The Investigators: The Beggar's Loophole - Action News 5 - Memphis, Tennessee

The Investigators: The Beggar's Loophole

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MEMPHIS, TN -

(WMC TV) - Shortcomings in both Tennessee's charity law and the federal tax code allow certain religious charities to solicit donations with little proof of their credentials.

The Action News 5 Investigators discovered this "beggar's loophole" after receiving several viewer e-mails about "Stepping Out On Faith Restoration Ministries," based at 3414 Scenic Highway.

Viewers explained the ministry's solicitors have been camped out at area intersections, asking for money.

"We house men and women that are bound by drugs, alcohol, gang violence and prostitution in a 9-month Christian opportunity," said Sister Jennifer Suluki of the organization.

It took The Action News 5 Investigators nearly a week to verify the group is a legitimate religious charity because it is neither registered with the Tennessee Secretary of State's Division of Charitable Solicitations & Gaming, nor does it maintain its own tax-exemption with the IRS.

That's because neither is required.

Kevin Snider, a Germantown attorney and certified fraud examiner, reviewed the language of Tennessee's Charitable Solicitations Act. It exempts "bona fide religious institutions" from registration, including "...groups which do not maintain specific places of worship and which are not subject to federal income tax..."

"You could fit anything under that," Snider said.

The loophole widens even more when you consider the IRS's guidelines for "group exemptions."

The federal tax code allows multiple religious charities with multiple locations to be affiliated under one central charity's 501(c)(3) tax-exemption. On the IRS web site's FAQ section on group exemptions, it said, "Must the central organization be recognized by the IRS as tax-exempt...? No."

That makes it very difficult for consumers to verify religious-based charities.

"You would actually have to, one, first find out who the group is, who they are affiliated with, are they a 501(c)(3)," said Snider. "According to (the IRS's) definition, there would be no end to groups piggy-backing another charity's tax-exemption."

The Action News 5 Investigators confirmed "Stepping Out On Faith Restoration Ministries" is recognized under a federal group exemption. Pastor Virgil Perry of Adonai Community Outreach Ministries under New Testament Baptist Church, 963 Florida St. -- which does have a verifiable tax-exemption -- confirmed his church's exemption includes Suluki's ministry.

However, Suluki's solicitors are supposed to show written proof of the 501(c)(3) affiliation to the people they solicit.

The ones we caught on camera asking for cash at Germantown Parkway and Dexter in Cordova, TN, did not carry documentation proving the affiliation.

"They were supposed to," said Suluki. "If they didn't have one, then it was shame on them that day."

The solicitors in Cordova apologized, explaining that they were unaware they had to show proof of the tax exemption.

Copyright 2012 WMC-TV. All rights reserved. 

ANDY'S CONSUMER PAY-OFF

Updated:

Verifying religious charities/ministries * If they are soliciting cash donations in public (sidewalks, intersections, etc.), they must produce written proof of their group's 501 (c)(3) status or affiliation

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