Checking On The Legitimacy Of Charities

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cotlThat sweet sweater your son has outgrown, that flannel shirt your husband no longer likes, that miniskirt you barely wore–you can’t use them anymore. Someone less fortunate, less picky, undoubtedly can.

So you load your car with bags of clothes and drive to the thrift shop on Main Street. Or you stuff them into one of the donation bins that have conveniently sprung up at the mall. Or, lucky you, a flyer announcing a used-clothes collection lands in your driveway: All you have to do is leave your castoffs at the curb in the specially provided bag.

How wonderful: In the process of cleaning out your closets, you’ve done a good deed. Well, maybe not. Chances are good that that thrift shop, donation bin, and pickup drive have less to do with charity than you think. If you’re not careful, that sweater, that shin, and that miniskirt may only help some savvy merchant make money, good money.

Secret Bedfellows

The Salvation Army, Goodwill Industries, and St. Vincent de Paul Society are three charities that direct all the money raised selling old clothes to charitable programs. Last year, the poor carried away from St. Vincent de Paul’s outlets used clothes and furniture worth about $8.5 million. Another $82 million worth were sold at the charity’s own thrift shops or to recycling companies; the profits went to homeless shelters and financial assistance for the disadvantaged. Goodwill–which generates half of its yearly revenues, a whopping $700 million, from old clothes–uses the money for job training for the disabled. In addition to funding such worthwhile causes, recycling clothing also benefits the environment, because the discards get reused instead of clogging landfills.

But hundreds of outfits you may think operate the same way are actually for-profit businesses that have contracts with charities. Under these arrangements, a charity allows a company to use its name to collect donations in exchange for a flat fee or percentage of revenues. What’s the problem? One, the for-profit deal is often hidden from consumers, and two, the amount of money the charities get is often shockingly small. In California alone, thrift shops in partnerships with charities grossed more than $16 million in 1996. But only 6 percent–less than $1 million–was paid out to charities. To wit:

Every chance it gets, Global Thrift Store in Waltham, MA, trumpets its relationship with Child Quest International Inc., a San Jose, CA-based charity that helps find missing children, The store links itself with the charity when personnel answer the phone, and there’s a storefront sign that reads: GLOBAL THRIFT STORE, IN SUPPORT OF CHILD QUEST. Pamphlets about the charity are displayed inside the store. But Global Thrift, by contract, gives Child Quest a scant 3.5 percent of its gross revenues–which translated into $16,355 for the last fiscal year, according to the former executive director. A Global Thrift official refused to say how much money the store made.

The Police Athletic League (PAL) of New Jersey, a charity that sets up recreational programs for kids, has a contract with a for-profit salvage company, PAL Salvage Service Inc., in Brooklyn, which gives PAL only $150 per bin; in 1996, that amounted to $5,000. How much did the salvage company earn? “Have a nice day,” PAL Salvage attorney Dominic Tortorice said when asked.

The Right to know

Charities that enter into such agreements argue that they don’t have the trucks, bins, warehouses, or stores to run a lucrative used-clothing operation themselves, and confess that they are happy to get even a small percentage of the profits versus nothing at all. And the businesses that profit are quick to point out that there’s no law mandating what percentage of money raised must be given to the charity contracted with. Consumer advocates object, saying that all parties have a responsibility to make such lopsided arrangements crystal-clear to donors–instead of trying to create the opposite impression. “Charities are selling their names cheaply and helping organizations mislead the public,” says Dan Langan, a spokesman for the National Charities Information Bureau, a New York–based watchdog group. “It’s an abuse of trust.”

And the for-profits have gained ground from established charities by making it easier to donate clothes. “We can’t provide as many bins or offer as much pickup service as we’d like,” says Rex Davidson, executive director of Goodwill Industries of Greater New York. But too many people don’t realize that the ubiquitous bins or curbside pickups divert a hefty portion of money away from charities. “When people find out about such jokers, they are infuriated,” says Alfred G. Vanderbilt, Jr., a member of the board of Goodwill Industries.

Protecting Your Donation

Before you decide to give away your old clothes, make sure you know the whole story:

Read the fine print on any bin, leaflet, or posting to determine if there is for-profit involvement. D.A.R.E. (Drug Abuse Resistance Education) New Jersey contracts with a for-profit company, American Recycling Technologies, Inc., in Huntington, NY, which pays D.A.R.E. New Jersey $700 a bin per year for the use of its name. Though the bins prominently learn D.A.R.E.’s name, there is a fine-print disclaimer that reads, in part: NOT REPRESENTED AS A CHARITABLE SOLICITATION. ALL PROCEEDS GO TO THE UNIT OWNER.

