Friday, September 30, 2016

You call it self-dealing, I call it embezzlement (and btw, yet another tax problem)

I've been curious how mass media are describing the Trump Foundation paying off debts owed by Trump businesses as "self-dealing". To recap, two examples known so far have Trump businesses settling disputes with others by agreeing to an obligation to pay money to a third-party charity, which Trump then paid from his own foundation's money.

Self-dealing is basically doing business between a foundation and disqualified persons who have a connection to the foundation. If the Able Family Foundation needs computers, and Amy Able who runs the foundation also sells computers, then the foundation would be self-dealing if it bought its computers from her.

Trump Foundation's paying off of Trump debts goes beyond this. The outcome would have been identical if Trump Foundation, instead of writing the check directly to charity, had written the check to Trump who then paid off his debt to charity. This hypothetical is clearly embezzlement, what Trump actually did isn't any different. I suppose it's also self-dealing, but worse.

Something else I haven't seen in the discussion of self-dealing is tax evasion. There has been discussion of a different tax evasion Trump scandal, when he directed that debts owed to his businesses be paid to his foundation, but this is a separate issue. Trump Foundation in effect discharged debt owed by his businesses to others, and the IRS calls that taxable income to the businesses that didn't have to pay the debt. If we could see his returns, I'm pretty sure we'd find that he didn't pay taxes on that discharged debt.


LC said...

Brian, to a tax lawyer your last paragraph is a bit confusing regarding the problem with Trump directing that payments due to his businesses be directed to the Trump Foundation instead. I think that Trump's problem is not "discharge of indebtedness income" but rather falls under the "assignment of income doctrine" (see the 1930 Supreme Court decision in Helvering v. Horst) under which income is taxed to the party who actually earned the income.

For example, Anne holds a big reception at Don's hotel, but Don tells Anne to make her payment to Bob (to whom Don owes money) - Anne's payment is actually taxable to Don since he provided the services and had the power to direct payment to a third party. Under normal tax law principles, the third party payments that Trump directed to go to Trump Foundation should have been reported as taxable income to the Trump companies which performed the services that generated the income in the first place.

Anonymous said...

LC, whatever Trump did, I'm sure it's OK. It's only us low-life unfortunates who actually have to pay taxes. The 1% are pretty much exempt no matter what they do, because they pay people like you (not necessarily saying it's you per se, just people *like* you) large amounts of money (but not as big as the potential tax money, of course) to make sure they don't have to pay anything remotely like what they should be paying in tax.

Mind you, I do the same thing on a smaller scale. I pay a tidy sum to my tax consultants each year, but they usually get me back more from the tax man than I have to pay them. So, win/win all around. But we're talking about thousands here, not millions.

I find it especially... fascinating that non-profits are allowed to funnel tens of millions (each) to right wing political causes, even though non-profits are by definition not allowed to be political. Only in America, I suppose. Or, to re-phrase that, only in countries where the politicians are bought? Thanks for shining a bright light in some very dark places, Jane Mayer.

In other news, I spent quite a while licking my wounds the last time I posted here, after being called fascist excrement for espousing exactly the same views as Eli and many of the pundits regarding the perils of voting for independents in the upcoming election. But you can't let the trolls win. So, bring it.

Anonymous said...

If the peasants choose a dictator, metzomagic, that's the law. If it's good enough for the Philippines, it's good enough for US. If George Bush could do it, anybody can do it. Just move to Canada for the duration, it's not like there isn't any precedent there. Did you somehow think the fall of civilization would be graceful and dignified?

david lewis said...

The Washington Post reporter David Fahrenthold is the source of these stories. Terry Gross interviewed Fahrenthold for NPR:

Fahrenthold on "self-dealing":

"If you're the president of a charity, you can't take the money out of the charity and use it to buy things for yourself. And you can't take the money out of the charity and use it to buy things for your business. Obviously, if that was - if you could do that, then everybody would get the charitable deduction and still use this money to buy whatever they were going to buy in the first place."

Fahrenthold on people who owed Trump money giving it to the Trump Foundation instead:

"The interesting thing: when I called the Trump campaign once we discovered that a lot of the money going into the Trump Foundation was, as I said, money owed to Trump that he diverted to the foundation, that's fine. You've got to pay income taxes on it.

When we called them to ask, OK, did Trump really pay income taxes on that? The answer was really unusual. The answer was actually that's totally wrong. Instead, Donald Trump has been guided his entire life by an obscure 1942 Court decision - IRS commissioner v. Giannini.

And it holds that you don't have to pay income taxes if you don't tell people where to give the money. So their contention was there were instances where people owed Trump money, and he said, no, I don't want it. I reject your money. I renounce it. But you should maybe think about giving it to some charity somewhere and - not telling them the Donald J. Trump Foundation, just telling them give it to a charity. And then some of them did, in fact, give to the Trump Foundation, and that's how the money comes in. And under that logic, Trump wouldn't have to pay income taxes."

Terry Gross interview: "Journalist Says Trump Foundation May Have Engaged In 'Self-Dealing".

Washington Post stories:

"Trump directed $2.3 million owed to him to his tax-exempt foundation instead" and

"Trump Foundation lacks the certification required for charities that solicit money"

Brian Schmidt said...

LC - I was trying to describe two situations, one exactly like your hypothetical and another where debts owed to Trump are directed to be paid to Trump Foundation (which I cynically believe he did because he would then misuse the funds at the Foundation for his own benefit).

Maybe I'll clarify.

EliRabett said...

Eli is not a tax person, but he vacations near one. At first glance there would be no benefit on Trump having it sent to the Foundation or taking the money and donating in himself or having it sent to the Foundation because he could deduct the donation.

Except, except, there are limitations on itemized deductions including charity for income about ~$300,000 and Trump's income in any year sh(c)ould have exceeded that.

To the extent that the people who sent the money to the Trump Foundation benefit it would be from some double counting btw charitable donations and expenses. Don't know exactly how that would be done

Bryson said...

How could Trump explain away the use of foundation money to cover debts owed (the fine for his excessively tall flag)? When I arrange for a charitable foundation to make a contribution and wind up being excused from paying a debt I owe, it seems clear that I've engaged in self-dealing by using my influence over the foundation's decision to make a contribution for my personal benefit.

JohnMashey said...

In any case, this may resume later, but I suspect for now, the $916M tax loss in 1995, and likelihood he hasn't paid income taxes since ...
will tend to be the topic of discussion for a while.

BBD said...

John M

[Rubs hands gleefully]

Could this be it? I must admit to be incredulous that Trump has gone on for so long without being fatally compromised by some aspect of his historical business dealings.

Hank Roberts said...

You're following Doonesbury day by day, right?

Brian said...

Re Trump sending income to his foundation instead of his business, some states are more restrictive than the Feds in your ability to deduct donations, so that's possibly another reason why he get a tax advantage in diverting the money the way he did.