Trump Foundation: What To NOT Do as a Private Foundation

Regarding the very surreal 2016 Presidential election one of the more popular topics of discussion which had received heavy media play was the tax-exempt organizations formed and operated by both the Clintons and the Trumps. Specifically, there was significant intense scrutiny on the transgressions committed by each of these tax-exempt organizations. While the Bill, Hillary and Chelsea Clinton Foundation (“Clinton Foundation”) is classified as a public charity, the Donald J. Trump Foundation (“Trump Foundation”) is classified as a private foundation. Focusing on the Trump Foundation of the new President elect, this presents a good opportunity to examine their transgressions through the prism of how private foundations should NOT be operated.

Regarding the Trump Foundation, it was first brought to light by the Washington Post in July of 2016 that, four years ago, the Trump Foundation had spent $12,000 at a charity auction conducted by the Susan G. Komen Foundation to purchase a Tim Tebow (now a minor league baseball player for the New York Mets) autographed football helmet jersey. Regardless of the fact that Tebow is currently out of the NFL, if the Trump Foundation paid for an item that is utilized by a disqualified person (Mr. Trump) of the Trump Foundation, such would be classified as a self-dealing transaction pursuant to §4941 of the Internal Revenue Code. This begs the obvious question regarding what the Trump Foundation is doing with the football helmet; are they displaying such in their offices, are they holding such for resale to raise funds for the Foundation? If the Trump Foundation is not in possession of such helmet and Mr. Trump himself is, then it is very likely that a self-dealing transaction would have arisen in this situation. In those situations where a self-dealing transaction is identified, the self-dealer (in this case, Mr. Trump) and the Board of the Foundation are subject to the payment of excise taxes.

Then, in September of 2016, the Washington Post reported that the Trump Foundation, on at least two occasions, paid amounts to resolve lawsuits or legal disputes related to Mr. Trump’s business ventures. Specifically, it was reported that the Trump Foundation spent a total of $258,000 to resolve these cases having nothing to do with the Trump Foundation. Additionally, as if this was not enough self-dealing for the Trump Foundation, the article also highlighted allegations that Mr. Trump (again, a disqualified person) had utilized Trump Foundation funds the purchase of portraits for Mr. Trump’s personal collections.

As set forth above, the payments made by the Trump Foundation on behalf of a disqualified person (Mr. Trump) would constitute prohibited self-dealing. This is further compounded by what is set forth supra regarding the football helmet, since numerous self-dealing transactions in a relatively short period of time could significantly jeopardize the tax-exemption of a private foundation.

Then it came to light that the Trump Foundation made a $25,000 contribution to a political organization affiliated with the Florida Attorney General. This contribution was made at a time that the Florida Attorney General was considered going forward with legal action against Trump University. Regardless of the reason why the contribution was made by the Trump Foundation, private foundation are NOT permitted to undertake any sort of political activities; if they do, such are considered to be taxable expenditures and subject to an excise tax.

Finally, on October 3, 2016, it was reported that the New York Attorney General, Eric Schneiderman, had issued an order to the Trump Foundation directing it to cease soliciting donations in the state of New York until it complied with the New York state solicitation registration requirements. New York, similar to the great majority of other states, requires charitable organizations which are soliciting in their particular states to register in their state for the privilege to do so. It is alleged that the Trump Foundation had solicited in the state of New York in the absence of registering in New York. The penalties for failure to register in a particular state can range from monetary penalties being imposed on the Foundation to the Foundation being barred from soliciting further in the state of New York.