The New York Times recently published an article “76 Fake Charities Shared a Mailbox. The I.R.S. Approved Them All.” It is an important article in that it illustrates some of the tremendous problems in the US charity system. It is also helpful in showing us in Canada how we should not do charity applications and registrations.
The article traces how one person registered 76 different charities in the US. He used sound-alike names like the United Way of Ohio and the American Cancer Society of Michigan. The person had no relationships with the United Way or the American Cancer Society. The IRS was warned but either did not or could not do anything about it.
The problem in the US is not only the registration system but the IRS and their Tax Exempt & Government Entities Division has been starved for cash so its oversight of new applications has been largely non-existent and its oversight of existing organizations has been very limited. Add to this that churches in the US, because of the separation of church and state, don’t have to apply to be a 501(c)(3) and generally don’t need to file a Form 990. So, you end up with something like 1.6 million different types of 501(c) organizations including the 501(c)(3) type organizations, with little transparency and many problematic charities. Often the main oversight of investigating and weeding out charity scams in the US falls to the media and the many Attorney Generals at the state level charged with responsibility for oversight of charitable matters. On the bright side in the US, for those charities that file the Form 990 in a responsible and complete way, it provides a lot of information on the charity.
At the moment, Canada has a fairly vigorous system for accepting applications for charity status. The problem is that that is where the oversight largely ends. As we have noted on this blog, the number of audits of charities has plummeted. The T3010 asks for very little disclosure and CRA now only places information on the T3010 for five years on its website. The CRA does very little educational activities for the 86,000 Canadian registered charities and their 600k directors. The CRA prepares limited guidance on many topics of importance to registered charities and then under the current government refuses to even release some of that guidance (like on the topic of religion and the environment). With the removal of any caps on non-partisan political activities by Trudeau in 2019 (and now no reporting of political activities or PPDDAs on the T3010), some registered ‘charities’ are spending all of their resources on political activities, and not surprisingly some of it seems at times a little partisan.
There is heavy lobbying in Canada for less regulation of charities (I guess because regulation is always a bad thing!) and only recently has the Finance Department chosen to increase the DQ from 3.5 to 5 percent for charities with assets over $1 million. The Finance Department jumped in recently when there was an attempt to remove direction and control from the Income Tax Act, which would have been a boon to some very wealthy people who don’t like paying taxes (some with no interest in actual charitable activities). But the intervention was necessary as the cost of significantly diminishing oversight of funds leaving the charity sector to non-profits, individuals and for-profits would have been extremely costly for the tax system with almost no benefit to real ‘beneficiaries’.
So, I don’t think we can be too smug in Canada when it comes to our regulation of charities. When one compares Canada to the UK, US, Australia and New Zealand, etc., there is a lot that we can do better. The stakes are high – if we don’t have adequate regulation of charities and we have extremely generous tax incentives for donations to charities then we will have a lot of abuse of charities and even less public confidence in charities.