The Donald J. Trump Foundation admitted to breaking “self-dealing” rules regarding private foundations in a federal tax filings made available publicly on Monday.
In a portion of the Internal Revenue Service (IRS) Form 990 for 2015, the foundation answers yes to a question: “During the year, did the foundation (either directly or indirectly) transfer any income or assets to a disqualified person (or make any of either available for the benefit or use of a disqualified person).” President-Elect Donald Trump in this case would be a disqualified person as founder and chairman of the foundation’s board.
The query is among a number of Yes or No questions on the part of the Form 990 titled “Statements Regarding Activities for Which Form 4720 May Be Required.” Form 4720, Return of Certain Excise Taxes, is not subject to required public disclosure, according to Lloyd Hitoshi Mayer, professor of law at Notre Dame School of Law.
The foundation has clearly admitted having engaged in self-dealing last year and in one or more prior years but what’s not known is the exact self-transactions, Mayer said. Such admissions are relatively unusual thought they do happen on occasion, he said. Last year, there were 239 returns by individuals reporting the tax on self-dealing, with the total tax reported about $2 million, up from 193 returns in 2014 and about $1.7 million in total tax reported, according to IRS statistics. There were more than 95,000 annual returns filed by private foundations in 2013.
Admissions of self-dealing would normally trigger an IRS audit, Mayer said, but it’s more likely that the foundation’s attorneys will reach out to the IRS. The eventual result is likely to be self-dealing taxes paid by Trump or businesses that benefited, equal to about 10 percent of the amounts involved; repayment plus interest; and adoption by the foundation of procedures to ensure no future violations.
Three of the most prominent of those possible instances of self-dealing were auction items that appeared on last year’s balance sheet but not in the past, indicating they were assets of the foundation, according to Brian Mittendorf, professor of accounting and MIS at The Ohio State University’s Fisher College of Business.
In principle, the foundation should be amending previous returns, Mittendorf said. The 2014 tax form did not show those assets at the end of year but the 2015 form does show them at the beginning of the year. The only question is whether they would make a material difference, which also raises another question of how they were valued. “It does revisit questions of how did they come up with $700 for the painting,” Mittendorf said.
The 2015 tax form listed three items under “other assets” that did not appear on previous forms, including sports memorabilia (a Tim Tebow helmet) and two portraits of Trump. Published reports indicated that the Trump Foundation previously paid $10,000 for a painting of Trump by Havi Schanz in 2014; $12,000 for a Tim Tebow football helmet in 2012, and $20,000 in 2007 for a portrait by “speed painter” Michael Israel.
The Washington Post first reported on the latest tax forms, which were uploaded to GuideStar.org by the foundation’s law firm. In recent months, the publication documented a variety of potential tax and legal issues surrounding the foundation’s activity, including Trump buying items with foundation assets but using them for business or personal, which is not allowed. Assets acquired by the foundation must be used for charitable purposes. Eventually, some of the paintings were found hanging in Trump resorts.
The foundation reported contributions of $781,370 and total assets of $1.275 million. The foundation made grants of almost $900,000 to about 50 organizations, ranging in size from $415 (New Jersey Boxing Hall of Fame) to $100,000 (Marine Corps-Law Enforcement Foundation; Comic Relief, Inc., and Caring for Military Families).
The largest contribution to the foundation came from The Trump Corporation ($566,370), followed by $150,000 from the U.K. Office of the Victor Pinchuk Foundation, the eponymous foundation of a Ukrainian oligarch. According to a report by Buzzfeed, the donation was a speaking fee for a 2015 speech Trump gave by video link to a conference organized by the Pinchuk Foundation.
“A private foundation really wasn’t constructed to solicit funds from outsiders,” said Mittendorf. “Especially in circumstances where there’s been so much criticism of the Clinton Foundation taking foreign donations,” he said.
The 2016 tax form, which is expected to be filed at the November 2017 extension, is likely to have a lot more activity given the presidential campaign. Trump also used the foundation to raise money for veterans’ organizations, and that probably will mean lots of smaller donors to the foundation, Mittendorf said.