CVS sued over ‘fraudulent’ donations to American Diabetes Association
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If businesses want to support a charitable cause, why can't they support it? I don't understand how it became normal to mix buying a burger at Mcdonalds with donating to their somewhat shady charity?
This all leads me to the inevitable tin-foil-hat conspiracy that they deliberately exploit this (IMHO) very strange legal void in order to gauge customer price sensitivity and such, as one other comment pointed out.
I suppose if the company directly donated to charity, then they would raise prices to account for that, and then in the end the customer is still donating to charity. So at the end of the day, perhaps I'm just somewhat against for-profit businesses participating in none-profit activities. Is there a better way?
I'm not going against charity in general, not at all and quite the opposite, but rather just very confused how we, society, and the law in general have allowed businesses to access their customers for charitable donations. Am I missing something? Genuinely open to ideas.
Coz it is advertising. And it's for-profit company. So they aren't going to donate parts of their profits, they will ask consumers to donate using them and portray themselves as good guys.
They should pull an Elon Musk and fire anyone who was involved in their donate to charity at the register scam. And if it goes up to CEO level, fire him or her too.
So in general, if I want to give to a charity, I give directly and claim the deduction myself unless the company is matching or something.
Businesses pay taxes on profits, not revenue. If a business donates money to charity or makes a big pile of cash and lights in on fire, both reduce profit and therefore tax burden. If a business collects $10 from people and then donates that $10 to charity the net effect on their taxes is exactly zero.
I guess what you're saying is the extra dollar is actually considered profit, and using it for a tax deduction it's a wash compared to just not collecting the extra dollar in the first place?
Profit is unchanged and there isn't some new "deduction" that saves a business from its tax burden.
https://www.irs.gov/forms-pubs/about-form-1120
Again, I'm not an accountant so I might be missing something, but it seems plain to me?
Let's say I'm making and selling coffee, and I ask each customer to donate an additional dollar toward a local orphanage. At the end of the month, I've collected $10k in revenue and $500 in donations, the $500 isn't mine to donate, it's my customers', which I'm donating on their behalf. If I go to the orphanage and donate $500 and pocket the $500 from customers as revenue, that's illegal.
This is exactly what this lawsuit is alleging.
No, that's what you're supposed to do.
> This is exactly what this lawsuit is alleging.
No, it isn't; that has nothing to do with the allegations in the lawsuit.
This is the same reason you’ll see this at grocery stores.
Somewhere some data scientist made the world more annoying. Similar to how they figured they could make more money by putting milk in the back of the store.
One of the biggest cognitive fallacies of the human brain is thinking that you can accurately aggregate and compare prices in this manner. Its one of the reasons that airplane tickets are sold the way they are.
They just also gave their impression. They didn't imply that it was a comprehensive study or scientific.
And they're right to ask. They shouldn't believe something just because someone said it on the internet.
In addition, there's usually some "nicer" grocery stores where you pay a premium to never have to wait in line behind someone using EBT though I think Whole Foods mostly dominates that niche these days.
And then there's availability: some veggies are not readily available outside of asian grocery stores and meat prices can vary widely from store to store.
Good lord, ours aren't. Our most-convenient grocery store has prices like 25% higher than Wal-Mart, ~15% higher than a couple larger grocery stores farther away, and 10% higher than Target.
Do they also claim tax write-offs for your donations?
But the other tangiable benefits are:
- Company makes big news about donating "$X million dollars to charity", which was really customers money
- Company holds on to $X in money until it's actually donated (which may be in a lump sum at the end of the year). In the meantime, they're earning interest or otherwise using funds.
It's an interesting situation, since the stores are not charities themselves. I don't know if you, the consumer, can write it off.
I don't know if there's a some kind of "pass through" loop hole that lets the consumer write off the donation, while the store funnels it to the charity, but themselves do not get dinged for the taxes on the income.
First, McDonald's takes the money and sets it aside, using their POS systems to segregate these funds from their traditional revenue. At the end of whatever time frame, they send the accumulated funds to the non-profit. The consumer can use these donations as a write-off by simply keeping their itemized receipt and showing the round-up.
Second, McDonald's could collect the funds as revenue, then make the donation as themselves. This is most likely not legal, since the consumer can also count the revenue as charitable donations, so it wouldn't make sense to have the same funds sent for the same purpose but tallied as a donation from two entities. However, this money would be revenue, then a donation, so it would have an impact against their legitimate taxable revenue/profits.
