Tag Archives: charity

The Rich are Wheeling and Dealing for Themselves at Private Foundations

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.


Foundation Confusion: Is it Charity or Branding?

48868459-cachedNew Orleans   Poor Donald Trump. He just can’t catch a break it seems, and somehow the defense that “that’s business,” doesn’t seem to be working for enough people. One of the latest examples revolves around the Trump family foundation.

An exhaustive report in The Washington Post found that Trump has used the foundation to make a $25000 political contribution in Florida, buy pictures of himself, and pay business expenses, all of which are strictly forbidden by the tax exemption rules of the Internal Revenue Service for private foundations. Even with the political donation, all he got was a hand slap, even though he had also filed false information in the IRS Form 990. Worse for Trump, the problems in his own foundation, probably make it a wee bit harder for him to make the dealings of the Clinton Foundation as big an issue as he would like, but maybe not, we’ll see.

It’s easy to see how Trump would be confused. Like many, heck, maybe most, business people and the superrich, they seem to easily be confused about the difference between charity, you know, those gifts from the heart, and branding, which means little more than making your business look better to the public and your customers. In the Trump and common business mindset, a foundation is a way to hide some profits tax free and to promote your business interests behind the veil of good works. This whole charity thing in Trump’s view is probably just “for losers.”

The New York Times carried a full-page ad recently for the sole purpose of allowing a national, publicly funded new museum, the long awaited, National Museum of African American History & Culture, a branch of the Smithsonian, to thank its so-called “founding donors for their support & generosity.” Talk about a list of blue chip corporations and big named rich from entertainment, sports, and the like, including of course big foundations that have been shielding wealth for corporations for generations. In the $5 million list were 3M, American Express, the Boeing Company, GE, Target, UnitedHealth Group, and Walmart, along with the Ford Foundation and the Rockefeller Foundation for the old rich. Kaiser Permanente was the only nonprofit on that list. Michael Jordan got on the list, still smarting that he has become the poster boy along with Trump currently for “business first, the rest of you later,” and trying to desperately rebrand himself. From there to the $1 million list, I counted sixty more corporations and corporate foundations.

I’m not saying there was no pride or generosity involved, but the purpose of the ad and much of what motivated the level of the contributions was all about branding and purchasing the public’s good will. Nor am I saying that the museum was not a “good cause, but it speaks volumes that the American public and its taxpaying dollars were never acknowledged, even though they are absolutely the most important “founding donor.”

We already know that part of the reason the IRS doesn’t do more to separate the branding from the actual charity, is that Congress is in a bloody battle with the agency and has decimated its funding, particularly of the nonprofit and tax exempt division of the Service. So, don’t expect to see more justice and accountability come to supervision and oversight of corporate foundations as tax dodges, slush funds, and playthings of executives and the rich. That’s what they think foundations are for, and there’s no one really out there to tell them differently or make them do better.