Foundation Follies and the Rock Road of Tax Dodges

Ideas and Issues Philanthropy

            New Orleans      Given the media’s obsession with the rich and all of the folks lined up to take their money, it’s hard to avoid reading about their schemes and situations, even if you want to do so.  Foundations have long claimed to be many things other than a simple tax dodge, but some of the gyrations these days are incredible.  Tax-exempt nonprofits should be a step above such shenanigans, but as we’ve pointed out numerous times about the lack of charity in nonprofit tax-exempt hospitals, it’s not a simple story.

The biggest scam recently was the way a conservative electrics mogul, Barre Seid, dropped $1.6 billion into a Republican fixer’s nonprofit.  Seid gave 100% of the shares of his Tripp-Lite company to the Marble Freedom Trust, then sold the company to an Irish outfit effectively giving them the whole pile and avoiding taxes on the transition.  This could be a game changer for the Republicans in the money game for 2022 and 2024 obviously, but it also smells abuse of the entire nonprofit system, although, truth to tell, many of us would love to find ourselves under a money tree like that.

In another slick tax deduction move, though perhaps more generously motivated, the Wall Street Journal warned its readers about “magic language” in any gift where the donor was looking for a tax deduction.  A couple had collected Native American jewelry and the widow moved to donate 120 items to a museum in Santa Fe.  She claimed a deduction of almost a half-million bucks on the gift.  The IRS and the Tax Court say “no go!”  She didn’t have a letter from the museum saying that she had received no goods or services in exchange for the gift.

I’m a little more sympathetic to Paul Newman’s efforts to be charitable by creating the Newman’s Own Foundation and its food company, admittedly because I’ve enjoyed their cookies from time to time. It seems two of his daughters have sued the foundation for violating Newman’s wishes.  It’s complicated, but as part of Newman’s will, all of his daughters were supposed to get an allocation from the foundation to distribute to charities of their choosing.  Importantly, there was still no personal gain involved, and the lawsuit seeks no personal gain, but does try to restore the flow of donations to an assortment of charities, including in the arts and culture, while the foundation wants to pivot to children with serious illnesses of the “make a wish” variety and nutrition security, presumably to help the brand.  The trigger for the lawsuit seems to have been a cut from $400,000 to $200,000 in the distribution to each child.

The foundation didn’t really comment, but the suit alleges various hanky-panky including a changed will in Newman’s last days when he may not have been 100%, a unilateral notice four days after his death to the daughters that the foundation felt empowered to change the distribution on a dime unilaterally, and a change in the way the charitable pot was measured from being based on annual sales to being calculated on profits after “salaries, taxes, and other expenses” were deducted.  In other words, the foundation seems, like so many similar institutions, to be running the operation like a standard cookie-cutter business, rather than as a charitable institution, you know, like so many so-called charitable hospitals, colleges, and cooperatives.

It seems that even when the rich try to do right, the temptation is too strong to just make the exempt structure into a tax dodge, no matter how sweet the real cookie.