For example, let's say McDonald's earns $1b in revenue, including the consumers' donations of $10m and amount to a total profit of $100m.
Their profits without the donations is $90m. By donating the $10m from their $100m in profits, their lowering their taxable profits to $90m, making for the same tax obligation as if they didn't take the money in as income.
The only place for nefarious activity in all this would be the potential for earning interest from the donations in the time between receiving the funds and forwarding them to the charity. Curious how they would be able to justify those earnings, if they did something like that.
The issue in this case is that CVS committed to a donation to the charity, then had customers pay that money on their behalf, effectively.
Before special tax treatment comes into play, businesses in the United States are taxed on revenue minus expenses, i.e. their net income. Nothing about passing through charitable contributions for others affects their net income at all.
If you gave them $5 and they lit a 5 dollar bill on fire, they get a write-off because companies are taxed on profits, not revenue.
Now whether or not sales-tax gets involved on the donation I have no clue; there are thousands of different sales-tax jurisdictions in the US, so I'm not going to even speculate.
Yes, but not in the "We pay less taxes because of this" way that people think.
Pulling numbers out of the air here, but if they make $100 in sales with $80 in costs, they'll take an $80 deduction for their costs and pay taxes on the $20 profit.
If they make $100 in sales, plus accept $30 in donations for a total of $130 in revenue, and have $80 in costs, they'll send the $30 to the charity, take a $30 deduction in their taxes for the donation, another $80 deduction for costs, and finally pay taxes on the $20 remaining profit.
Obviously, it's far more complicated than that, and actual numbers will be wildly different, the point still remains that they do not get a tax advantage.
Businesses are not allowed to take charitable deductions for donations made using funds collected from customers for the stated purpose of donating funds to a charity (i.e., "round up for charity").
The money being donated is not the business' money to donate, ergo they are not the party making the donation and do not get the tax benefit of it. Technically, the customer gets the deduction, but for donations of a few bucks its not worth it for the business or the customer to bother with the donation receipt.
Note that this does depend on the language of the solicitation. If they say "we'll donate" they can take the deduction, but they must also gross up their own revenue to include the "donated" funds, so they get no tax benefit.
We're in agreement.
In the first case, the business gets a deduction because it records these deductions as revenue and is making a donation out of that revenue. That's where we agree, but this is the exceptional case, not the norm.
In the second case, which is the common case (i.e., round up for charity see for example https://www.taxpolicycenter.org/taxvox/who-gets-tax-benefit-...), the business does not get a deduction for the donation, but also does not record these donated funds as revenue because it is only acting as a collections agent for a charity.
Your first paragraph is misleading. There is no tax write off since the money donated is not revenue and is not deducted in the tax sense. It’s just pass along money. The business can write off the expense of the accounting though.
Is putting "tip" lines on receipts in situations that, until quite recently, definitely wouldn't have called for a tip, part of a similar scheme?
It definitely sounds like something that could be right. I could also imagine that companies started doing this in a philanthropic way and then later realized there was a useful signal in their data (i.e. my initial cynical "yeah, that makes sense" reaction is more to do with my outlook than their motivations).
When I skip a random donation I think, hey, I'll just bundle up these little rejections and make a real donation to an organization that I do trust. But I don't keep score. Given the increasing number of these soliciations I may be underpaying this promise.
Since it was under her breath, and since these workers are generally ill treated and underpaid (quite literally less than minimum wage) anyway, I decided not to make a scene, but I very much felt insulted that they would want me to donate to a charity after they just sold me a product they received for free.
I would very much like to be wrong, but I’m pretty sure that’s what they’re all doing in some way. — Although, I really hope someone will prove me wrong in the comments.
AFAIK if you donate to a non-profit through the pos terminals, it counts as a tax deductible donation that the organization with the terminal can claim, not you. For example if you donate $10 to the ASPCA through a Petsmart terminal, thats a tax deductible contribution for Petsmart from money out of your pocket.
This implies that the more often people ask you to donate money to charity, the more money you are obligated to donate to charity. Do you really believe this?
Keeping the in mind a complaint is one party's very subjective factual narrative, the "legally binding obligation to donate" jumps out for me.
