The Rich are Wheeling and Dealing for Themselves at Private Foundations

Citizen Wealth Financial Justice

New Orleans       The Wall Street Journal and its reporter, Andrea Fuller, provided a public service for all of us by reviewing the publicly available tax filings of thousands of private foundations.   Their subject was the willful lack of compliance with the almost fifty-year prohibition against self-dealing.  Self-dealing occurs when private foundations do business with insiders like their officers, directors, and substantial donors, i.e. the rich themselves.  Such dealings are supposed to be against the law and trigger tax penalties for these tax-exempt institutions.  Spoiler alert! The Journal found that this law is broken with impunity, and, surprise of all surprises, creating and running a private foundation seems to mainly just be a tax dodge.

The numbers were astonishing.  The Journal found 1800 foundations that flaunted the fact that they did business with insiders in their latest publicly available returns in 2016.  About 10,000 private foundations checked boxes indicating that they legally compensated insiders.  Essentially this means that in the very form they were giving the Internal Revenue Service they were thumbing their nose at the IRS with impunity.   There isn’t much risk in this because the IRS only imposes extra taxes on about 200 individuals annually out of the pool of insiders that are feeding at the trough in more than 112,000 private foundations.  The odds are way better than at Las Vegas that the rich won’t get caught.  Everyone who believes the Trump administration is going to beef up its review of private foundations has forgotten perhaps that Donald Trump was caught making political donations to candidates from his private foundation and simply paid back the money, no harm, no foul.

Just to be clear, a private foundation is a tax-exempt entity created by rich individuals and families ostensibly for charitable purposes.  There are more than one-hundred thousand of these babies.  Think Bill and Melinda Gates.  There are over 1.2 million public charities, classified as 501c3’s, that also exist for similar charitable purposes but receive sufficient support from the public to continue to qualify.  The Journal helpfully noted that 76,000 private foundations have less than $1 million they are sheltering, 28,000 have between one million and ten million in assets, and then there are 8000 whale-sized private foundations that have more than ten million in assets.

The rich don’t just make their money, they disguise a pile of it for tax purposes in private foundations.  The Journal’s report is clear that a lot of them continue to use these foundations as private bank accounts and spread the wealth to family and friends calling them either trustees or private contractors despite the clear prohibitions of the law.  Paying slick lawyers is still cheaper than paying taxes as long as you can feather your own nest, it seems.

Trust me on this.  There will be no sudden investigation or cries of outrage in Congress where these same folks are likely or potential donors nor in the White House where they may be family and friends in the “we all do that” Trump club.  Meanwhile, as they say, the rich get richer, and private foundations help them stay that way, while we pay taxes.