There has been a lot of coverage of the college admission scandal in the United States, in which many celebrities and wealthy executives paid large sums of money (some over $1 million US) to cheat their children's way into top universities. While some will focus on which celebrities participated and corruption in the competitive admissions processes, we shouldn't overlook the fact that money involved in this scheme was funnelled through an American 501(c)(3) corporation, which is a charitable organization. This means that in addition to cheating the system, taking a spot from a deserving and qualified but less wealthy student, and continuing privilege of the rich and famous, some participants in this scheme were getting tax deductions for their bribe money.
The central figure in this scheme was an individual, William Singer, who is the President of The Key Worldwide Foundation ("KWF") and he used this 501(c)(3) to collect money and make "donations" to colleges involved in the scandal. Ironically, the mission statement of KWF is:
You can read more about this scam here:
As a charitable organization, it was easier to disguise the large sums of money used to bribe the institutions as charitable grants. As mentioned above, some of the parents involved in this scheme were also able to get tax receipts for their payments, double dipping in depriving someone else of a spot they earned as well as depriving the US government of tax revenues. Those involved in this scandal are those most likely to benefit from a tax receipt, especially considering the amounts involved in this scheme.
This misuse of a charitable organization is just another reminder that it is important for us to carefully monitor charitable organizations and the receipts they issue. It is why in Canada during audits and reviews of charitable organizations, Canada Revenue Agency (CRA) is most interested in a charity's receipts and receipting practices. It is important for every Canadian charity to have good receipting practices. You can refer to Blumbergs' Receipting Kit for an overview of the rules and best practices for receipting. If you have concerns about your charity and its receipting practices you might want our firm to conduct an informal legal audit.
We understand that tax schemes and abusive tax shelters involving charities has significantly decreased in Canada in recent years thanks to a concerted effort by CRA over many years and hopefully that trend will continue.
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.