Trump Foundation Before He Went Presidential

The Donald J Trump Foundation is exempt under 501(c)(3) which makes contributions to it deductible.  It is not, however, publicly supported so it files Form 990-PF.  The PF stands for private foundation.  Here is the ironic thing.  A private foundation has to report the identity of its large donors making them public.  The odd thing about the Trump foundation is that a lot of the donations are not from Trump interests.

The 2014 Form 990 shows total incoming contributions of $497,400 and they are both identified.  Richard Ebers Inside Sports And Entertainment Group gave $477,400 and Prestige Mills gave $20,000.  On the Ebers donation, you can find speculation that there was some sort of assignment of income thing going on.  The odd thing about that is that it seems pretty pointless.  He could likely have just had the income come into the Trump Organization and made the donation himself. Of course, it is all pretty speculative without Trump’s return.  The one we do have from 2005 shows almost $40 million in tax.  Diverting a few hundred thousand in income to a foundation does not seem like much of a plan in that context.  On the other hand what motivated Richard Ebers to donate that odd amount to the Trump Foundation?

Prestige Mills is a carpet company. You can see why they might want to curry favor with Trump.

The Sketchiness

One of the things that the AG finds sketchy is that the foundation had no real infrastructure and no active board.  The board members all three years are the Donald Trumps, father and son, Allen Wesselberg, CFO of the Trump Organization, Eric Trump and Ivanka Trump.  Figuratively speaking the Trump Foundation is a checkbook in somebody’s desk at the Trump Organization. How many of the nearly 100,000 entities that file Form 990-PF are just like that?  Anecdotally more than a few.  That type of private foundation actually does not make much sense anymore.  Donor advised funds are a much better vehicle to achieve similar results.  According to this story, Trump would like to shut this one down, but it cannot legally dissolve while there is an ongoing investigation.

Here is what I find just slightly sketchy, given that there is a lot of non-Trump money going into the foundation.  In each of the three years (2014-2016) there is a $50,000 donation to Columbia Grammar & Preparatory School.  That is the school that young Barron was attending until last year.  I don’t know if there are any other cynical bastards who have noted that little detail.  Arguably there is nothing wrong with this, as long as Barron’s tuition was not being run through the foundation.  However, there is an expectation in that world that parents who can afford to pay the full cost of their kid being groomed for his future role in the 1%.  I wrote a few years ago about a Groton development officer who wanted that to be made an explicit requirement of admission, which would be a horrible idea.

Virtually every private-school parent has heard about “the gap” — the difference between tuition dollars received by the school and the actual costs of operating the institution. This information is usually delivered by the development (read fund-raising) office, along with a heartfelt plea to help plug that gap with a donation.

The other moderately sketchy item in 2014 is $100,000 to the Citizens United Foundation. It is a 501(c)(3) and all, but the website does seem to have kind of a political tinge to it.  None of the rest leap out at me in 2014.

The accounting fee in all three years is $5,000, which given how little is going on is not so bad.  Here is the odd thing though.  The paid preparer signature is Donald Bender of WeiserMazars LLP.  His bio on the firm website states

Donald has over 35 years of accounting, auditing, and taxation experience in the real estate, hospitality and construction industries. He sits on the Mazars Real Estate Steering Committee where he helps guide the firm’s real estate practice, while leading the firm’s Hospitality Group and Long Island Real Estate Practice. Donald’s real estate experience includes hotels, office buildings, residential properties, mixed-use properties, residential condominiums, commercial condominiums, hospitality, hotel condominiums, and working with real estate developers and managers. He also has significant expertise in tax compliance and planning for high net-worth individuals and their investments in S-corporations, partnerships and limited liability companies, in addition to consulting for acquisition of business interests and the related tax and accounting implications.

Given the high profile of Trump, even before he started on the presidential path, I would have thought that a not-for-profit partner would have been on it.  I may be making a mountain out of a mole hill, but fundamentally the problem may have been that nobody was taking this dinky foundation all that seriously.  In the context of Trump’s vast empire, I could see this 990-PF being referred to as a “nothing return”.  That would be a big mistake, since they are public documents, but sometimes if there is a tax return with no tax involved it is hard to get real excited about it.

On the 2016 return the designation of the fee is “auditing”, but it is still just $5,000.  Given what is going on coping with the investigation, the firm is either eating a lot of hours or some other Trump Organization entity is bearing the cost.

The 2015 Return

Contributions in 2015 totaled $781,370 and they are all listed.  For 2015 it is mostly Trump money – $566,370 from the Trump Corporation and $50,000 from Trump Productions LLC.  The only other large donation is $150,000 from the UK Office of Victor Pinchuk Foundation.  Apparently the Mueller investigation is interested in that one.  Here is the twenty minute speech which Trump made for the donation.  Nothing really exciting in the outgoing donations in 2015.

