what portion of the contribution will be paid to the charity and make a note of which specific programs your contribution will support.

Watch out for charities with names that sound similar to well-known organizations. Sometimes these sound-alike names are simply intended to confuse donors.

Do not click on links to charities on unfamiliar websites or in texts or emails. These may take you to a lookalike website where you will be asked to provide personal financial information or to click on something that downloads harmful malware into your computer. Don’t assume that charity recommendations on Facebook, blogs or other social media have already been vetted.

Beware of newly formed charitable organizations. These may be formed with the best of intentions, but an existing charity is more likely to have the sound management and experience to quickly respond to the situation, and it will have a track record which you can review.

If you are solicited for funds, call the charity to see if it is aware of the solicitation and has authorized the use of its name.

Verify with local charities any claims that the soliciting charity will support local organizations.

Ask for the caller’s registration number with the Secretary of State, and then confirm that the organization is registered and current with its filings at www.checkthecharity.com.

If the charity is required to file the federal form 990, 990-EZ, 990-N, or 990-PF with the IRS, ask to see it. You are also entitled to see a copy of its IRS Application for Tax-Exempt Status and Determination Letter.

If you believe that you have been solicited by a fraudulent charity, please file a complaint with the Secretary of State (www.sos.state.co.us/pubs/bingo_raffles/charity_complaint_form.pdf), or the Attorney General (800-222-4444; www.ago.state.co.us/consline/consline.cfm).