Phony Donations Yield Real Tax Evasion and Tax Fraud

Have I got a deal for you! You can give me a donation of, say, $500,000, and I’ll give you $450,000 back! Yet get a write-off on your tax return for all $500,000 but you really only spent $50,000. Isn’t that great?

Yes, if it were legal it would be super. But it’s not, and the story here is one that apparently spans decades, involves an unrelated shooting incident that stunned the nation, and a still ongoing investigation into others.

Yisroel Goldstein is the former director at Chabad of Poway (California). You may remember that name from the horrible shooting that occurred at his synagogue in April 2019. Rabbi Goldstein lost parts of his hand in the shooting. One congregant was killed and two others were injured in the attack. After the shooting Rabbi Goldstein met with President Trump at the White House and Vice President Pence visited the synagogue.

But what we didn’t know was that the IRS and Department of Justice had been investigating the rabbi for two years preceding the shooting. So what was the fraud?

It’s a scheme known as the 90-10 fraud. Rabbi Goldtein collected $6.2 million in donations. He returned 90% of that to the donors with phony receipts; meanwhile, he kept 10% (or around $620,000) for himself. That resulted in a tax loss of $1.5 million over the last 8 years. That’s bad, but the scheme actually dates back decades: One taxpayer began participating in this scheme in the 1980s!

Rabbi Goldstein pleaded guilty last week, along with five other individuals. Given that at least 20 taxpayers total were involved in this (and only six have pleaded), it’s quite possible more indictments are coming. Rabbi Goldstein is cooperating with the IRS and Department of Justice in the ongoing investigation.

The DOJ is expected to recommend that Rabbi Goldstein be sentenced to probation because of his work in the shooting. The five others benefited with phony deductions and one conducted his own Ponzi scheme. All six have agreed to pay restitution.

There is no free lunch as far as making donations. If you donate to a church or synagogue, you actually have to donate the funds; kickback of the money is not allowed.

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