Wednesday, July 6, 2022
N.Y. Times, led by Pulitzer Prize-winning reporter David Fahrenthold, has been gathering information about the IRS exemption application process. In a story over the holiday weekend, it reported on a single individual who created dozens of fake charities and obtained IRS recognition of tax-exempt status for them, even after being warned about the scam by the American Cancer Society. The story highlights what nonprofit legal experts have long known - the application process has essentially become a registration process, particularly for applications submitted using the Form 1023-EZ. Combined with the less than 0.2 percent examination rate for exempt organization returns, and the very limited and inconsistent level of resources states devote to overseeing charities, it should be no surprise that fraudsters often use purported charities to enrich themselves, banking on the halo effect of IRS recognition to fool donors.