Does this plaintiff know the agreement's specifics?
If it were, let's say, an agreement that CVS would donate $n over x years (matching customer donations) and in exchange they were promoted as an A.D.A. sponsor, and had permission to use the A.D.A. logo for marketing purposes, I don't find it terribly egregious.
So, consider 2 scenarios:
1. CVS collects $1mm from its customers for the ADA donations. The customers' expectations would be that the ADA would get $11mm. $10mm for CVS's legally binding payment, and the $1mm they donated through CVS. So the customers are short $1mm, and CVS is short $10mm.
2. This suit is claiming that the ADA still receives $10mm. The customer is short $1mm, but CVS is only short $9mm.
Irrespective of what CVS's agreement with the ADA is it sounds like a reasonable person can legitimately claim that #2 led to a donation to CVS, and not the ADA, and so CVS's representation was fraudulent.
Of course, money is fungible, so this is likely hard to prove. But the case seems like a fairly reasonable one on the surface.
>According to the complaint, prior to the completion of a customer’s transaction, the checkout screen would prompt the customer with several boxes of pre-selected amounts (and an opt out option) to donate to the American Diabetes Association (ADA). The plaintiff alleges that CVS did not merely collect the customer’s donations and forward them to the ADA, but instead, counted the donations toward a legally binding obligation of $10 million that CVS had made to the ADA.
If the complaint is ultimately proven true, it contradicts a Lifehacker March 2021 story[1] saying that doesn't happen :
>Case in point: A tweet with erroneous information went viral last week, claiming that participating grocery stores have already handed out donations to nonprofit partners for a tax write off, and are merely collecting customer money as a reimbursement. The donation, according to the tweet, is merely a ruse for the sake of profiteering under the guise of charity.
(The LifeHacker article was before ChatGPT so we can't blame A.I. generated nonsense in this case.)
EDIT to replies about the sequence of donate-then-collect vs collect-then-donate:
I don't believe this is actually a big difference in terms of the spirit of the donation from the perspective of the consumer. If one reads the splashy PR releases from CVS about the $10 million donation :
- https://www.cvshealth.com/news-and-insights/press-releases/c...
- https://diabetes.org/newsroom/press-releases/2021/10-million...
... CVS wants the positive associations with that $10 million donation. The unstated implication is that CVS will pay $10 million out of their profits. Normal readers would not expect that self-congratulatory press release to mean they will actually add donation prompts at the checkout so it will be the customers paying that $10 million donation. The public would think it feels like the deception in the LifeHacker article even if the sequence actions of collect-then-donate is reversed.
[1] https://lifehacker.com/check-out-donations-arent-a-scam-actu...
What I believe this Lawsuit is alleging is that CVS promised ADA that they would give them $10m, and CVS is saying that customer donations are part of that $10m.
The other aspect is the tax aspect. What people are concerned about is that a company is profiting off their "donation" which cannot happen, even if they are merely reimbursing themselves.
* Company donates $10 and so does not have to pay the income tax * Customer donates $10 through company. This is $10 of income to the company, which requires the income tax.
In such a scenario, the company gets no financial benefit - though they may get a social benefit in what they're claiming to donate
> it will not include your donation as part of its business receipts, or income, nor will it claim the charitable gift as an expense.
(And the order of operations is not so relevant. From a tax perspective, there's no difference if it forwards your donations and calls it their own, or makes its own donation and reimbursing itself with your donation. In both cases it doesn't lose any money and gets to illegally claim a tax deduction.)
This particular case is about a legal obligation, not a tax credit, but in either case it's unethical and illegal to call customer's donations your own.
What? That makes no sense. You put in the effort and delivered the money. Without your effort, the money would never arrive. In every possible sense, the customer's donations are donations from you.
Politicians are always evaluated by how much fundraising they can do for their party. They are never evaluated by how much of their fundraising came out of their own pocket, because... that metric just isn't relevant to anyone or anything.
Same goes for salesmen. If you're responsible for $10,000,000 / year of revenue, does it matter to anyone that you didn't personally purchase $10,000,000 / year of products? Of course not.
This is absolutely cut-and-dry, and echoed in the Lifehacker article, and here [1] and here [2].
