Trump Foundation Under Criminal Investigation by New York (1)

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Gerald B. Silverman

The Donald J. Trump Foundation has been under criminal investigation in New York for more than a month for violating the state’s tax laws.

The Department of Taxation and Finance is taking the lead on the investigation, but other agencies may be involved, an aide to Gov. Andrew M. Cuomo (D) told Bloomberg Tax.

The aide, who asked to remain anonymous because of the sensitivity of the ongoing investigation, said the investigation could lead to a criminal referral to the state attorney general or the Manhattan district attorney.

The investigation may not only lead to criminal charges, but could ultimately lead to disclosure of President Trump’s tax returns.

“For the Trump Foundation, the law is the law,” Cuomo told reporters July 19. “It doesn’t matter who you are, the law is the law.”

Legal practitioners told Bloomberg Tax that it’s unclear if the state attorney general has authority to bring criminal charges without a referral from a state agency, although the attorney general does have statutory authority to oversee the state’s charities.

Attorney General Barbara Underwood may be reluctant to file criminal charges at this point because they might lead to a stay of the state’s civil case against the Foundation, according to another source familiar with the case who asked to remain anonymous because of the sensitivity of the matter.

Civil Case

Underwood sued the Trump Foundation in state court June 14, alleging that it made expenditures to influence the outcome of an election, didn’t properly report excise tax liability, and engaged in deceptive and/or improper fundraising practices.

The suit seeks $2.8 million in restitution, dissolution of the foundation, and bans for its directors.

When the civil suit was filed, President Trump tweeted that the suit was “ridiculous” and a product of “sleazy New York Democrats.”

Amy Spitalnick, a spokeswoman for the attorney general, said “we intend to hold the foundation and its directors accountable for all violations of state law.”

“We continue to evaluate the evidence to determine what additional actions may be warranted, and will seek a criminal referral from the appropriate state agency as necessary,” she said in a statement.

Underwood also referred the matter to the Internal Revenue Service, alleging self-dealing and other violations of tax code Section 501(c)(3), the section of the IRS code covering nonprofit charities.

IRS Criminal Investigation?

The IRS should launch a criminal investigation, but is unlikely to do so, Philip T. Hackney, a former attorney in the Office of Chief Counsel at the IRS, told Bloomberg Tax.

“It’s politically fraught for the IRS as an institution,” said Hackney, a law professor at Louisiana State University. “They may, but I doubt it.”

Hackney said a criminal investigation is appropriate, in part, because of repeated false statements made to the IRS by the foundation.

Randall M. Fox, a former chief of the New York Attorney General’s Taxpayer Protection Bureau, applauded Underwood and Cuomo for looking into the case.

“The charity laws are quite appropriately set up to promote charity and the public good, and not so that people of means can set up tax-free piggy banks for themselves,” Fox, a partner at Kirby McInerney LLP, told Bloomberg Tax in an email.

“Any time there is reason to believe that someone is abusing those laws, the government should investigate the facts and determine whether an enforcement action is appropriate, and whether the action should be a civil action or a criminal action,” he said.

Zephyr Teachout, a Fordham Law School professor who is seeking the Democratic nomination for New York attorney general, has been pushing for a criminal referral for weeks.

Teachout, who was defeated by Cuomo in the Democratic gubernatorial primary four years ago, issued a statement saying that if elected, she is “ready to investigate Trump, the Trump family, the Trump Foundation and the Trump Organization for criminal behavior in New York.”

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