One of the collateral effects of the focus on Donald Trump’s treatment of women has been to distract attention from several other problematic aspects of his candidacy, including the Trump Foundation. Shortly before the disclosure of the 2005 Trump video tape, we had asked a friend of long standing, Suzanne Garment, to write a guest blog on the subject of the Trump Foundation, a subject that we believe deserves renewed consideration. (The Clinton Foundation has raised serious issues, but rather different ones, which we hope to address in a separate blog).
Suzanne Garment is a tax lawyer who has specialized in foundation work in recent years. She is also the author of Scandal: The Culture of Mistrust in American Politics, and for several years wrote a weekly column, “Capitol Chronicle” in the Wall Street Journal.
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The Donald J. Trump Foundation: Why Should We Care?
On September 30, New York Attorney General Eric Schneiderman issued a cease-and-desist order to the New York-based Donald J. Trump Foundation, barring the foundation from raising money from third parties in New York. Schneiderman is an avowed supporter of Democratic presidential nominee Hillary Clinton. But, just as paranoids can have real enemies, partisans like Schneiderman can have real philanthropic abuses to address. That seems to be the case with the Trump Foundation.
The foundation plays an important role in the candidate’s narrative – since Trump says that he pays “as little as possible” in taxes but has insisted, to the Washington Post and others, that, as a private individual, he is very generous.
One way to confirm his claim would be to look at his charitable tax deductions, but he won’t release his tax returns. Another way would be to ask charities themselves about Trump’s personal contributions – which is what Post reporter David Fahrenthold has done, phoning more than 250 plausible nonprofits to ask whether Trump has given them any of his own money. Fahrenthold has come up virtually empty.
So, we have to look at Trump’s claim of generosity through the lens of the Donald J. Trump Foundation.
The foundation is very small for someone of Trump’s purported wealth. In 2014, the most recent year for which data are available on the organization’s Form 990, it reported around $1.3 million in assets, $500,000 in contributions, and $600,000 in charitable distributions.
Moreover, the Trump Foundation, despite its name, is not a family foundation in the usual sense of the term, giving away money earned by its donors: It appears that the Trump family hasn’t given the foundation any of its own money since 2008.
Instead, this is what has come to be known in the field as a “celebrity foundation,” which uses a celebrity’s name to marshal money from other people for causes that the celebrity chooses.
The Trump Foundation’s marshaling of other people’s money is the subject of Schneiderman’s cease-and-desist order. It is a narrow order: The notice informed foundation lawyer Sheri A. Dillon, of Morgan, Lewis & Bockius, that the Trump Foundation had solicited contributions in New York State without registering with the AG’s office, as required by law, or providing the office with required financial information.
In part, the assertion in the notice is undoubtedly correct. To the extent it is not correct, it raises broader questions about the foundation’s operations.
The part that is undoubtedly correct involves donaldjtrumpforvets.com, a website launched by the Trump campaign to raise money for veterans’ groups through the Trump Foundation. The site now claims that the campaign raised $1.67 million. If so, there can be no disputing that the funds were raised through solicitations from the public.
Apart from that campaign, most of the recent contributions to the foundation have come from Trump’s business associates. In 2014 almost all the donations came from a ticket agency, the Richard Ebers Inside Sports and Entertainment Group, that did business with Trump. In a previous year a substantial donation came from Comedy Central, which owed Trump $400,000 for his appearance at a televised roast.
The Trump people have offered a couple of reasons why such donations don’t represent a solicitation of contributions.
One Trump spokesman told the Post’s Fahrenthold that Trump did not actually direct funds to the Trump Foundation but asked only that moneys be given to charity. True, the funds did sometimes end up at the Trump Foundation. Why did the donors choose the Trump Foundation? “He’s Donald J. Trump,” the spokesman said.