1. https://apnews.com/article/fact-checking-000329849244
2. https://www.taxpolicycenter.org/taxvox/who-gets-tax-benefit-...
From your link #2:
> What happens to the money you donate at the cash register?
> This is where you round up your bill to give to a charity designated by the retailer, and the donation amount appears on your receipt. The store serves only as a collection agent for your gift. Assuming the business is following the law, it will not include your donation as part of its business receipts, or income, nor will it claim the charitable gift as an expense.
In the alternative scenario, the store claims the charitable gift as an expense, and it also recognizes it as part of its business receipts. This is the difference between being taxed on [(I+G) - G] and being taxed on [(I)].
The fact that you get to subtract a G in the first formula means nothing. The store gets equivalent legal credit for donating the money in the other scenario when it is allowed to exclude that money from its business receipts. Or, from another perspective, the ability to claim a deduction in the one case is of zero benefit to the store, because they also get to claim the same deduction in the other case.
The Tax Policy article is describing two legal ways that a store can be involved in charities:
1. The business engages in a co-venture with a nonprofit charity. It dedicates a certain percentage of its sales to a charity. The company can deduct this gift in it's taxes. This cannot come out of a voluntary addition made by the customer at the POS.
2. A voluntary donation made by the customer at the POS. The business cannot count this for a deduction. The customer can deduct it (though generally won't). It makes no difference that, as you said earlier, the company "put in the effort and delivered the money." The donation is not their donation.
These are two mutually-exclusive charity drives. You cannot move money from one pot to the other.
The original article says that the petitioners are claiming that CVS had a legal obligation to do (1) i.e, they had engaged in a co-venture with the ADA and had pledged a certain amount of their own money, but that instead they were using money from (2), customer's voluntary contributions at the POS.
If you're worried about -- in your own words:
> From a tax perspective, there's no difference if it forwards your donations and calls it their own, or makes its own donation and reimbursing itself with your donation. In both cases it doesn't lose any money and gets to illegally claim a tax deduction.
Then your comments are gibberish. Write out a cash flow chart.
A customer makes a $30 purchase at CVS and donates $5 to the ADA. There are two options:
1. CVS recognizes $35 of revenue, gives $5 to the ADA, and claims a $5 deduction.
2. CVS recognizes $30 of revenue, gives $5 to the ADA, and doesn't claim a deduction.
These are equivalent in every way. In both cases, CVS takes $35 from the customer, gives $5 to the ADA, and recognizes an adjusted $30 of revenue.
You could accuse CVS of taking $35 from the customer, giving $5 to the ADA, and recognizing $25 of revenue by taking the deduction twice - first recognizing $30 of revenue, and then claiming a double-counted $5 deduction on top of that. That would be tax fraud. It would cause no harm to the ADA; they get the same amount of money either way. I'm pretty sure that's not what you're saying. But it is the only interpretation that would make your discussion of "illegal deductions" make any sense.
But there is another theory of what the problem might be. You could be saying that CVS promised to give the ADA a certain amount of money, and then did. Again, I'm not sure why that is supposed to be bad. This is what I've been talking about up above - in every other circumstance, if you go out and drum up money for a cause, you get credit for the production of that money. This is due to the obvious fact that you produced the money.
> there are two ways charities can benefit from point-of-sale donations. The first is where the store donates a share of its sales. That type of donation is deductible by the business but not by its customers. The second way is where customers add something to their bill at the register with the extra amount going to charity. Customers can claim those amounts donated as deductions on their individual income tax return,
In your head these options count as the same thing. If they did, there wouldn't be an article on how the two separate options work.
Here's one way that can be really clear: if a customer donates at a POS, and itemized their deductions, as they are legally allowed to do, and the company also claimed the tax benefit then that same $10 credit is being claimed by two different people. This is clearly not legal.
That alone should convince you that a store cannot claim a POS donation as their own donation. You can't just say "These are equivalent in every way" and just make it so.
The point of the lawsuit is that CVS had a legal obligation to donate their own money. Money donated at a POS is legally the customer's donation. They can't both claim it.
And, to be clear, no one but you is confused that that would be illegal. The question that the lawsuit will settle is whether CVS was using POS donation in this way, not whether that would have been legal.
> in every other circumstance, if you go out and drum up money for a cause, you get credit for the production of that money.
