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Nov. 22 — The Trump Foundation’s disclosure on its latest tax filing that individuals took advantage of their connection to the organization was a calculated, and vital, step now that Donald Trump is a few weeks away from the presidency, practitioners and tax professors told Bloomberg BNA.
“He can’t sit there and keep lying. He’s got to come clean,” Clifford Perlman, a partner at Perlman & Perlman LLP in New York City, a law firm specializing in nonprofits, said Nov. 22. “It’s transition time, he can’t play games anymore.”
The Donald J. Trump Foundation acknowledged self-dealing in 2015 and previous years—behavior the Internal Revenue Service prohibits—on its 2015 tax filing, which was recently posted online. The information was first reported in the Washington Post. The private foundation, which is tax-exempt under tax code Section 501(c)(3), has come under fire in recent months for questionable expenditures, including alleged use of money from the organization to settle lawsuits involving Trump’s businesses.
“There’s been enough publicity given to this issue that if they didn’t check that box for self-dealing, they’d be getting a lot more investigative reporting about that,” said Lisa Heller, a senior manager at Tate & Tryon CPAs in Washington, an accounting and consulting firm specializing in nonprofit tax.
The foundation and the Trump transition team didn’t respond to requests for comment.
Rep. Elijah E. Cummings (D-Md.), ranking member of the Committee on Oversight and Government Reform, sent a Nov. 22 letter to the Trump Foundation's law firm seeking further information on the foundation's alleged self-dealing, including documentation on the penalties and excise taxes owed for each violation and whether those amounts were paid.
Cummings said if the IRS filing is legitimate, “this new document appears to corroborate multiple reports of self-dealing that have been repeatedly denied or disregarded by President-elect Trump over the past year.”
The foundation admitted to owning several items that attorneys have previously pointed to as signs of self-dealing. Trump reportedly used $12,000 from the foundation to buy a football helmet signed by former professional player Tim Tebow, though the helmet was valued at $475 on the return.
Trump and his wife, Melania Trump, each also bid on portraits of Trump at charity auctions using foundation money. Melania Trump bid $20,000 on a six-foot tall portrait of her husband in 2007, and Donald Trump spent $20,000 on a smaller portrait in 2014, according to the Washington Post. The large portrait was valued at $700 and the smaller at $500, according to the return.
“They’re acknowledging that these are assets of the foundation,” said Lloyd Hitoshi Mayer, a law professor at University of Notre Dame Law School. “You need additional facts to know whether those assets involve self-dealing.”
The foundation also disclosed $41,636 in “other nondeductible charitable contributions,” which Philip Hackney, an associate law professor at the Louisiana State University Law Center, said is “just bizarre.”
“I don’t know what that is,” said Hackney, who previously worked in the IRS Office of Chief Counsel, focusing on exempt organizations.
Neither Trump nor his preparer signed the latest tax return, though the foundation’s treasurer did. The IRS may consider the lack of a preparer signature to mean the form is incomplete, Heller said. The foundation’s attorneys uploaded the form online to the nonprofit-tracking site GuideStar USA Inc., according to the Washington Post.
WeiserMazars LLP in New York, which handles the foundation’s taxes, declined to comment.
Additional information on the activity will likely need to be disclosed to the IRS, and the individuals who engaged in the behavior will need to pay penalties and repay the foundation, practitioners said. The foundation would lay out more specific details on Form 4720, Return of Certain Excise Taxes Under Chapters 41 and42 of the Internal Revenue Code, though that document may not be publicly released, Heller said. Some questions remain, such as what activity the foundation considers to be self-dealing and who specifically was engaged in it. The tax return also doesn’t state whether anyone has already paid penalties. “We’ve only just gotten the very, very top-level, basic answer as to whether there was self-dealing that happened,” Heller said.
While some practitioners said the foundation’s tax-exempt status may be at risk, the IRS may view the situation as “the best of all possible worlds,” said Rosemary E. Fei, a principal at Adler & Colvin in San Francisco. The return shows the foundation is voluntarily coming into compliance with tax rules, and the agency doesn’t have to wade into political territory by opening an audit.
“I think the IRS may breathe a big sigh of relief and say, ‘Now we’re not going to be under all this pressure to audit the Trump Foundation,’” she said. “It strikes me as the perfect way for the Trump Foundation to kind of take all the air out of this very quickly.”
The New York attorney general, which began investigating the foundation Sept. 13, could also fine the foundation, revoke its exemption or bar board members from serving in that capacity again, Perlman said. The office declined to comment because the investigation is ongoing.
The Trump Foundation or its attorneys may also reach out to the IRS to try to resolve the issue without an audit so that it can be settled before Trump’s inauguration in January, Mayer said.
In a similar move, Trump agreed Nov. 18 to pay $25 million to settle a string of lawsuits involving his for-profit institution Trump University. Reince Priebus, currently the Republican National Committee chairman, said that decision was in part so Trump can become president “without distraction.”
“I think there’s no reason particularly to drag this out, and if anything, I think there would be some pressure to go to the IRS and say ‘let’s resolve this as quietly as we can,’” Mayer said.
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