Look for fancy footwork in the pitches. American Used Clothing Corporation in Rahway, NJ, distributes flyers soliciting donations that read: IF YOUR CLOSETS ARE OVERLOADED WITH OLD CLOTHES … IT’S A GREAT OPPORTUNITY FOR YOU TO SUPPORT OTHERS … ALTHOUGH NOT TAX DEDUCTIBLE, YOUR ITEMS WILL BE GREATLY APPRECIATED IN EASTERN EUROPE. A charity? It’s not registered as such, according to the New Jersey Division of Consumer Affairs. The company claims that’s just a technical glitch. “We’re a charitable organization; we’re just not incorporated as such,” said Anita Frydrych, office manager. She also says the company is now in the process of registering as a for-profit doing charitable work.

Be aware that getting a tax receipt for your clothes doesn’t mean that the company is giving all the proceeds to charity. Although you re allowed to write off the full market value of your used clothes, the company is still free to take its huge cut of the profit from their sale–as long as it gives any amount to charity.

THE USED-CAR SCAM

by Ann Reilly Dowd

Giving his broken-down 1986 Chevrolet Celebrity to Handicapped Children’s Services of America and getting a tax write-off sounded like a dandy idea to Jeral Howard of San Andreas, CA. After all, the car was collecting dust 135 miles away in his son’s San Francisco garage. Howard knew that with about 200,000 miles on the odometer, a dead radiator, a dented body, and a peeling paint job, the car wouldn’t be worth much on a trade-in or sale. So when his son told him of a giant billboard soliciting car donations to “save the kids” through the charity, Howard decided to contribute the clunker. “It seemed like a fine time for a burial,” he recalls, “and a good way to do it.”

It wasn’t: Three months later, the Santa Cruz County District Attorney’s office alerted Howard that he had donated his car to Fi-Pol, a company set up by David Gainer, who had been banned from engaging in “misleading” fundraising throughout the state because of his previous charity scams. California law enforcement sources say Gainer was collecting as many as 80 vehicles a month in the name of handicapped children, then reselling them at his wife’s used-car lot or for parts or scrap. Executives at Handicapped Children’s Services, a legitimate charity, say their group never got the full 10 percent of total sales revenues that Fi-Poi promised. Says Santa Cruz investigator Joseph Henard: “If this isn’t a pure phony-baloney seam, I’ll eat my hat.” His office and the California Attorney General are weighing legal action against Gainer.

Meanwhile, because Gainer gave the Chew to a Fi-Poi employee without properly transferring the title, Howard got a bill from the state for more than $1,000 in lift a lien on the car. “I’m very upset because this lien is not my responsibility and could damage my credit rating,” says Howard. “This whole experience has been a nightmare.”

It didn’t have to be. Done properly, donating a vehicle to charity can be a win-win transaction. You avoid the hassle of selling the car, while getting a tax deduction along with the knowledge that you’re helping someone less fortunate. Meanwhile, the charity gets a revenue source; charities appear to be receiving more than $100 million a year this way. What’s more, the process helps get many old, unsafe, polluting autos off the road, as the majority of donations are junked or sold for parts. “These programs are the hot new trend in fund-raising because they meet so many different needs,” says Eugene Tempel, executive director of the Indiana University Center On Philanthropy in Indianapolis. “But people need to be careful because there is also great potential for abuse.”

Indeed, a Good Housekeeping probe of car-donation programs found three major risks for the generous at heart:

Siphoned contributions. Choose your charity poorly, and little or none of the money from the sale of your car will make it to a good cause. Instead, the bulk of it will go to a middleman who has been hired by the charity to run the program and is in business to make a profit. Sometimes the charity gets a flat fee, as little as $100 per vehicle. Other times it receives a percentage of the revenues or profits. A disturbing study by the California Attorney General’s office last February of 11 commercial car-donation programs registered in the state in 1996 found that only 19 percent of their proceeds, on average, went to charity. The best program contributed 70 percent; the worst, merely 4 percent.

Hidden tests. If you end up giving your car to a scammer who doesn’t then properly transfer the title, you may be saddled with costly bills for tickets, liens, and other fees, plus a lot of aggravation.

┬áTaxing moments. Should the Internal Revenue Service (IRS) determine that you’ve deducted a contribution to a bogus charity–even in good faith–your deduction could be disallowed and you could be penalized. Warns IRS spokesperson Michelle Lamishaw: “We are keenly aware of this trend.”

