I ran across this three
times in the first half of 2013. Twice where I work and once
where my wife works. This scam had been around for years before then and is still around today (2017). You can find the most recent convictions on the CRA website. And, just to be clear, the convictions are of the people who fell for the scam. That's right. The scam victims are the ones who pay the fines and possibly go to jail.
Leveraged Charitable
Donations are, to my mind, one of the most obvious frauds in the
pantheon of scams. It seems that in a lot of cases the scammers tell
you right up front that you will get in trouble with the Canada
Revenue Agency, but with a combination of Mumbo Jumbo and Pixie Dust
you can just blow them off and not pay your taxes. And what do you
have to do in order to thumb your nose at the folks who can put you
in jail? Why, just open your wallet and hand over some of your
hard-earned cash to the scammer and he'll give you a 'Get out of Jail
Free" card.
Okay, the scammer will
use different words to describe the chain of events as well
as what he will give you in exchange for your hard-earned cash,
but, for all the good his explanation will do you, you might as well
use mine, it's just as accurate...and yet people still seem to fall
for it.
Just in case you have been
approached about making a donation to a charity that is offering to
give you a receipt for three times-, or four times-, or six times-,
or more times as much as you give as a donation, you should know that
the scheme is a fraud. The receipt you will receive is valueless.
If you have already given
money to one of these scammers then it might help to read the note
that I wrote to one of the guys at work, who is in the same shoes as
you.
Here it is:
Hi Dan:
I just felt like I had to
say more about the organization that I think you made a charitable
donation to. As you know, I believe it to be a fraud. A scam. You
don’t need to take my word for it. Look into it for yourself before
you do something that will injure your finances further.
First – Don’t use the
Tax Receipt that this organization gave you until after you talk to
the Canada Revenue Agency. Tell them all the particulars and get an
opinion in writing. Don’t worry, you won’t get in trouble. Until
you try to use the receipt you’re just a victim, not part of the
scam. You might also want to talk to a tax lawyer and the RCMP. If
you’re in a hurry to file your tax return, you can file it in the
usual way, without
using the receipt and, if the CRA later says “That receipt’s
fine,” you can file an amendment and still get the big refund you
were planning on.
If you file a tax return
with a bogus receipt and the CRA rejects it later (and it could be 2,
3 or 4 years down the road before they get around to checking into
it) the usual penalty for that sort of thing goes like this:
Pay back the tax refund you
got + pay the taxes that you should have paid + pay an equal amount as a penalty + pay interest on the total
amount (at about 1% per month) all the way back to when the tax was
due. That could be 2 or 3 or 4 years and you could easily end up
owing 3 times your original tax bill.
Check out this tax court
decision:
http://www.carters.ca/pub/bulletin/charity/2009/chylb184.htm
You can get the jist of it
by reading ‘B: Facts.’ Donation and tax deduction made in 2001
and legal decision made in 2009. That guy got a bill for double tax
plus 84 months interest and he lost his original “donation.” With
compound interest it came to about five
times what his original tax bill
would have been. Oh yeah, and he got a lawyer’s bill too.
The folks you gave your
money to told you that their tax scheme was legal and that the CRA
might threaten you but there was nothing that they could do about it.
Rest assured that THERE IS something that the CRA can do about it.
They can come after you.
They can garnish your pay cheque. They can seize your assets. And
while you try to stone-wall the CRA you are giving the guys who took
your money more time to pack their bags and head off to The Bahamas
or Grand Cayman or someplace else where they have palm trees and rum
drinks and no extradition back to Canada.
CRA website references -
A quote from this CRA page -
http://www.cra-arc.gc.ca/gncy/lrt/vshlt-eng.html
"Mass-Marketed Tax
Shelters
Mass marketed gifting tax
shelter arrangements are made for the primary purpose of avoiding the
payment of the required taxes rather than raise funds for charities.
