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76 Fake Charities Shared a Mailbox. The I.R.S. Kept Approving More.


The “American Cancer Society of Michigan,” state authorities say, was a fake charity. And never even a superb fake.

It was not in Michigan, for one thing. When the group applied to the Internal Revenue Service to develop into a tax-exempt nonprofit in 2020, it listed its address as a rented mailbox on Staten Island. It was not the American Cancer Society, either: In actual fact, the true American Cancer Society had already warned the I.R.S. that the leader of the sound-alike group, Ian Hosang, was running a fraud.

The I.R.S. approved the group anyway. Soon after, it also approved one other operation run by Mr. Hosang: “the United Way of Ohio,” which was also registered to the Staten Island address.

Mr. Hosang, 63, is now accused by prosecutors in Recent York of operating a long-running charity fraud that has astounded nonprofit regulators and watchdogs — and raised concerns in regards to the I.R.S.’s ability to function gatekeeper for the American charity system.

Not since the alleged scheme was so good.

Since it was terrible. And it worked.

Mr. Hosang — a convicted stock-market fraudster once accused of dangling a person out of a constructing — got the I.R.S. to approve 76 nonprofits, often despite glaring red flags of potential fraud. His operations stole the names of better-known charities. They claimed to be positioned where they obviously weren’t.

However the I.R.S. kept saying yes. And in doing so, the agency has attracted scrutiny of its recent fast-track system for approving charities — an innovation implemented to cope with backlogs and budget cuts that now denies just one application in 2,400, in line with agency statistics.

“No one’s watching the shop,” said Nina E. Olson, who was the I.R.S.’s in-house national taxpayer advocate from 2001 to 2019 and warned repeatedly in regards to the decreased level of vetting. “They’re the gatekeeper to this whole universe of charitable subsidies. And if the I.R.S. isn’t doing its job as a gatekeeper, then you definately’ve got real problems.”

The agency declined to reply questions on Mr. Hosang’s case, citing taxpayer privacy laws. It also declined to make officials available for in-person interviews, nevertheless it released a written statement saying that the fast-track approval system “continues to scale back taxpayer burden and increase cost effectiveness of I.R.S. operations.”

Mr. 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 he stole about $152,000 in donations that flowed through 23 of his nonprofits. Mr. Hosang didn’t have to do much to advertise the groups; the cash got here in through online giving platforms that permit users select amongst I.R.S.-approved charities.

Mr. Hosang, prosecutors said, spent the cash on mortgage payments, bank card bills and at liquor stores.

“I did very mistaken. I do know that,” Mr. Hosang said in an emotional interview with The Recent York Times at his home in Staten Island. His voice breaking, Mr. Hosang said he had modified his life after a near-death spike in blood sugar in 2020, which he took as an indication from God. He said he desired to make restitution for what he had done.

But, Mr. Hosang identified, every one in every of his charities had been approved.

“For those who file something with an agency,” he said, “they usually approve it, do you think that it’s illegal?”

Mr. Hosang was born in Trinidad, grew up in Brooklyn, and graduated from Recent York University in 1984 with a level in finance. He wound up on the ugly side of Wall Street — accused of running “pump and dump” operations that conned customers into paying high prices for low-quality stocks.

Prosecutors later said Mr. Hosang and his associates recruited salesmen on the subway, rewarded them with marijuana and worked with an associate of the Gambino crime family. Once, when a rival visited to complain, investigators said, Mr. Hosang and the mob associate “dangled him out the window of the ninth-floor office.”

In 1997, he was barred from the industry by a self-regulatory body then called the National Association of Securities Dealers.

In 1999, he pleaded guilty to federal charges of fraud and money laundering. Mr. Hosang’s attorney, Yusuf El Ashmawy, said Mr. Hosang cooperated with authorities and helped convict 150 people. He spent about two years in federal prison, in line with federal records.

After his release, Mr. Hosang focused on a recent business. In 2014, federal records show, he asked the I.R.S. to approve tax exemption for a recent nonprofit: “The American Cancer Society for Children, Inc.” It wasn’t connected to the American Cancer Society.

“I got sidetracked. My son passed away,” Mr. Hosang said within the interview at his home, explaining how he had turned to organising charities. “It was not a stable mind on the time.”

He began running the operation at a time when the agency was already unwell prepared to detect signs of fraud in recent applicants.

The primary problem, in line with former I.R.S. officials: Tax law doesn’t prohibit nonprofits from impersonating better-known nonprofits through the use of sound-alike names. The second: There aren’t any systematic checks for a history of fraud.

“You possibly can be Jesse James or John Dillinger,” said Marcus S. Owens, who headed the agency’s tax-exempt section until 2000 and now represents charities on the law firm Loeb & Loeb. “There’s nothing that claims you possibly can’t apply for tax-exempt status from a jail cell, having been convicted of charity fraud.”

Still, former officials said, the I.R.S. bureaucracy once offered a strong weapon against potential fraudsters.

Examiners who suspected fraud could decelerate applications by asking for financial records, plans for the longer term or details about their officers. The requests were often a bluff of sorts, intended to discourage applicants from proceeding, despite the fact that the agency had little power to dam them in the event that they pressed ahead.

