Originally published on Forbes.com.
Surveying reports on the Trump Foundation shenanigans that New York’s attorney general has highlighted gives me a little pause in the advocatus diaboli role that I have found myself in. (See for example Chris Cillizza of CNN – “Exactly how much trouble is the Trump Foundation in?” ) One of my Facebook buds wrote on my first effort – “This article is an apologia … for a self-dealing, tax-evading and chronically lying president.” I thought I was pretty well done after that harsh assessment, but I caught a lucky break yesterday. In Paul Streckfus’ EO Tax Journal, there was a comment from Bruce Hopkins:
Paul, in regard to your recent coverage, it is easy to make the argument that the New York Attorney General’s petition against the Trump Foundation is politically motivated . The instances of self-dealing involving the Foundation have largely already been addressed by filings with the IRS; some appear incidental. The IRS has, over the years, been lenient in the face of incorrect annual information returns. The state law violations do not appear to warrant a permanent ban on Foundation board members on service on New York charities’ boards.
He went on – “But the charges of ‘coordination’ between the Foundation and the Trump campaign have substance.”
This really intrigued me, because it was a view pretty similar to my view, although I was more or less agnostic on the political coordination. He added something even more intriguing: “Under the facts in the petition, there is a violation of the prohibition on political campaign activity, although I do not know of any law directly on point. (The Attorney General does not cite any.) ” (Emphasis added)
I thought it would be worth reaching out to Mr. Hopkins and was pleasantly surprised when he offered to talk to me. So who is Bruce Hopkins?
Who Wrote The Book?
Mr. Hopkins has over fifty years of experience working in federal not-for-profit law. He graduated from law school in 1967 and worked briefly as a legislative assistant for then-congressman Donald Riegel. Most of his career was spent in Washington in not-for-profit law practice mainly with BakerHostetler and Steptoe&Johnson. One of the things about federal not-for-profit tax law is that there was not an awful lot of it before the Tax Reform Act of 1969 allowing Mr. Hopkins to be in on the ground floor. Among other works, he is the author of The Law of Tax-Exempt Organizations. You can get all 1,152 pages of it in hardcover for $315. So save money and a tree or two and go for the E-book for just $252.99. Paul Streckfus wrote me:
Bruce Hopkins occupies a special place in the EO tax world in that he is the author of the EO tax bible , otherwise known as The Law of Tax-Exempt Organizations, Eleventh Edition, all 1,000-plus pages
So you might say that if they decide to throw the book at President Trump, it will be the book that Bruce Hopkins wrote.
The Small Stuff
The paintings, the lawsuit settlements and the relatively small political donation are dismissed as having been already mostly addressed by the foundation with some of them being incidental. And then there are the “false statements.” Mr. Hopkins noted that the IRS tends to be pretty lenient on that matter when it comes to Form 990 and its variants like 990-PF. There is a good reason for that. Take a look at Form 990-PF and the instructions. If you want to really get into it, check out some of the books by Jody Blazek. I have 990 Handbook A Line-by-Line Approach, which is dated now, on my shelf.
Tax people have a lamentable tendency to not take that seriously forms that don’t result in any appreciable tax. The fellow signing the Trump Foundation return as paid preparer does not include non-for-profit experience in his bio on the Mazars web page. From that we learn that Donald Bender CPA “has over 35 years of accounting, auditing, and taxation experience in the real estate, hospitality and construction industries.” I would probably have a similar gap in my bio and there was a time when I was responsible for reviewing every Form 990 that went out of a firm for lack of anybody better in the Tax Department. (The auditors stopped letting us sign financial statements, so we got even by saying they couldn’t sign tax returns. Regional public accounting sometimes seems like a chronic turf war, in which some client work gets done kind of incidentally)
Back to Jody Blazek. In the introduction to her handbook, she notes that she discusses “explanations of consequences of answers that can have several interpretations.”
The State Law
Mr. Hopkins noted that New York has some of the strictest not-for-profit laws in the country and that the AG has the foundation dead to rights on the governance issues – not ever holding board meetings, no conflict-of-interest policies, no investment policy. In some ways, you have to give the Trump people a little credit for being straight. Sometimes when things like minutes and investment policies are requested, it will be like, “They must be here somewhere. You know they are probably in storage, we’ll have them for you next week,” and like magic they will appear. Of course, since the AG was on them like a junkyard dog, they probably figured the documents would be sent to the crime lab for paper and ink analysis so nobody was backdating nothing.
I asked him whether it seemed like the written investment policy was a little silly, since the money was not really sitting in the foundation for the most part. His answer was that is the law, so they should have had it. Reminds me of Reilly’s First Law of Tax Planning – It is what it is. Deal with it.
