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76 fake charities shared a mailbox. The IRS kept approving more.

The Internal Revenue Service building in Washington, Nov. 13, 2021.STEFANI REYNOLDS/NYT

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

It was not 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 City. It was not the American Cancer Society, either: In fact, the real American Cancer Society had already warned the IRS that the leader of the sound-alike group, Ian Hosang, was running a fraud.

The IRS approved the group anyway. Soon after, it also approved another operation run by Hosang: “the United Way of Ohio,” which was also registered to the Staten Island address.

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Hosang, 63, is now accused by prosecutors in New York of operating a long-running charity fraud that has astounded nonprofit regulators and watchdogs — and raised concerns about the IRS’s ability to serve as gatekeeper for the American charity system.

Not because the alleged scheme was so good.

Because it was terrible. And it worked.

Hosang — a convicted stock market fraudster once accused of dangling a man out of a building — got the IRS to approve 76 nonprofits, often despite glaring red flags of potential fraud. His operations stole the names of better-known charities. They claimed to be located where they obviously were not.

But the IRS kept saying yes. And in doing so, the agency has attracted scrutiny of its new fast-track system for approving charities, an innovation implemented to deal with backlogs and budget cuts that now denies only one application in 2,400, according to agency statistics.

“Nobody’s watching the store,” said Nina E. Olson, who was the IRS’s in-house national taxpayer advocate from 2001 to 2019 and warned repeatedly about the decreased level of vetting. “They’re the gatekeeper to this whole universe of charitable subsidies. And if the IRS is not doing its job as a gatekeeper, then you’ve got real problems.”

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The agency declined to answer questions about Hosang’s case, citing taxpayer privacy laws. It also declined to make officials available for in-person interviews, but it released a written statement saying that the fast-track approval system “continues to reduce taxpayer burden and increase cost effectiveness of IRS operations.”

Hosang was indicted in the New York City borough of Brooklyn in May, on charges of grand larceny, identity theft, and conducting a scheme to defraud. He has pleaded not guilty. The Brooklyn district attorney said he stole about $152,000 in donations that flowed through 23 of his nonprofits. Hosang did not need to do much to promote the groups; the money came in through online giving platforms that let users choose among IRS-approved charities.

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

“I did very wrong. I know that,” Hosang said in an emotional interview with The New York Times at his home in Staten Island. His voice breaking, Hosang said he had changed his life after a near-death spike in blood sugar in 2020, which he took as a sign from God. He said he wanted to make restitution for what he had done.

But, Hosang pointed out, every one of his charities had been approved.

“If you file something with an agency,” he said, “and they approve it, do you think it’s illegal?”

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Hosang was born in Trinidad, grew up in Brooklyn, and graduated from New York University in 1984 with a degree in finance. He wound up on the ugly side of Wall Street, accused of running “pump and dump” operations that conned customers into paying high prices for low-quality stocks.

Prosecutors later said Hosang and his associates recruited salesmen on the subway, rewarded them with marijuana, and worked with an associate of the Gambino crime family. Once, when a rival visited to complain, investigators said, Hosang and the mob associate “dangled him out the window of the ninth-floor office.”

In 1997, he was barred from the industry by a self-regulatory body then called the National Association of Securities 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, according to federal records.

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

“I got sidetracked. My son passed away,” Hosang said in the interview at his home, explaining how he had turned to setting up charities. “It was not a stable mind at the time.”

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

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The first problem, according to former IRS officials: Tax law does not prohibit nonprofits from impersonating better-known nonprofits by using sound-alike names. The second: There are no systematic checks for a history of fraud.

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

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

That caught the attention of the real American Cancer Society. The group began contacting state attorneys general, who often have the power to shut down fraudulent nonprofits in their jurisdictions. That worked in North Dakota, Washington, and California, but the state-by-state approach was slow.

In 2018, the American Cancer Society decided it needed a national approach. It wrote to the IRS, laying out the pattern it had identified in Hosang’s groups.

“It feels a little like ‘Scooby Doo,’ ” said Meghan Biss, a former IRS lawyer who represented the American Cancer Society. “It shouldn’t have been that hard to figure out who the bad guy was.”

As it turned out, Hosang had switched to using a new IRS process for smaller charities. The new program was established in 2014, in response to budget cuts and a scandal in which the agency was accused of targeting conservative groups for undue scrutiny.

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The new “EZ” application stripped 11 pages of questions down to three, nine boxes to check, and a small blank for groups to describe their mission. There was little room for IRS officials to mire suspected scammers in bureaucracy. The denial rate for new charities — which had been as high as 1 in 53 applicants in the old system — fell to 1 in 2,400 in this one.

One 2019 study by the agency’s taxpayer advocate found that 46 percent of the applicants it approved were not actually qualified, usually because their charters did not conform to charity law. It also noted that the “mission statements” were often so vague as to be useless. In 2021, federal records show, the IRS approved groups whose mission statements were, in their entirety, “CHARITABLE ACTIVITY,” “NON-PROFIT” and “Need to fill in” (possibly a forgotten note to self).

Hosang switched to the fast-track system in 2019, according to agency records. His mailbox in Staten Island was the same. The red flags were still red: Among the “directors” listed in these supposed charities, there was a long-dead classmate from NYU, a long-estranged friend from Wall Street, and at least one person who appeared to be imaginary, living on a street in Brooklyn that does not exist.

But, despite the American Cancer Society’s warning, Hosang was even more successful than before: In two years of using the fast-track system, Hosang got the IRS to approve 56 new charities.

Zachary Weinsteiger, at the nonprofit-rating group Charity Navigator, said his group’s analysts had noticed the pattern in the IRS’ data, and said it became almost comic, like a single miscreant fooling the same border guards with bad disguises.

“One guy coming in, in a bunch of dollar-store costume pieces,” Weinsteiger said. “He keeps crossing the border, and everyone keeps thinking he’s a different person.”