The Way Gar Programs Differ

Americans have been giving cars to charities for decades. But what was once a relatively minor fund-raising strategy has turned into a big business, featuring enticing billboards, advertisements, and commercials. And its operators range from the upstanding to the deceitful.

At one extreme are large, established charities, like Davis Memorial Goodwill Industries of Washington, DC, which manages most of its car-donation programs in-house and uses the bulk of proceeds for its stated mission. Every Thursday morning, its auction lot overflows with dealers and average folk bidding on everything from a well-preserved 1964 baby-blue Corvette (which commanded $17,500 last year) to junkers going for as little as $25. Last year, Davis Memorial Goodwill, now the single `biggest used-car dealer in the nation’s capital, sold nearly 4,500 vehicles, grossing $1.8 million. “That makes us very happy,” says Goodwill spokesman Chris Falk. “Not only are we raising money for our mission and helping disadvantaged people find and keep jobs, but we know that when someone can buy a working car for as little as a hundred dollars, she is that much closer to financial independence.” About 25 percent of the 186 Goodwill chapters nationwide accept cars.

Other respected car-donation programs include those run by the National Kidney Foundation (800-488-2277), the Salvation Army (877-386-6577), the American Lung Association (888-300-5864), and Volunteers of America (800-899-0089). Smaller programs can be just as efficient, however, particularly when the cars are given directly to needy families. So it pays to ask your favorite local charity if it accepts cars, even if the group doesn’t run splashy ads saying so.

High-profile promotions, in fact, are no assurance of legitimacy. In 1997, Rabbi Bentziyon Pil and his wife, Mattie Plotkin, advertised heavily on the radio in California, New Jersey, and New York for donations to their Jewish Educational Center, a San Francisco-based charity. The proceeds were supposed to support a private Jewish primary school and bring 12 Russian children who were victims of the Chernobyl nuclear disaster to the United States for medical treatment. Although 12 Russian children did arrive, Belinda Johns of the California Attorney General’s office says they were neither from Chernobyl nor suffering from radiation sickness, as the commercials suggested. Six months later, after a single checkup, they returned home. The school got some money, but so did the rabbi and his wife–allegedly more than $100,000 for personal expenses used to help buy a new $500,000 home and pay for a $30,000 party. The California Attorney General shut down the organization last year, after filing a civil suit charging false advertising and fraud. Pil and Plotkin have disputed the charges. Their lawyer, David Schwartz, attributes their problems to “not dotting their i’s and crossing their t’s rather than any intent to enrich themselves.”

If you want to donate your automobile to a charity, be sure you do it correctly and that the program is on the up-and-up. “As a rule of thumb,” says Indiana University’s Tempel, “I’d want seventy to eighty cents of every dollar raised by car donations to go to the charity.” Here’s how to avoid the shady operators and make the most of your good intentions:

Get your paperwork in order. Make sure that you get a receipt from the charity, not from the towing company or middleman. Bungling your paperwork can be costly. If you are audited and have no receipt or haven’t filed a Form 8283, if required, you may lose the deduction and owe back taxes, interest (recently 8 percent), and penalties of half a percentage point per month. For example, San Francisco accountant Linda Graham estimates that if the IRS disallows a $5,000 deduction you and your spouse took on your 1996 return for donating your car, you could owe back taxes plus as much as $1,580 in interest. If you fail to ante up on time, the penalty clock starts ticking.

To guarantee that the title is transferred properly, make certain that both you and a representative from the charity sign the back of your car’s title document. Also, put down on paper that you are transferring ownership of the car to the charity on the specified date, and be sure someone from the charity signs this too.

Value your donation properly. Don’t be snowed by a pitch suggesting that you can get a bigger write-off by giving your car to charity than by selling it yourself and donating the proceeds. “That’s simply nonsense,” says Larchmont, NY, tax lawyer Julian Block. “The value of your tax deduction for a charitable contribution depends on the fair market value of your car and on your tax bracket.” If you’re in the 28 percent bracket and your car is worth $1,000, you’ll save 28 percent of $1,000, or $280. By donating the car to the charity, however, you avoid owing taxes on the income you’d get from selling it yourself.

It’s your responsibility to determine your car’s fair market value. The best place to start is Kelly’s Blue Book, which lists the value of used cars by make, model, year, and condition. You can find it in your local library or on the Inter: net at http://www.kbb.com. To be extracautious, some accountants suggest attaching to your return a photo of the car and a note from a used-car dealer with his estimate of its resale or trade-in value.

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