Donald Trump’s practice of using money from his charitable foundation for his personal benefit are obvious violations of the law and even have the potential of getting the Trump Foundation shut down, charity law experts told TPM.

One non-profit attorney said that Trump was “flirting” with violating an IRS regulation that would, in effect, terminate the foundation. Another lawyer – a former chief of the Charities Bureau in the New York State Attorney General’s office – said it was “conceivable” that an attorney general could seek to dissolve a foundation for self-dealing, if they can prove “it’s not really acting like a charitable foundation.”

A Washington Post report this week described a series of instances in which Donald J. Trump Foundation funds were used improperly — and perhaps, illegally — by Trump in transactions that suggest he was “self-dealing,” a well-known and long-held no-no for private foundations. Legal experts who work in the non-profit world told TPM that the cases described by the Post report are well outside the norm.

“In this day and age — the law has been around since 1969 — it’s pretty clear,” said Marcus Owens, an attorney at Loeb and Loeb in Washington who represents nonprofit organizations. “It’s rare to see acts of self-dealing. It’s extremely rare to see a pattern of self-dealing.”

In one case in the Post report, Trump used foundation money to settle a legal dispute — via a check to a local charity — between his Mar-a-Lago resort and the city of Palm Beach over a zoning issue. In another, foundation money went to the charity of a man who sued a Trump golf course after he was stiffed on a $1 million award for making a hole-in-one. In another instance, foundation money paid for a charity sponsorship that Trump used to advertise his hotels. Multiple times, Trump wrote foundations checks for items — self-portraits, sports paraphernalia — he had purchased at charity events. Despite the Washington Post’s multiple inquires, Trump’s charity has yet to provide proof such items were used in service of the foundation, and one portrait of Trump was found by a Univision reporter hanging in the bar of Trump’s Doral resort.

Hey @Fahrenthold just checked and the portrait is still hanging at the Champions Lounge. How much did you say it cost the Trump Foundation? pic.twitter.com/hGAun6KgCO — Enrique Acevedo (@Enrique_Acevedo) September 21, 2016

Such transactions raised red flags among charity law experts and tax attorneys, as they appear to be forbidden, and private foundations in particular, like the Donald J. Trump Foundation, face stringent regulations outlawing self-dealing.

“The people who have substantial influence over the organization’s affairs or activities cannot benefit from the activities of the organization,” said Seth Perlman, of Perlman and Perlman, a New York City firm that specializes in nonprofit law. The class of individuals — which include charity executives, board directors, major donors and trustees — are known as disqualified persons, and the category also extends to their children, grandchildren and great grandchildren, the experts said.

“The philosophy behind these rules is that the grant of a tax exemption is a privilege. It’s something valuable that the government gives and there are strings attached to that grant of privilege,” said Pamela Mann, the head of the tax exempt organizations group at the New York City law firm Carter Ledyard, who for 11 years served as chief of the Charities Bureau at the New York Attorney General’s office.

“One of the strings is that the organization really has to be run for proper charitable purposes,” Mann told TPM.

The tax implications are two-fold, according to experts. The charity itself benefits from a tax-exempt status, and those who contribute also get to deduct their donations from their taxes.

Private foundations — which rely on large contributions from a few donors — are bound by strict regulations so they do not become devices that wealthy people use to avoid paying taxes, the experts said. Beyond a reasonable salary for the work he or she does for the charity, a disqualified person cannot participate in any sort of financial transaction, charity law attorneys told TPM.

“Self-dealing is prohibited, and the kind of self-dealing with the Trump Foundation is somewhat remarkable in its breadth,” said Jim Fishman, a professor at The Elisabeth Haub School of Law at Pace University in New York, who teaches courses on nonprofit law.

The regulations against self-dealing came out of a series of bipartisan investigations and hearings on private foundation practices in the 1950s and 1960s, Fishman said.The result was provisions in the Tax Reform Act of 1969 that put into place the IRS code cracking down on self-dealing. Additionally many states have laws on the books that designate agencies to investigate charities that are acting inappropriately, according to experts. Indeed, New York Attorney General Eric Schneiderman has already announced his office is investigating the Trump Foundation.

“His office is very proactive in monitoring charities and there’s only a few states you can say that about,” Fishman said.



Florida Attorney General Pam Bondi with Donald Trump.



On the federal side, Trump could face what is known as an excise tax for improper self-dealing. (He was recently forced to pay a $2,500 excise tax when it was revealed his foundation had cut a $25,000 check to a political group supporting Florida Attorney General Pam Bondi. Charitable foundations are prohibited from making political contributions. Trump also had to reimburse the foundation personally for the $25,000.) According to Owens, the excise taxes are tiered according to the perpetrator of the violation and what the charity did to fix it, but in the third tier — when a foundation is found to be engaged in self-dealing that is “willful and repeated” or “willful and flagrant” — the IRS has the authority to terminate the private foundation by way of taxing the charity the entirety of its worth.

“I think the Trump foundation is flirting with that third tier tax, the termination tax,” Owens said.

On the state side, depending on what an investigation finds and the level of cooperation from the foundation, disputes could be resolved via a settlement, or the attorney general could take the charity to court, where the final penalty will be up to the judge, the experts said.

“The attorney general has the authority to investigate those kinds of violations and seek monetary remedies, seek removal of director in appropriate cases, and pretty much everything in between,” Mann said. “I think it’s conceivable they could also seek to involuntary dissolve a foundation because it’s not really acting like a charitable foundation.”