The 2016 Return

The 2016 return is the one that ties in with the AG complaint in a big way.

2016, the Board knowingly permitted the Foundation to be coopted by Mr. Trump’s presidential campaign, and thereby violated its certificate of incorporation and state and federal law by engaging in political activity and prohibited related party transactions. Donald J. Trump for President, Inc. (the “Campaign”), “Campaign” Mr. Trump’s political committee, extensively directed and coordinated the Foundation’s activities in connection with a nationally televised charity fundraiser for the Foundation in Des Moines, Iowa on January 28, 2016 (the “Iowa Fundraiser” Fundraiser”), and the disbursements of the proceeds from the event.

I am having a little trouble correlating the 2016 990-PF with the AG report.  Total contributions coming in came to $2,865,683.  There is also $62,184 in “reimbursement of prior distributions”.   The AG report really lays into the foundation activity in 2016 alleging that it was effectively taken over by the campaign.  According to the AG report of the $5.6 million raised by the Iowa fundraiser, $2.823 million went to the foundation.  That would leave only about $40,000 from other sources going into the foundation, but most of the foundation’s revenue for 2016 can be accounted for by large donations.

Ivanka Trump gave $100,00, the Daryl & Steven Roth Foundation and John Cafaro gave $50,000 each.  Phil Ruffin and Laura Perlmutter each gave a million.   I started down the rabbit hole of tracing the Trump connections to the outside contributors, but that is really secondary to this story.

In 2016, the outgoing donations besides the usual suspects like Barron’s school are to a potpourri of veteran oriented charities.  For example there is $100,000 to the Puppy Jake Foundation which provides service dogs to those with PTSD and mobility impairments.  That is a substantial chunk of Puppy Jakes’s 2016 revenue which is just over $700,000.  According to the FAQ, they had placed 14 service dogs as of December 31, 2016 and were expecting 10-12 to graduate in 2017.   They note in their material that training up service dogs is an expensive proposition, but well worth it and you can find confirmation of that if you poke around a little.

Then there was $100,000 to American Hero Adventures.  Their mission is to provide Heroes, which includes Military, Law Enforcement, Fire, EMS and Federal Agents with “adventures of a lifetime”.  $100,000 is a lot to them.  They raised $368,454.08 in 2016.  There is something really touching about a Form 990 done by hand and to the penny with no paid preparer.

Racing For Heroes Inc received $200,000, which is the bulk of the $257,554 that they raised in 2016.  Here is founder Michael Evock, a retired Special Forces Chief Warrant Officer explaining the effort.

From the 990, it is a very low overhead outfit.  I’m taking that as a good enough sample and would not expect to find anything to criticize in Veterans In Command, Connected Warriors Inc, Hire Heroes USA or any of the others from the type of cursory review that I or a foundation board member could give them.  Human nature being nature, something will probably crop up, but so it goes.

So the attorney general’s beef is really with the way the foundation coordinated with the campaign helping Trump get political mileage out of the donations.  Given all the shenanigans that go on the charitable sector with fundraising companies soliciting contributions none of which end up going towards any charitable function, this investigation strikes me as off mission for somebody charged with regulating the charitable sector.

They said they were raising money for veterans charities.  That is where the money went.

From An Expert

I asked Paul Streckfus, whose EO – Tax Journal chronicles much that is wrong with the charitable sector for his thoughts.

This lawsuit puts the IRS in an no-win situation. Obviously they will do nothing of consequence with Trump as President but the critics will note that the IRS is once again not adhering to its mission statement — to apply the tax law with integrity and fairness to all. Since he New York Attorney General has submitted plenty of evidence of tax law violations by Trump and his foundation, the IRS will have to fall back on its usual “it’s under consideration” response or perhaps the IRS will get a few dollars out of the foundation and then mark the case closed.

I followed up with a question which sums up my problem with the AG making such a big deal out of this matter – “So I’m looking at statistics for 2014 and I see that there were 97,484 990-PFs filed.  How many of those do you think are essentially like the Trump Foundation in that they are essentially checkbooks without much in the way of governance?”  Paul responded:

My guess, based on anecdotal evidence, is that a lot of the smaller foundations benefit their founders in various ways , travel perks (check out that grant in Paris), hiring the kids who can’t hold a job, or use to promote the family business (a grant to a local charitable effort). Contrary to Bruce Hopkins, governance is important, and the temptations are there for small family boards to benefit themselves in some way. IRS scrutiny is pretty much limited to obvious self-dealing — lots of low-hanging fruit there, and so they pick it.

