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February 1, 2016
Was Involvement of Private Foundation in Trump Event Illegal?
by David Cay Johnston

Full Text Published by Tax Analysts®

Did Donald Trump violate the law January 28 by involving his private foundation in his campaign for the Republican presidential nomination?

Maybe -- and maybe not, according to three practitioners specializing in the nexus of tax and nonprofit law. But all agreed that Trump's actions put front and center why Congress needs to take a serious look at the growing connections between the charitable world and partisan politics, with a focus on what will make for sound policy.

Trump clearly used the charitable foundation under his control to further his campaign for the White House. But that may not be illegal.

Other politicians -- including the Clintons, the Kennedys, and the Rockefellers -- have or had foundations that they control. However, the politicians in those families did not hold campaign rallies to raise money for their charities while running for office.

Still, the existence of those foundations has sometimes led to controversy. The receipt of gifts to the Clinton Foundation, especially from foreign governments when Democratic presidential candidate Hillary Clinton was secretary of state, has drawn sharp rebuke from some Republicans and calls for an investigation.


Issue Not Cut and Dried

The issue of charitable status arose after Trump declined to participate in the January 28 Republican Party-approved debate in Des Moines, Iowa, sponsored by Fox News and Google, asserting that moderator and Fox News commentator Megyn Kelly had been unfair to him in the first debate in August.

The Trump campaign then rented space at nearby Drake University, just as many other candidates have, to hold his own campaign event. Trump sought to gain more support from Iowa voters, who caucus February 1, by soliciting donations to the Donald J. Trump Foundation, a 501(c)(3) organization that he controls.

Significantly, Trump made no effort to distinguish between himself, his campaign, or the private foundation bearing his name. That would seem to suggest that he was entangling his foundation in the campaign, implicitly endorsing his candidacy. In that case, his foundation is in serious trouble, assuming the IRS directs some of its dwindling resources to enforce the law.

The statute says that 501(c)(3) charities cannot be involved in partisan political activities. Endorsing a candidate, providing money to a campaign, or just making facilities or publications available to a partisan political candidate clearly are grounds to terminate charitable status.

The IRS on its website and in various publications targeted to exempt organizations declares in plain English that charities "are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office."

That would seem to make it cut and dried that a charity's engagement in partisan activities is a no-no. Indeed, Lawrence O'Donnell, the MSNBC political talk show host who is also former staff director of the Senate Finance Committee, tweeted January 29, "When will Republican Congress have hearing on @realDonaldTrump Foundation violating IRS charity rule last night?"

The reality is more complicated. As I often remind my law school students, the initial answer to almost every tax question should be, "It depends."

The sad truth is that Congress has written such a complex and confusing set of statutes that section 501 is not at all clear about politicians using charities under their control to further their political campaigns. Whether Trump endangered the charitable status of his foundation may depend on whether the foundation effectively advanced his partisan interests or whether Trump the candidate only advanced the foundation's interests.

What is clear is this: Any use of the Trump Foundation assets, facilities, or publications to further the real estate developer's campaign is illegal and should result in revocation of exempt status.

On the morning of January 28, Trump, or someone working for him, bought a one-year domain name license for a website to solicit donations for veterans that would flow through the Trump Foundation. The domain registry charges as little as $2.99 for this.

So the flow of money was not from the Trump Foundation, but to it, assuming the foundation did not pay the nominal domain registration fee, which is not clear from the licensing records.

The important question is whether the Trump Foundation implicitly endorsed Donald Trump's candidacy and thus engaged in partisan behavior. From 27 years of covering Trump, including breaking the story that he had a negative net worth in 1990 when he claimed to be worth $3 billion, it's clear that to Trump, his person and enterprises are one thing.

At his campaign event, Trump did not issue a disclaimer that his campaign and his foundation were not working hand in glove, or at least I didn't hear one while watching on my television. And nothing at the website soliciting the donations suggests that Trump has two different hats, one as a presidential candidate and the other as a fundraiser for the charity bearing his name.


IRS Has Been Silent


According to Marcus S. Owens, former head of exempt organizations at the IRS and now at Loeb & Loeb LLP, "a foundation is usually well advised to keep its distance and not be involved in any fundraising event by the candidate because it appears that the foundation is being used by the candidate," which would be illegal.

But Owens cautioned, "The fly in the ointment is that the IRS has never taken a stand on foundations that are affiliated with the candidate."

Alan P. Dye of Webster Chamberlain & Bean LLP said the case could be made on attribution -- that the candidate was using the foundation in a way that attributed partisan activity to the charity.

Dye said, "If all he is saying is that he would love for you to give money to his foundation, which is going to support disabled veterans, that's probably OK. But if the foundation is intimately entangled with the event, a case could be made -- and it would be a case of first impression -- that the foundation has implicitly endorsed him as a candidate."

Both Owens and Dye said that depending on the details, Trump could be in the clear or his conduct could be a shade of gray approaching charcoal.

Jeffery L. Yablon of Pillsbury Winthrop Shaw Pittman LLP was more sanguine. "I don't think there is a problem here," he said, because the law doesn't bar the candidate from using his campaign to benefit a charity.

Yablon also voiced concern that the relevant law is out of date and needs an overhaul to bring clarity to the rules.

While the IRS has tried to avoid taking a position, a look at its last training manual on the subject suggests that Trump's foundation would have a serious problem if the Service were directed to aggressively enforce the law on partisan entanglement by charities. Congress needs to hold hearings, as O'Donnell urged, to bring clarity to the law and to make sure that tax-deductible gifts do not further partisan candidacies.

David Cay JohnstonDavid Cay Johnston received the Pulitzer Prize for his coverage of tax policy while at The New York Times. He now teaches at Syracuse University College of Law and is the author of three books about taxes -- Free Lunch, Perfectly Legal, and The Fine Print.

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