Crowdfunding scams mean you have to do some checking before giving

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If a crowdfunding campaign is part of your charitable plans for #GivingTuesday or later in the holiday season, take care to make sure your act of kindness doesn’t have unintended consequences.

More than 1 in 5 consumers (22 percent) have pitched in for at least one such project, which raise money toward a common aim via small contributions from a large number of people, according to a 2016 report from Pew Research Center. Of those contributors, 68 percent have gifted to a campaign to help a person in need.

But, as with other kinds of giving, it’s smart to scrutinize the cause before you pull out your wallet.

Earlier this month, prosecutors charged a New Jersey couple and a homeless man with second-degree theft by deception, alleging they worked together to perpetuate a scam that raised more than $400,000 on GoFundMe. Last year, the couple — Mark D’Amico and Kate McClure — created a “Pay It Forward” campaign to benefit Johnny Bobbitt, Jr., claiming Bobbitt had given McClure his last $20 to help her get home after her car ran out of gas.

“The entire campaign was predicated on a lie,” Burlington County Prosecutor Scott Coffina told reporters at a news conference, according to NBC.

GoFundMe told CNBC that donors to that “Pay It Forward” campaign will receive a full refund under the site’s refund policy. Spokesman Bobby Whithorne said such misuse is rare — accounting for less than one-tenth of 1 percent of all campaigns — but that “one fraudulent campaign is one too many.”

“We have a zero tolerance policy for fraudulent behavior,” Whithorne said. “If fraud occurs, donors get refunded and we work with law enforcement officials to recover the money.”

Still, the case is “a perfect example of what can go wrong with crowdfunding,” said Stephanie Kalivas, an analyst with nonprofit evaluator Charity Watch. “There’s a lot of inherent risks and weaknesses.”

Here’s what to consider before you give.

It can be tough for both crowdfunding sites and contributors to ferret out bad actors, Kalivas said, and a lack of transparency about how campaigners use money can mean fraud goes unrecognized. The safest individual campaigns are ones where you know the people involved, she said — to feel more confident that the beneficiary’s need is legitimate, and that the organizer (if someone other than the person in need) is trustworthy to pass along those collected funds.

Absent a personal connection, scrutinize the campaign for details such as how the organizer knows the beneficiary, and details of how the money will be used, she said. Peruse the comments: That’s often where visitors will raise concerns.

Only charitable gifts made directly to a 501(c)(3) nonprofit qualify for a tax deduction, said Annette Nellen, a tax professor at San Jose State University. If that’s important to you, look for details on the platform and campaign indicating that the recipient is a qualifying charity (and a reputable one, at that).

Most campaigns benefiting a person in need — say, a relative in need of help with medical bills or a friend rebuilding after a natural disaster — are considered personal gifts, which aren’t deductible, she said.

“You’re not donating to a charity, you’re donating to an individual,” Nellen said.

For every social-media-trending campaign to help one person, there are plenty of similar stories that don’t get much attention.

A 2017 study in the journal Social Science & Medicine reviewed 200 GoFund Me campaigns from 2016 raising funds for medical expenses — and found 9 in 10 didn’t meet their goal. Researchers found that social media savvy and marketing skills helped in driving a successful campaign.

That’s another point in favor of giving directly to a recognized charity that has a proven track record of working with a particular cause, especially after events such as the California fires, Kalivas said.

“They have ways to make sure the funds you give are going to be used fairly amongst the victims,” she said.

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