What are you talking about? Moral credit or legal credit? Because legally, no, that's 100% wrong. If I host a charity dinner, I do all the work, I get my rich friends to come, I get them to open their wallets and donate thousands to my cause, no, I very much do not get to claim legal credit for their donations.
If you're trying to ignore legal facts and just make moral arguments about who deserves "recognition," I'm not talking about that.
> Read the Tax Policy article again, and make sure you understand
You do realize the purpose of that article is to point out to people like you that you don't understand what's happening in point of sale donations? Here, the article introduces itself:
> These small, easy donation opportunities are hugely important to participating non-profits and can help boost the reputations of retailers. And they can make a shopper feel good, too. But like so much else these days, these giving opportunities have become controversial, in part because some critics insist retailers are taking a tax benefit for their customers’ donations.
> Watch this TikTok video of a dramatized exchange at the counter. The video’s creator plays the roles of both cashier and customer. The cashier asks the customer to “round up” his bill by 25 cents and donate the extra change to a charity. The customer refuses, believing the corporate store owner will “dodge taxes” by taking a deduction for the customer’s contribution. The video’s creator appears righteous, but he is wrong, or at least confused.
If you can't be bothered to read my comments, or the original article, what are you arguing for?
I've answered that question twice, in sentences starting with:
"The original article says that the petitioners are claiming that ..."
"The point of the lawsuit is that ..."
Are you actually claiming that the lawsuit is frivolous? Because I think you've been arguing about something inside your head this whole time, while I try to keep coming back to the facts in the lawsuit, and the legal definitions of donations, neither of which you seem to care to understand. You just keep making vague moral arguments about who should get "credit" for a donation.
I keep asking you to describe what you think is wrong, because you have no idea what you're talking about. And you keep refusing, presumably because you're not able to give such a description.
But I'll try a completely different line of attack: an illegal tax deduction would be fraud, and the victim would be the IRS. It isn't possible, under the American legal system, for civilians to sue over an offense of that kind.
But this is a lawsuit by a civilian seeking to become a class representative. He alleges that CVS has committed fraud against its customers. As he must, since it isn't possible for him to sue CVS for tax fraud.
No one on any side has alleged any problem with CVS's taxes. Why do you believe there's a problem with them?
1. CVS made a legally binding that CVS would donate $10 million to the ADA during the three year period of 2021 through 2023
2. CVS instead took the customer's own donations and used them to fulfill its own obligations.
The purpose of discussing tax law is that you seem incapable of understanding that a company's own donation and a pass-through donation are two different things. They legally come from two different entities, and for good reason. If the company pledged to donate its own money, and instead it "donated" its customer's own donations, this is not the same thing.
The claimed harm to the customer is that CVS had already pledged $10 million of its own money to ADA, so this money was already going to them, and the "donation" is therefore equivalent to a reimbursement to CVS itself, not additional money that helps the ADA. Clearly the customer desired to give money to the ADA, not to CVS. The ADA gets not a single penny more money from each donation if CVS only hands over the $10 million it had already pledged of its own money.
> an illegal tax deduction
Again, this is showing that you are unwilling to read my comments. I have not once described the issue as being a tax issue. I said "From a tax perspective" in a parenthetical in my very first comment, to show an example of how, legally, direction donations and pass-through donations are different, but said right away that "this particular case is about a legal obligation, not a tax credit." I've also referenced Tax Policy Center to, again, highlight how direct donations and pass-through donations are legally different.
You are the one who has gone on and on about taxes even though this case is not about that.
You don't seem to understand how they're different.
The difference is that in one case, the customer is entitled to a tax deduction, and in the other case, they aren't. That is a choice the store makes. But it doesn't affect the store, or the charity. There is a difference, from a tax perspective, and that difference applies only to the customer.
Going back to my earlier example, we see that the store must pay taxes on $30 of revenue in every scenario, while the customer always has to pay income tax on $30 of income, but may or may not have to pay income tax on the additional $5.
That is the only legal difference. How do you think it applies to this lawsuit?
After that, you're arguing about whether CVS has "really" donated any money to the ADA. As I have repeatedly pointed out, in every parallel scenario, the answer is unambiguously yes. Salesmen "really" bring in revenue when they haven't personally purchased anything. Politicians "really" bring in revenue when they haven't personally donated anything. Fundraisers "really" bring in revenue when they haven't personally donated anything. Logistical improvements "really" bring in profit even though that comes in the form of lowered costs and revenues don't increase at all.