Another spokesperson – Lynne Patton, a former paralegal who serves as senior assistant to Trump’s children – told the Des Moines Register that Trump did in fact direct these funds to the foundation, but they were not solicited donations; instead, they were payments in lieu of money owed to Trump. “Mr. Trump will give a speech somewhere,” she explained, “and he asks that that entity, instead of cutting a personal check to him, cut it to his charity.”
This type of arrangement is fine – as long as the person who directs the donation to the charity has paid income tax on the money. Did Trump pay the tax? A Trump spokesman asserted that Trump had in fact paid tax on one of the items of income but would not provide evidence.
Next, apart from the question of how the foundation has marshaled other people’s money, how has the foundation spent this money?
The foundation does not appear to have any specialized management; spending decisions are made by the foundation’s five directors, four of whom are Trumps. The biggest 2014 grant, $100,000, was to the Citizens United Foundation, the charitable arm of the conservative advocacy group Citizens United. Other contributions showed no discernible charitable strategy. There were donations to medical charities, education charities, celebrity charities, established civic charities. Two-thirds of the donations were for less than $10,000 each.
The foundation’s grants were – uncharitably speaking – fairly random. In this, the Trump Foundation is, for better or worse, not so different from a lot of small foundations.
But the Trump Foundation’s grants also raise a more serious matter: self-dealing. The issue is this: As long as your money is yours, you can spend it on most any damn thing you want: cars, boats, diamond-studded collars for Fido. But once you donate it to a charity, even one that you established, the money stops being yours. It can be used only for a charitable purpose. That is the central condition under which charities are allowed to be tax-exempt and citizens are allowed to take charitable tax deductions.
This is an extremely messy way of funding charitable activity. It lets people act on half-baked ideas about charity and allows them to get some degree of personal benefit from their giving. Still, the system has given this country a nonprofit sector of unparalleled energy.
That is, the system more or less works. But it is based on the avoidance of self-dealing, a principle that Trump’s foundation has violated more than once.
One problem arose when the foundation made a 2013 political contribution – not allowed by IRS rules – to an electioneering organization associated with Florida Attorney General Pam Bondi. The Trump folks said it was an oversight and paid a penalty tax.
But now we have seen examples of more direct self-dealing. In one case, the town of Palm Beach agreed to waive fines against a Trump golf club if the club contributed $100,000 to a veterans’ charity. This happened – except that the check came not from the golf club but from the Trump Foundation. In another case, a golfer sued a Trump golf course in New York over whether he was entitled to advertised prize money. The golf course settled by writing a $158,500 check to the golfer’s foundation – from the Trump Foundation.
Then there was the four-foot-high portrait of Trump, bought by the Trump Foundation at a charity auction, that was later found hanging in a Trump resort. A Trump adviser said the resort was actually helping the foundation with storage costs. We do not know whether Trump businesses are helping the foundation store an even larger – six-foot-high – portrait of Trump and the autographed Tim Tebow helmet that were also purchased with foundation money. No one involved in spending the foundation’s money on these artifacts seems to have cared – or known – that the law required the stuff to be acquired for a charitable purpose.
Kellyanne Conway didn’t see the problem with Trump’s contribution to the veterans’ charity: “How did Mar-a-Lago,” Trump’s Florida golf course, “benefit from him giving $100,000 to veterans?” Mar-a-Lago benefited, of course, from the settlement of its debts.
Patton explained more fully: When Trump “cuts a check from his foundation,” she said, “it is his money. No ifs, ands, or ways about it.” But it’s not his money – and the Trump Foundation has operated as if it is. A Trump campaign spokesman has now thrown Patton under the bus, saying, “She wouldn’t know or understand.” But Patton probably does know and understand how the foundation operates.
The activities of the Trump Foundation, and the heedlessness that they show, erode the trust underlying American philanthropy’s central bargain: that federal and state law will accord special treatment to charities and charities will use their special standing for philanthropic purposes. Foundations like Trump’s, which abuse the bargain, give philanthropy a bad name. No one should underestimate the dangers that lie in this reputational damage.