The Foundation And The Campaign
The matter of the money to veterans’ organizations being managed by people from the campaign is what Mr. Hopkins finds really disturbing. For the upcoming issue of his newsletter, he wrote
The petition states that all the grants issued by the Foundation from the proceeds of the Iowa fundraising event were selected by the Trump campaign. The Foundation’s board (Mr. Trump, daughter Ivanka, and sons Donald J. And Eric) were said to know of these developments but failed to meet to discuss the Foundation’s involvement in the fundraising or any of the campaign events at which the proceeds were distributed and to approve the grants that were made.
The Foundation is cast as having made a $2.8 million contribution to the campaign, providing Mr. Trump and the campaign a “means to take credit at campaign rallies, press briefings, and on the internet, for gifts to veterans’ charities.” The Foundation’s grants made Mr. Trump and his campaign “look charitable and increased the candidate’s profile to Republican primary voters and among important constituent groups.”
Mr. Hopkins’ analysis of the federal tax law implication is:
Under the facts in the petition, there is a violation of the prohibition on political campaign activity by charitable organizations, although I do not know of any law directly on point. (The attorney general does not cite any.) The ceding of control over the $2.8 million in contributions to the Foundation for veterans’ organizations, by the Foundation to the campaign, can be considered a grant for political or noncharitable purposes and thus a taxable expenditure (IRC § 4945(d)(2), (5)). This political activity, coupled with the surrounding private inurement, could cause retroactive revocation of the Trump Foundation’s tax-exempt status.
How Big A Deal Is That?
I asked Mr. Hopkins if he saw anything criminal in all this and he did not think so. I know you may have read other people saying otherwise, but Mr. Hopkins does not see anything criminal. Remember the sui generis. There is no precedent for anything like went on, probably because it would take a Donald Trump to make it happen and he is also on the sui generis side. A lot of tax crimes require an element of willfulness, which would be very difficult to prove in this case.
Mr. Hopkins also noted that a skillful advocate would be able to provide other ways of looking at what happened. Here is one I came up with. The foundation wanted to help veterans. I mean, who doesn’t? The veterans’ groups reached out to the campaign because it was more prominent and had more infrastructure. By involving the campaign in the donation you were highlighting Mr. Trump’s concern about veterans as he mourned the debilitating foot condition that cut off his own military career at the high school cadet level. But. But. You are also giving more publicity to organizations like the Puppy Jake Foundation, which really is a very worthy cause. Maybe that is what the foundation had in mind and it was the foundation exploiting the campaign for charitable purposes and not the campaign exploiting the foundation for political purposes. Anyway, that’s my story and I’m sticking with it.
Civil penalties are another matter. I asked Mr. Hopkins what the worst-case scenario would be. To make the math easy I am going to round the offence up to $3,000,000. The initial penalty can be 5% or 20%, depending on how innocent a mistake it is. So that makes worst-case scenario for the President a penalty of six hundred grand. Then there is a 100% penalty if the offense is not remedied, i.e., the money returned. Now you know they can’t get the money back from Puppy Jake – nothing like going and fetching a service dog from a veteran suffering from PTSD. So I asked if it would work for the campaign to reimburse the foundation. That would do the trick.
So by the account of the author of the EO bible, the worst-case scenario is President Trump out of pocket $600,000 and the campaign transferring $3,000,000 to the foundation. They would put the money into an account that met the foundation’s written investment policy and the two Donalds, Ivanaka, Eric and the CFO could deliberate and decide to whom to hand it out. I’d like them to give the whole smash to Puppy Jake. Over 100 service dogs to veterans who need them would be a happy ending to this whole mess.
The Trump Foundation might also lose its exempt status retroactive to January 1, 2016, which is really no big deal since the president wants to shut it down anyway.
What About Non-Tax Stuff?
Finally, there could arguably have been a campaign finance law violation buried in there. The Foundation received a million from Phil Ruffin and another million from Laura Perlmutter in 2016. If those donations were for the campaign rather than for charitable purposes, that is bad. On the other hand, given how openly and totally disclosed everything was and the fact that the money really did end up with veteran’s charities, I have to wonder how far that might go, but I’l just leave it with the tax stuff for now.
The Poet
Bruce Hopkins is also a poet. He has published a collection of verses dedicated to nonprofit law – Beware the Commerciality Doctrine and Othe Nonprofit Law Poetry. I asked him for some verses suitable to this matter and he directed me to his poem – Private Foundations. It is longish, so here are just a few verses:
Private foundations are the charitable sector’s energy; they’re wonderful things.
They make the hearts and souls of zillions of grantees race, dance, and sing.
You can create a foundation and be its executive director, an officer, serve on its board.
But no one should create a private foundation for the sole reason of being adored.
Please don’t get caught in the self-dealing rules, the taxes are high, then there’s correction
As can be seen, running a private foundation is really rather straightforward, quite easy;
Just hire a bunch of foundation lawyers and pay them well; that’s the safest alchemy.
Final Note
Just as I was wrapping this up I heard from another expert who is an off-the-record type. He or she tells me that there really is something there for the IRS criminal people to investigate, although all the possible crimes are ones that involve willfulness or its equivalent.