> The ADA gets not a single penny more money from each donation if CVS only hands over the $10 million it had already pledged of its own money.
This is clearly untrue; see my sidethread example of a structured donation in which a pledge of $15 million in matched donations raises $25 million in match-seeking donations. You really believe CVS customers were tracking the total amount of donations and stopped when it hit $10 million?
G/O is most famous for destroying other honest journalism sites after they publish unfavorable investigative reporting.
Nonprofits routinely ask large donors who come to them to make a donation to hold off on the donation and instead announce a pledge match. ("For every $1 donated to this charity over the next three months, I will donate $1 of my own, up to $15,000,000.") They do that because they prefer to try to turn the $15,000,000 they were getting anyway into $40,000,000 when $25,000,000 worth of small donors see the match announcement and think "this doubles the value of my pledge!". No charity is going to be shocked at the idea of a large donor committing to donate a certain amount of money that they raise from other people.
The ADA is unlikely to support this lawsuit, because if it wins, it hurts the ADA's fundraising prospects.
1. https://engageforgood.com/ccc-2019/, referenced by [2]
2. https://www.taxpolicycenter.org/taxvox/who-gets-tax-benefit-...
> This is where you round up your bill to give to a charity designated by the retailer, and the donation amount appears on your receipt. The store serves only as a collection agent for your gift. Assuming the business is following the law, it will not include your donation as part of its business receipts, or income, nor will it claim the charitable gift as an expense.
This CVS thing suggests that companies may be doing something other than putting the money into a liability account and then handing that off as a donation “from their customers”. What else might be possible?
That's not to say that this isn't fraudulent, just pointing out that this seems to be a very common practice. Never once have I believed that I would be donating directly to the charity (this is despite the phrasing rather than because of it) and, indeed, it seems much more like I am simply increasing the amount of my transaction in order to get [the retailer] to agree to donate the amount of the increase to charity. Given that context, I've never once considered following through; if anything I would ask the cashier, "Which charity is it?" so I can just donate myself.
I believe at least one benefit of this for the retailer is the ability to claim this (not technically a) "donation" as revenue, which they then actually donate for the tax benefit. Of course they want the consumer to spend an extra (up to) $1 so the retailer 1) gets that as additional revenue and 2) avoids paying taxes on this revenue.
It's nice to see this being called out in a class-action suit; hopefully something comes of it.
Here is a link to the ADA webpage about the announcement: https://diabetes.org/newsroom/press-releases/2021/10-million...
It seems like CVS said they would donate 10MM to the ADA, and is satisfying that arrangement by collecting money from customers and other donors.
I am unsure as to whether this is 'normal', and it definitely seems unsavory, but it's not clearly illegal. It also seems like this sort of fundraising would be very useful to the ADA, as it helps them raise money from donors they would otherwise have trouble getting in front of.
More generally: this is a case where government regulation is very helpful. There is a clear public interest in consumers’ ability to trust that retailers are being honest and forthright about “we donate to charity on your behalf” claims. I know many people who refuse to donate to these schemes because they don’t trust the retailer, which seems harmful all around.
ETA: I read your first link carefully and I don’t even think it discloses anything. It says there is a $10m commitment and later says customers will be invited to donate. It doesn’t make clear that one will be counted towards the other.
If anyone is curious, they are a big medical insurance company in the US.
"This is where you round up your bill to give to a charity designated by the retailer, and the donation amount appears on your receipt. The store serves only as a collection agent for your gift. Assuming the business is following the law, it will not include your donation as part of its business receipts, or income, nor will it claim the charitable gift as an expense. In other words, your gift has zero impact on the store’s income taxes."
https://www.taxpolicycenter.org/taxvox/who-gets-tax-benefit-...
Edit: Never mind, this is a different lawsuit.
> CVS did not merely collect customers’ Campaign Donations and forward them to the ADA, but, instead, counted Campaign Donations toward the satisfaction of a legally binding obligation, which CVS had made to the ADA, to donate $10 million to the ADA during the threeyear period of 2021 through 2023 (the “CVS Obligation”)
Court filing here: https://www.docketalarm.com/cases/New_York_Eastern_District_...