“Congress hasn’t given the I.R.S. authorization to issue rules to make sure that charities usually are not run by crooks,” Mr. Owens said.

The agency, in its written statement, said that employees reviewing recent applications “have been trained to discover fraud.”

Mr. Hosang still got through. Between 2014 and 2018, the agency approved 17 of his applications for groups with “American Cancer Society” of their names, in line with I.R.S. records.

That caught the eye of the true American Cancer Society. The group began contacting state attorneys general, who often have the facility to shut down fraudulent nonprofits of their jurisdictions. That worked in North Dakota, Washington and California, however the state-by-state approach was slow.

In 2018, the American Cancer Society decided it needed a national approach. It wrote to the I.R.S., laying out the pattern it had identified in Mr. Hosang’s groups.

“It feels a little bit like ‘Scooby Doo,’” said Meghan Biss, a former I.R.S. lawyer who represented the American Cancer Society. “It shouldn’t have been that onerous to work out who the bad guy was.”

“Using the very same mailing address? ‘I’m the American Cancer Society of, like, 19 different cities?’ she said, adding, “That didn’t raise flags to anyone?”

American Cancer Society officials said they never heard back from the I.R.S.

But then, in 2020, the agency approved 4 recent groups connected to Mr. Hosang: The “American Cancer Society” of Michigan. And of Detroit. And of Green Bay. And of Cleveland. Same Staten Island mailbox.

“Sometimes you possibly can get away with things,” Ms. Biss said. “Not since you were so smart but since the individuals who were presupposed to be watching out weren’t.”

Because it turned out, Mr. Hosang had switched to using a recent I.R.S. process for smaller charities. The brand new program was established in 2014, in response to budget cuts and a scandal wherein the agency was accused of targeting conservative groups for undue scrutiny.

The brand new “EZ” application stripped 11 pages of questions right down to three, nine boxes to ascertain and a small blank for groups to explain their mission. There was little room for I.R.S. officials to mire suspected scammers in bureaucracy. The denial rate for brand spanking new charities — which had been as high as one in 53 applicants within the old system — fell to 1 in 2,400 on this one.

One 2019 study by the agency’s taxpayer advocate found that 46 percent of the applicants it approved weren’t actually qualified, actually because their charters didn’t conform to charity law. It also noted that the “mission statements” were often so vague as to be useless. In 2021, federal records show, the I.R.S. approved groups whose mission statements were, of their entirety, “CHARITABLE ACTIVITY,” “NON-PROFIT” and “Have to fill in” (possibly a forgotten note to self).

Mr. Hosang switched to the fast-track system in 2019, in line with agency records. His mailbox in Staten Island was the identical. The red flags were still red: Among the many “directors” listed in these supposed charities, there was a long-dead classmate from N.Y.U., a long-estranged friend from Wall Street, and at the very least one one who gave the impression to be imaginary, living on a street in Brooklyn that doesn’t exist.

But, despite the American Cancer Society’s warning, Mr. Hosang was much more successful than before: In two years of using the fast-track system, Mr. Hosang got the I.R.S. to approve 56 recent charities.

Zachary Weinsteiger, on the nonprofit-rating group Charity Navigator, said his group’s analysts had noticed the pattern within the I.R.S.’s data — and said it became almost comic, like a single miscreant fooling the identical border guards with bad disguises.

“One guy coming in, in a bunch of dollar-store costume pieces,” Mr. Weinsteiger said. “He keeps crossing the border, and everybody keeps pondering he’s a special person.”

But Mr. Weinsteiger said Mr. Hosang’s success highlighted an unsettling problem. The whole regulatory system for U.S. charities rests on the I.R.S.’s vetting process. Its approval signals to state governments and potential donors that a charity is legitimate. It signals to web giving platforms that a charity is price including.

“It will be very expensive to do background checks on all of the charities the I.R.S. has already approved,” since there are 1.4 million of them, said Ted Hart, chief executive of Charities Aid Foundation America, one in every of several online giving platforms that allowed donors to provide to Mr. Hosang’s groups after they were approved. Mr. Hosang stole greater than $3,000 through their platform, in line with the indictment in May.

“We’d like to give you the chance to trust this list” of charities approved by the I.R.S., Mr. Hart said, or donors might be misled again.

When the fast-track process was created, the agency said it might unencumber personnel to look at existing nonprofits. As a substitute, because the service’s manpower has shrunk, those examinations have declined by 45 percent since 2013, in line with I.R.S. figures.

State charity regulators have asked the Federal Trade Commission to ban charities from impersonating better-known groups. In Congress, Representatives Betty McCollum, Democrat of Minnesota, and Fred Upton, Republican of Michigan, have introduced a bill that scraps the “EZ” form and fast-track system entirely.

“This kind is doing damage,” said Ben Kershaw of Independent Sector, a nonprofit association that supports the bill. “It must be stopped now.”

In Recent York, Mr. Hosang’s lawyer said he’s in plea negotiations with prosecutors and “intends to make full restitution.”

“He’s in no shape to go to jail,” Mr. El Ashmawy said. “He’s hurt by this.”

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