Inflated Donation Deductions: The Charity Scam Aimed at Taxpayers

Most charity scams target the donor’s wallet. A quieter one targets the donor’s tax return.

The IRS included charitable contribution schemes in its 2026 Dirty Dozen list, and one category has nothing to do with fake organizations. It involves real property, real charities, and deductions that are far larger than they should be.

For business owners and high-net-worth families with appreciated assets, this is the version worth understanding.

How the Scheme Works

The pitch usually involves donated property that is hard to value, such as land under a conservation easement, artwork or other assets. A promoter arranges the gift and supplies an appraisal.

That appraisal is where the trouble starts. It assumes an aggressive fair market value, sometimes many times what the investor paid. The resulting deduction looks like a bargain, and the promoter promises it will eliminate or sharply reduce a tax bill.

Syndicated conservation easements are the best-known example. Investors buy into a partnership that holds land, and the partnership donates an easement on it. The deduction flows through to the investors, often at a multiple of what they put in.

Why the IRS Objects

A charitable deduction for property depends on fair market value. If the value is inflated, the deduction is overstated, and the donor is the one who answers for it.

The IRS has scrutinized these arrangements for years, and Congress has since tightened the rules for many syndicated deals. Taxpayers who claim inflated deductions can face disallowed deductions, penalties and interest. Relying on a promoter’s paperwork is not a defense.

The charity may be entirely legitimate. The problem is the number on the return.

Warning Signs to Watch

Certain features show up again and again in questionable offers:

• A deduction that is a multiple of the amount invested.
• Promises to eliminate or substantially reduce a tax bill.
• Appraisals arranged or paid for by the promoter.
• Pressure to commit before a year-end deadline.
• Assurances that the IRS will accept the deduction.

A strategy that sounds too good to be true usually is. A second opinion from an independent tax professional costs far less than defending a disallowed deduction.

Getting Valuation Right

When property is donated, the value should be established honestly and documented at the time of the gift. Larger non-cash gifts carry added reporting requirements, and higher values generally call for a qualified appraisal from an independent appraiser.

Keep the appraisal, the acknowledgment from the charity and any related forms together. Good records are what protect a legitimate deduction if the IRS asks questions later.

The Fake Charity Risk Remains

Inflated appraisals are only half of the picture. Fake charities still multiply after disasters, and a gift to one is never deductible. Neither is a gift to an individual, no matter how deserving.

Before giving, confirm that an organization is a qualified tax-exempt organization using the IRS Tax Exempt Organization Search tool. Two habits make the rest easier.

Know the warning signs. Scammers push donors to give immediately and ask for payment by cash, gift card or cryptocurrency. Their websites tend to be vague about how funds are used, and they often cannot or will not provide an EIN or proof of tax-exempt status. A real charity will still need help tomorrow.

Give carefully. Cash gifts to reputable charities let relief organizations buy exactly what is needed on the ground. Type the charity’s web address directly rather than clicking links in emails, texts or social posts, since one wrong letter can lead to a convincing fake. Afterward, check your statements for the correct amount and for any unexpected recurring charge. Smaller local groups should still be registered with the IRS, a state charity regulator or another credible listing.

Reporting Suspected Fraud

Taxpayers and tax professionals can report suspected tax fraud, scams and identity theft to the IRS. Tips can be submitted confidentially through IRS.gov/submitatip, which routes each report to the appropriate IRS office.

Anyone who believes their tax identity has been compromised should visit IRS.gov/idtheft for steps to protect their account.

Giving Well, Deducting Honestly

Generous giving and a defensible deduction should go together. Verify the charity, document the gift and be skeptical of any promise that the deduction will exceed the gift. Smith Patrick has worked with clients in more than 80 countries, and it can review a proposed donation before it is made.