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Lax Gatekeeping Has Led IRS to Approve Host of Fake Charities as Tax-Exempt

Ruth Singleton
Published Date:
Jul 6, 2022


A fast-track application system introduced in 2014 has led the IRS to approve a large number of fake charities as tax-exempt, the New York Times reported. The denial rate for new charities—which had been as high as one in 53 applicants under the previous system—fell to one in 2,400 under this one. 

The Times quoted former Taxpayer Advocate Nina E. Olson, who said, “Nobody’s watching the store. They’re the gatekeeper to this whole universe of charitable subsidies. And if the IRS is not doing its job as a gatekeeper, then you’ve got real problems.” 

Most notably, Ian Hosang, who is now accused by New York state prosecutors of operating a long-running charity fraud, was able to get IRS approval for 76 nonprofits, often despite glaring red flags of potential fraud. For example, his operations stole the names of better-known charities, such as the American Cancer Society. Between 2014 and 2018, the agency approved 17 of his applications for groups with “American Cancer Society” in their names, according to IRS records. 

These charities also claimed to be located in cities or states that were obviously false. In 2020, the IRS approved Hosang's fake “American Cancer Society” organizations attributed to Michigan, Detroit, Green Bay and Cleveland, even though they all used the same Staten Island mailbox. 

The Times interviewed attorney Meghan Biss, who represented the American Cancer Society when it sought to alert the IRS about the fraud. She criticized the IRS for not noticing the blatant fraud, saying, “Using the exact same mailing address? ‘I am the American Cancer Society of, like, 19 different cities?’ That didn’t raise flags to anyone?” She added, “Sometimes you can get away with things. Not because you were so smart but because the people who were supposed to be watching out were not.”

The application program for vetting charities that the IRS introduced in 2014 arose in response to budget cuts, as well as a controversy in which the agency was accused of targeting conservative groups for undue scrutiny. The new “EZ” application was reduced to three pages, down from 11, and it included nine boxes to check and a small blank for groups to describe their mission.  

One 2019 study by the IRS’s Taxpayer Advocate Service found that 46 percent of the applicants that the IRS approved were not actually qualified, usually because their charters did not conform to charity law. The study also noted that the “mission statements” were often so vague as to be useless. In 2021, according to federal records, the IRS approved groups whose mission statements were, in their entirety, “CHARITABLE ACTIVITY,” “NON-PROFIT” and “Need to fill in.” 

The Times reported that Hosang switched to that fast-track system in 2019. His mailbox on Staten Island remained the same as before. And the red flags were still there: For example, among the “directors” listed in these supposed charities, there was a long-dead classmate from NYU a long-estranged friend from Wall Street, and at least one person who appeared to be imaginary, living on a street in Brooklyn that does not exist.

Hosang was indicted in Brooklyn in May on charges of grand larceny, identity theft and conducting a scheme to defraud. He has pleaded not guilty. The Brooklyn district attorney said that he stole about $152,000 in donations that flowed through 23 of his nonprofits. The money came in through online giving platforms that let users choose among IRS-approved charities. He is alleged to have spent the money on mortgage payments, credit card bills and at liquor stores. 

The Times reported that the IRS declined to answer questions about Hosang’s case, citing taxpayer privacy laws. The agency also declined to make officials available for in-person interviews, but it released a written statement saying that the fast-track approval system “continues to reduce taxpayer burden and increase cost effectiveness of IRS operations.” 

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