The American Democracy Legal Fund has filed a complaint with the Internal Revenue Service against Mr. Donald J. Trump, President of The Donald J. Trump Foundation for violating IRS code.
In clear violation of the law prohibiting private foundation managers from sanctioning self-dealing, Mr. Donald J. Trump, president of the Foundation and unmistakably a “disqualified person”, engaged in self-dealing with the Foundation when he used Foundation assets to “furnish goods” for himself. Specifically, Mr. Trump purchased a football helmet for himself at a charity auction in 2012. Thus, Mr. Trump erred not only in allowing the foundation to engage in self-dealing, but was himself the self-dealer in the transaction.
The complaint is available below and in full with exhibits here. The American Democracy Legal Fund holds candidates for office accountable for possible ethics and/or legal violations. It is run by Brad Woodhouse.
American Democracy Legal Fund
455 Massachusetts Ave. NW, Suite 650
Washington, DC 20001
July 11, 2016
Ms. Tamera Ripperda
Director, Exempt Organizations Division
Internal Revenue Service
1111 Constitution Avenue NW
Washington, DC 20224
Re: Complaint Against Mr. Donald J. Trump, President of The Donald J. Trump Foundation
Dear Ms. Ripperda:
On behalf of the American Democracy Legal Fund, I request that the Internal Revenue Service (IRS) investigate Mr. Donald J. Trump, president of The Donald J. Trump Foundation, in his capacity as organization manager and as a self-dealing party, for violating the prohibition against self-dealing by Internal Revenue Code (“Code”) section 501(c)(3) private foundations. I request that the IRS open an investigation immediately to determine whether Mr. Trump should be assessed an excise tax penalty for self-dealing under Code sections 4941(a)(1) and (2), applicable to foundation managers and self-dealers respectively.
Description of The Donald J. Trump Foundation and Mr. Trump’s Role as Manager
Formed in 1987, the Foundation is a tax-exempt private foundation organized under section 501(c)(3) of the Internal Revenue Code. As a private foundation without a detailed website, its exempt purpose is not readily available in public records. However, its Foundation Center profile indicates that the Foundation’s grant-making primarily goes towards “health organizations, youth development, and social services.” The Foundation’s 2014 Form 990-PF lists grants to organizations ranging from schools and cancer research organizations to other foundations and theatre groups. In addition, the Foundation has recently been featured in news reports regarding its soliciting of contributions and its grant-making for veterans organizations.
Since its inception, Mr. Trump has served as president of the Foundation. Thus, for nearly 30 years, Mr. Trump has voluntarily assumed a fiduciary responsibility to the Foundation that bears his name. As president of the Foundation, it is Mr. Trump’s responsibility to understand what the Foundation can and cannot do with its charitable assets and his fiduciary duties to the Foundation.
Legal Background
Private foundations are strictly prohibited from entering into self-dealing transactions with “disqualified persons,” including 1) a substantial contributor to the foundation, and 2) a foundation manager. “Manager” is further defined as “an officer, director, or trustee” of a foundation. The statutory definition of “self-dealing” includes direct or indirect 1) “furnishing of goods, services, or facilities between a private foundation and a disqualified person,” and 2) “transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation.”
A violation of the self-dealing prohibition will result in an initial excise tax penalty against both the self-dealer (10 percent of the transaction at issue) and against a foundation manager who knowingly participates in an act of self-dealing (5 percent of the transaction at issue), unless the participation is not willful and is due to reasonable cause. A manager knows that an act constitutes self-dealing if he or she: has actual knowledge of facts that are sufficient to determine that the situation would be self-dealing; is aware that the act may violate the law governing self-dealing; and “negligently fails to make reasonable attempts to ascertain whether the transaction is an act of self-dealing.”
If the act of self-dealing is not corrected within “the taxable period,” the self-dealer can be subject to a tax equal to 200 percent of the transaction at issue, and the manager who knowingly participated and refused to agree to all or part of the corrective action can be charged with a tax of 50 percent of the transaction amount, up to a maximum of $20,000.
Finally, the IRS may revoke an organization’s tax-exempt status for repeated or egregious self-dealing violations.
Mr. Donald J. Trump’s Act of Self-Dealing
In clear violation of the law prohibiting private foundation managers from sanctioning self-dealing, Mr. Donald J. Trump, president of the Foundation and unmistakably a “disqualified person”, engaged in self-dealing with the Foundation when he used Foundation assets to “furnish goods” for himself. Specifically, Mr. Trump purchased a football helmet for himself at a charity auction in 2012. Thus, Mr. Trump erred not only in allowing the foundation to engage in self-dealing, but was himself the self-dealer in the transaction.
Mr. Trump attended a fundraiser for the organization Susan G. Komen for the Cure in Palm Beach, Florida on January 15, 2012. At the event, Mr. Trump bid on a Denver broncos football helmet signed by then-star quarterback Tim Tebow, and ultimately won the helmet for $12,000. Mr. Trump was praised for his generosity in the local Palm Beach Daily News for this contribution to the breast cancer charity.
However, a subsequent Washington Post investigation into Mr. Trump’s contributions to charity revealed that Mr. Trump did not pay for the helmet−the Foundation did. The check that Susan G. Komen for the Cure received was written from the account of The Donald J. Trump Foundation, a section 501(c)(3) private foundation for which Mr. Trump serves as president. It is unclear whether Mr. Trump is still in possession of the helmet.
What is unambiguous is that Mr. Trump, a disqualified person and manager and fiduciary of the Foundation’s charitable assets, used Foundation dollars to purchase football memorabilia that he personally coveted. As the self-dealer in this transaction, Mr. Trump is liable for excise taxes for the act of self-dealing even if he “had no knowledge at the time of the act that such act constituted self-dealing.”
However, it is highly likely that Mr. Trump knowingly participated in this act of self-dealing as Foundation manager. As longstanding president of the Foundation, Mr. Trump has had decades to become familiar with the laws governing the Foundation. In this case, he had actual knowledge of the facts at issue since he himself was the self-dealing party, and he should have known that the situation would constitute self-dealing. While the regulations state that “the term ‘knowing’ does not mean ‘having reason to know,’” they are also clear that “evidence tending to show that a person has reason to know of a particular fact or particular rule is relevant in determining whether he had actual knowledge of such fact or rule.” The IRS should investigate what Mr. Trump knew when he purchased the helmet for his personal use with Foundation dollars.
Because Mr. Trump is both the Foundation manager who authorized the transaction at issue and the self-dealer who benefited from it, the evidence calling for an IRS investigation into this matter is doubly compelling.
Conclusion
In light of this evidence pointing to a violation of the well-established prohibition on self-dealing by section 501(c)(3) private foundations, we request that the IRS open an immediate investigation of Mr. Donald J. Trump in his capacity as president of The Donald J. Trump Foundation and in his role as self-dealer with regard to the purchase of the Tebow helmet.
Respectfully submitted,
Brad Woodhouse,
American Democracy Legal Fund
cc: Internal Revenue Service
Fresno, CA 93888