And an important thing to remember is that the Donald J Trump Foundation is one of those smaller foundations.

The Moral

The essence of the AG’s problems with the Trump Foundation is probably summed up in this observation.

The lack of adequate procedures at the Foundation was particularly problematic because various entities throughout the Trump Organization issued requests for payment to the accounting staff and these requests were not always accompanied by an instruction as to which entity in the Trump Organization should make a payment. In such circumstances, the sole criteria that the accounting staff used to determine whether to issue a check from the Foundation, rather than another entity in the Trump Organization or Mr. Trump personally, was the taxexempt status of the intended recipient; no one made any inquiry into the purpose of the payment.

It appears that the business entities of the Trump Organization of which there are hundreds all end up on Donald Trump’s individual return.  So from a federal income tax perspective, it probably would not matter all that much if the wrong entity paid for a deductible item.  So an attitude of “It’s a charitable contribution.  Pay it from the foundation” is the type of shortcut that accountants for a closely held operation might adopt.  The CFO of the Trump Organization, Allen Wesselberg, was the treasurer of the foundation, giving him the apparent authority to approve the payments.

In the New York AG’s view of the world the two Donalds, Eric and Ivanaka should have had a once a year sit-down with Allen where they discussed things like the fifty grand going to Barron’s school or ten grand to the Damon Runyon Cancer Research Foundation and whether they could goose up the return on the million dollar checkbook balance. Wow.  They might have been able to get another five grand or so.  That’s just not the way real estate entrepreneurs tend to operate.

The moral of this story is that the Donald J Trump Foundation was a bad idea. It was not big enough to support the type of meticulous compliance work, which is what makes foundations a kind of white collar jobs program. When Mark Zuckerberg and Priscilla Chan set up a vehicle for their charitable activities they went with an LLC, which will be disregarded for income tax purposes. Of course an entity like that can’t get money from outsiders.  Others have started using donor advised funds, which effectively outsource all the compliance to an investment manager.  If the AG wants to look for charitable abuse that is one of the places to really poke around.

The lesson here is reflected in Reilly’s Fourth Law of Tax Planning – Execution isn’t everything but it is a lot.  The Donalds, Ivanaka, Eric and the CFO could have sat down for an hour every year and had some minutes of their deliberation typed up.  When something to donate to popped up there could have been some emails among them voting to approve the thousand dollars to the New York City Police Foundation or the $25,000 to the Salvation Army, if that had not been discussed at the annual meeting.  That would have defused a significant part of the AG’s legitimate criticisms of faults that would be found in a pretty high percentage of small private foundations.

With that kind of minimal infrastructure in place, the campaign probably would have realized that the foundation was an ill suited vehicle for running the veterans fundraising and avoided the technical violations that were created by that misadventure.

Other Coverage

Of course, there is way too much other coverage to review.  As far as mainstream media I will go with the Washington Post headline –  The Trump Foundation was one big scam, according to the New York attorney general. What a shock.  Paul Waldman wrote

….what we’ve learned about the Trump Foundation suggests that it was basically a scam, a way for Trump to make shady contributions, pay his debts with other people’s money and do things such as buy a gigantic painting of himself.

I really don’t think that is fair.  I see most of the money going in a fairly mundane fashion to legit charities.  I realize that I did not in this piece go into the other allegations which amount to getting some benefit from money paid out of the foundation that happened to go to a charity such as $32,000 to a land trust to supervise an easement.  I may seem a little too easygoing.  I know that if I were involved in this thing in any way I would have been yelling at people to clean up the act, but it really does not rise to the level of dastardly.

The one bit of other coverage that will otherwise be overlooked is the accounting humor tweeting of Andrea Carr.  Her best on this one is

NY AG Trump Foundation Trump: “we have so many checks, they are all over the place” NY AG: “consistent lack of internal controls”

My survey of more other coverage indicates that I am in the minority in my opinion that this Trump Foundation “scandal” is being blown out of proportion , so I think it is appropriate to disclose that am not a Trump partisan by any conceivable stretch of the imagination.  I attended his rally in Worcester in 2015 where he encouraged us to read Art of The Deal which I did following it up with Think Big.  I was so appalled that I did not vote for Jill Stein as I had planned to.  I have to wonder how many of the critics realize how poorly a very large number of small foundation would do if they were subject to the kind of attention lavished on the Trump Foundation, which at the end of the day had the money that ran through it go to legit charities.

Chase Peterson-Withorn also covered the story on this Forbes.com..