OUR THOUGHTS ON:

The Donald J. Trump Foundation Acknowledges Self-Dealing

Internal Revenue Service|Not-for-Profit|Tax

By Elena Faurie

On November 21, The Donald J. Trump Foundation (the Foundation) released its 2015 Form 990-PF, Return of Private Foundation to the public and uploaded the return to the nonprofit-tracking website Guidestar.  On the 2015 Form 990-PF, the Foundation, which is tax-exempt under Internal Revenue Code (IRC) Section 501(c)(3), disclosed self-dealing in 2015 and in prior years.  No additional information as to what activities the Foundation considered to be self-dealing was provided, nor was information released about who was engaged in the matter.

The “self-dealing question” on the tax return asks about various activities that could qualify as self-dealing.  In Part VII-B, Statements Regarding Activities for Which Form 4720 May Be Required of the Form 990-PF, the Foundation answered yes to the questions 1a(5) and 1c.  The questions read: “During the year, did the foundation (either directly or indirectly) transfer any income or assets to a disqualified person (or make any of either available for the benefit or use of a disqualified person)?” and “Did the foundation engage in a prior year in any of the acts described above?”  Disqualified persons in this context could be Donald Trump, a member of his family, or a business owned by Donald Trump, among others. 

Self-dealing is prohibited by the Internal Revenue Service and requires additional filings such as Form 4720, Return of Certain Excise Taxes under Chapters 41 and 42 of the IRC.  All individuals who were involved in the activities will have to pay penalties and repay the Foundation back.  The initial tax on the amounts involved in self-dealing is 10% plus additional tax on foundation managers (the lesser of $20,000 or 5% of the amount involved in self-dealing activity). 

In addition to the disclosure of self-dealing, the tax form also listed several items under “other assets” that have not been reported in the past, including sports memorabilia – football helmet, Schanz fine art – portrait and Israel fine art – portrait.

According to media reports, the Foundation paid $10,000 for a painting of Trump by Havi Schanz in 2014, $12,000 for a Tim Tebow helmet in 2012 and $20,000 for another Trump painting by Michael Israel in 2007.  These assets are reported at $700, $475 and $500, respectively, on the return.

Is the Foundation’s tax-exempt status at risk?  Considering a voluntarily compliance with the tax rules, paying all the necessary penalties and excise taxes, and adopting a policy on self-dealing, the Foundation can likely avoid losing its exempt status.      

Please contact a member of your Schneider Downs team if you have further questions regarding this topic and visit the Our Thoughts On blog for more articles pertaining to the not-for-profit sector.    

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