It’s Not Nice to Fool Around with the Tax Code

Last Friday our family sat around the dinner table sharing pizza and conversation. The discussion drifted around to politics and one of our members talked about certain activities with regard to a certain private foundation and certain transactions which allowed the primary foundation officer to personally benefit from its activities. My reaction was that such activities could easily bring about the revocation of the foundation’s exempt status.  I was assured that the fix was in and the parties in question could not be touched.  Seems that may not be quite the case.

The value of this article from the BNA tax summary is that it points out the importance of realizing that foundations, corporations and trusts are separate legal  entities whose separateness must be respected at all times. Private foundations and trusts particularly ones  in which the primary income beneficiary serves as trustee are setups for abuse.  Trustees and Officers of foundations easily fall into the trap of believing that the assets of the foundation or the trust can be used as they see fit without regard for the purposes for which the organizations have been established.  This article concerns one of the political candidates but it could just as easily apply to the other.  Caveat emptor. 

Trump Foundation Skirting IRS Self-Dealing Ban: Tax Lawyers

Posted September 20, 2016, 3:55 P.M. ET

By Colleen Murphy

Recently uncovered expenditures from Donald Trump’s private foundation likely constitute self-dealing, and could put the foundation’s tax exemption at risk, several lawyers with experience in nonprofit tax told Bloomberg BNA.

The Washington Post reported for the first time today several expenditures—including two where Trump allegedly used money from the Donald J. Trump Foundation, exempt under tax code Section 501(c)(3), to settle lawsuits involving his for-profit businesses—that add to growing public scrutiny of the foundation. Trump also used a combined $15,000 from the foundation to buy advertisements for his hotel chain and purchase a portrait of himself, the Post reported.

“There seems to be a pattern of personal use of the foundation’s assets,” said Marcus Owens, a partner at Loeb & Loeb LLP and a former director of the IRS Exempt Organizations Division. “He has a range, it appears, of transactions that are quite suspicious from the standpoint of federal tax law and in fact are rather conclusive in a number of cases.”

Trump’s spokeswoman didn’t return requests for comment. Federal law bars the IRS from commenting on cases involving individual taxpayers, a spokesman at the agency said.

A disqualified person, like Trump, can face an excise tax of 10 percent on the amount involved in the act of self-dealing, according to tax code Section 4941. If the self-dealing isn’t corrected within the taxable period, the IRS can ratchet the tax up to 200 percent.

 

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