Mass marketed gifting tax shelters include schemes where taxpayers
receive a charitable donation receipt with a higher value than what
they paid. This can typically be four or five times their out of
pocket cost.
The Canada Revenue
Agency (CRA) audits every mass-marketed tax shelter arrangement and
no arrangement has been found to comply with the Income Tax Act."
Let me just take a quote
from that last sentence because it bears repeating. “…no
arrangement has been found to comply with the Income Tax Act.”
Here’s a lawyer’s web
page: http://www.troublewithtaxes.com/services/donations.html
And another:
http://taxinterpretations.com/?p=9274
You’re not the first
person to be drawn into a scheme like this and you won’t be the
last. As you can see from the CRA website, and others you can find on
Google, there have been thousands of folks who have fallen victim
over the last decade. All I’m saying is that you need to protect
yourself. Ask someone who knows.
The CRA writes the tax
rules, they interpret the tax rules, they enforce the tax rules. If
some guy tells you, “The CRA doesn’t know what they’re talking
about when it comes to tax law,” you should ask yourself, “Why
does that guy want me to believe his story?” …..And then you
should check your wallet.
If, after you’ve done your
due diligence, you show me a note from the CRA that says this charity
is on the up-and-up and your tax receipt is good, I’ll buy you
lunch.
Good luck.
Brent
- 30 -
So here's how my first
contact with this scam went:
A new guy got hired at work.
The second or third day
he was there he started talking about money. This immediately seemed
strange to me simply because I'm
usually the first person to mention money in
a conversation.
He said he hated giving
money to the greedy government (a common enough complaint) and said
he had a great tax shelter, “if you
want to get in on it.” He said he
hadn't paid taxes the previous year and wouldn't have to pay taxes
this year.
(Two things caught me here:
First, I'm pretty conversant with the normal tax deductions and tax
credits that are available to the average 'wage-earner,'
I use most of them. I couldn't think of any that would allow me to
pay no tax at all. Logic would dictate that if such a thing existed,
the government
would see it and slam that
door quickly. After all, the government wants my money.
Second, was the phrase “if
you want to get in on it.” Think about
that phrase. “If
you want to get in on it” suggests
that there is something special or hidden to “get in” on. It also
suggests that the person saying it
has some sort of special access or may be a gate-keeper of
some sort....or
it might be an innocent turn of phrase.
I'm a tolerant person, so I heard him out.)
He knew a guy who operated a
charity. This charity provided AIDS drugs to orphans in Africa. They
were doing a lot of good work. They needed donations to continue
their good work. They needed donations so badly that they were
willing to lend me the money to donate. (Huh?!?) If
I donated $1000 they would lend me another $5000 to donate and give
me a receipt for the full amount. $6000.
I needed details. If
the charity already has this $5000 what's this deal about them
handing it to me so that I can hand it right back? They'd only be up
by my $1000 donation so what's the thing about the inflated receipt?
Would I be agreeing to some sort of a
“subscription
donation” (my phrase) where a donation
of $1000 would oblige me to a further $5000 donation
in the future? Like $1000 per year for
the next 5 years?
(And then the story
changed.)
“No,” He said. “Drug
companies are greedy.” He told me that drug companies are greedy
and always screwing people. (a common
enough complaint). AIDS drugs are
especially over-priced, he said. This
charity could get AIDS drugs in one of the former Soviet states for
1/6th of what the greedy drug companies were charging in North
America. They would take my $1000, go to Uzbekistan to buy 6 times
the drugs they could buy in Canada for the same price. They would
then carry those drugs on their books at the Canadian price of $6000
and give me a receipt for that amount.
(This second story is
substantially different from the first. There is no longer any talk
of them loaning me money to donate. The talk is now about the charity committing fraud, by juggling their books, in order to give me an
inflated tax receipt. If the first
option was onerous the second was out-right illegal. I don't want to
be involved in a fraud at any level of the operation.)
