Electronic tax

The IRS failed to detect nonprofit tax evasion

The “American Cancer Society of Michigan”, according to state authorities, was a bogus charity. And not even a good fake.

It wasn’t in Michigan, for one thing. When the group applied to the IRS to become a tax-exempt nonprofit in 2020, it listed its address as a rented mailbox on Staten Island in New York. Nor was it the American Cancer Society: in fact, the real American Cancer Society had already notified the IRS that the head of the sounding group, Ian Hosang, was committing a scam.

The IRS approved the group anyway. Soon after, he also approved another Hosang-led operation: “United Way of Ohio,” also registered to Staten Island.

Hosang, 63, is now accused of organizing a long-running charity fraud that has stunned regulators and nonprofit watchdogs – and raised concerns about the IRS’ ability to act as a gatekeeper of the American charitable system.

Not because the alleged scheme was so good. Because it was awful. And it worked.

Hosang — a convicted stock market fraudster — got the IRS to approve 76 nonprofits, often despite glaring red flags of potential fraud. Its operations have stolen the names of more well-known charities. They claimed to be located where they obviously weren’t.

But the IRS kept saying yes. And in doing so, the agency drew attention to its new fast-track system for approving charities – an innovation implemented to deal with backlogs and budget cuts that now only denies 1 in 2 applications. 400.

“Nobody’s looking at the store,” said Nina Olson, who was the IRS’ national taxpayers’ advocate from 2001 to 2019 and has repeatedly warned against lowering the standard of scrutiny. “They’re the gatekeeper to this whole universe of charitable grants. And if the IRS isn’t doing their gatekeeper job, then you’re in real trouble.”

The agency declined to answer questions about Hosang’s case, citing taxpayer confidentiality laws. He also declined to make officials available for in-person interviews, but released a statement saying the fast-track approval system “continues to reduce the burden on taxpayers and increase the efficiency of IRS operations.” “.

Hosang, was charged in Brooklyn in May with robbery, identity theft and fraudulent scheme. He pleaded not guilty. The Brooklyn District Attorney said he stole about $152,000 in donations that passed through 23 of his nonprofits. Hosang didn’t need to do much to promote the bands; the money came through online platforms that allow users to choose from IRS-approved charities.

Hosang, prosecutors said, spent the money on mortgage payments, credit card bills and liquor stores.

“I did very wrong. I know that,” Hosang said in an interview at his Staten Island home. His voice cracking, Hosang said he had turned his life around after a near-death blood sugar spike in 2020, which he took as a sign from God. He said he wanted to make a restitution. But, Hosang pointed out, each of his charities had been approved. “If you file something with an agency,” he said, “and they approve it, do you think that’s illegal?”

Hosang was born in Trinidad, raised in Brooklyn, and graduated from New York University in 1984 with a degree in finance. He found himself on the wrong side of Wall Street – accused of running ‘pump and dump’ deals that caused clients to pay high prices for shoddy stocks.

Prosecutors later said Hosang and his associates recruited subway vendors, rewarded them with marijuana, and worked with an associate of the Gambino crime family. Once, when a rival came to complain, according to investigators, Hosang and the mob associate “hung him from the window of the ninth-floor office.”

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

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

After his release, Hosang focused on a new business. In 2014, according to federal records, he asked the IRS to approve a tax exemption for a new nonprofit: “The American Cancer Society for Children Inc.” It wasn’t related to the American Cancer Society.

“I got distracted. My son died,” Hosang said, explaining how he turned to creating charities. “It was not a stable mind at the time.”

He began leading the operation at a time when the agency was already ill-prepared to detect signs of fraud in new applicants.

The first problem, according to former IRS officials: Tax law does not prohibit nonprofits from impersonating better-known nonprofits using similar-sounding names. The second: there is no systematic background check for fraud.

The IRS, in its written statement, said employees reviewing new applications “have been trained to identify fraud.”

Hosang still succeeded. Between 2014 and 2018, the agency approved 17 of its applications for groups with “American Cancer Society” in their names, according to IRS records.

Hosang switched to the accelerated system in 2019, according to agency records. His mailbox on Staten Island was the same. Red flags were always red. But, despite the warning from the American Cancer Society, Hosang had even more success than before: In two years of using the fast-track system, Hosang got the IRS to approve 56 new charities. .