It took about 10 minutes of
me saying, “No, that's not right,” for my co-worker to stop
pushing me to come to a meeting, meet
the guy who ran the charity, and “get
in on it.” He said that lots of people
would be at the meeting, lawyers, businessmen, graduates of Robert
Kiyosaki financial courses too.
(“Come
to a meeting,” is also one of the phrases that raises flags with
me. At a 'Meeting' the people you are
dealing with will be prepared with questions and answers and can
steer the conversation. If you aren't
already prepared you won't have time to check facts. You
also don't know who the other people at the meeting are. The group
could easily contain a claque, plant or confederate to pump up
excitement about a statement, verify the
“truth” of a falsehood or divert
attention from weak points
in the sales pitch. A claque can also start the rush, as in “Why
only thousand dollars? This is such a great deal I'll donate $10,000.
I'd donate more if I had it. Do you take MasterCard?” As a rule of
thumb, I always consider any non-work related meeting to be a sales
pitch. There could possibly be more than one claque.
“Come to a meeting,”
also feels wrong for several
other reasons. First, the co-worker and I aren't friends, we're
co-workers. We've known each other for a
short time. We've never socialized or
done anything together away from the workplace. Why would he choose a
sales meeting for our first off-site socialization? Second, if he has
already made his charitable donation for the year why does he feel
the need to accompany me? If I had bought a mutual fund that I was
really pleased with, I wouldn't insist that you come to my bank with
me and buy the same fund form the same salesman while I watched. I
might tell you that I ran across a really good deal and that you
should look into it; ask your banker or investment dealer for some
information or an opinion. But that's about as far as I would go.
Give you some information and leave the ball in your court. Third, if
he was planning to make
his donation for the year, why would he go to a meeting? Couldn't he
just mail a cheque?
As an aside; Robert Kiyosaki
doesn't impress me. I've read his most popular book and seen him
interviewed on TV, seen clips of his seminars on the web. He strikes
me as someone who makes his living from the credulous and
ill-informed.
But what my co-worker had
said caught my attention so I did my research on the CRA website plus
a few others...Suspicion confirmed.)
A couple of weeks later my
co-worker again brought up the topic of the African Charity. He was
quite forceful in his insistence that I should take advantage of the
opportunity. I told him that I had checked the CRA website and I was
going to have to pass. It looked like a receipt from this charity
would be no good. I clearly remember him saying, quite angrily,
“The CRA doesn't know what it's talking about!” (Big Red Flag.)
“They can bluster, they can threaten but there's nothing they can
do.” (Alarm bells.)
I looked him in the eye and
said, “It's fraud.” That pretty much ended the conversation but
he stewed for the rest of the day. He didn't come to work the next
day....or ever again.
(Afterwards I wondered if he
was a scam victim
or a perpetrator. Lots of times victims of scams become cheerleaders
for that same scam. It helps assuage their doubts to see others drawn
in. The thinking goes something like, “Well, if Bob thinks it's a
good idea too then I can't be wrong.”
I started to wonder if my
co-worker was part of the scam after my wife told me that she had
been approached about a similar proposal
at the office tower where she works. I'm
a construction worker and folks from my work environment and hers
would rarely cross paths. I had a thought that if my co-worker was a
scam perpetrator he would need a partner to play 'the guy who runs
the charity.' It would be an easy thing for the person promoting the
scheme in the office tower to play 'the guy' on a Monday when my
co-worker brings in prospective victims from
the construction site and then my
co-worker could play
'the guy' on a Tuesday when his partner brings in prospective victims
form the office tower.....Just a thought.)
My experience with scam
victims in the past leads me to believe most will reject any appeal
to reason and be drawn to the promise of 'something for nothing' like
a moth gets drawn to a candle flame. And with similar results. I
expect my story will either be preaching to the converted or
falling on deaf ears. But if I can save one person from losing their
house I will have fulfilled my Cub Scout promise to "...do a
good turn for somebody every day."
