Tax Analysts Blog

It’s a Crime

Posted on Nov 23, 2016

OK – I admit it. I hold a bias in favor of law enforcement, particularly when it comes to taxes. Thirty years of litigating civil tax cases for the U.S. Department of Justice, and seeing the myriad ways that taxpayers use to avoid paying what they owe, will do that to a person. While abuse of the tax laws cuts across most income levels and demographics, I found that the wealthiest people often came up with the most “creative” explanations for why they didn’t follow the tax laws. 

And President-elect Donald Trump is no exception. His private foundation just admitted what the press has been reporting for months: that in 2015 it engaged in what the tax code calls “prohibited transactions” and what the rest of us call self-dealing. More importantly, Trump’s foundation admitted that it had engaged in self-dealing in years before 2015. This will require the filing of additional tax returns reporting those prohibited transactions, and the payment of excise taxes to the IRS on them. It could also require the insiders to repay the foundation, and require the foundation to undo those transactions, or face a 200 percent excise tax.

No big deal, right?

Wrong. You see, the foundation filed tax returns for earlier years in which it claimed that it had not engaged in self-dealing. The people who signed those returns for the foundation did so under penalty of perjury. And knowingly signing a materially false tax return is a felony that is punishable by a prison sentence and a hefty fine. The foundation’s admission – also made under penalty of perjury – that those earlier returns were false raises a legitimate question about whether the signers knew they were false at the time. 

This is not the same thing as a wage-earner who mistakenly relies on a local tax return preparer to claim a deduction for eating lunch at a restaurant. Organizations like the Trump Foundation are run by sophisticated business people and advised by highly qualified tax and legal professionals. When they check the yes or no box for self-dealing on the foundation’s tax returns, they are supposed to know whether the foundation did, in fact, engage in self-dealing. And it is reasonable to believe that they did know.

One might respond that all of this is a bit inside baseball. After all, a bunch of nerdy tax people made a mistake on a tax form no one ever heard of, and they will fix it. No harm, no foul.

But whether or not the IRS ever investigates and prosecutes the people who signed the foundation’s false tax returns, there is a bigger crime here. And that is the crime of secrecy, of privileged people who will soon be running our nation’s government, deciding that they can do whatever they want on their taxes, the laws be damned – and that their tax dealings are none of the public’s business.

On January 20 Donald Trump will take essentially the same oath of office that I took when I joined the civil service in 1977. He will swear to preserve, protect, and defend the Constitution and laws of the United States against all enemies, foreign and domestic. One way to assure the American people that he is fulfilling that oath is to open his tax returns to public scrutiny. Failing to do that would be the real crime.



Read Comments (4)

Edmund DantesNov 23, 2016

The abuses by the Clinton Foundation in trading favors from the SoS for big dollar foreign donations is a far bigger crime that what the Trump Foundation did. At least the Trump Foundation 'fessed up.

The biggest crime of all, with the most severe impact, is the weaponization of the IRS by the Obama administration to use against political enemies. The public revulsion at this abuse of power has led to strong support for cutting the IRS' budget and then cutting it again, until the stonewalling stops and accountability begins. So far, no progress on that problem.

Travis RechNov 28, 2016

"The abuses by the Clinton Foundation in trading favors from the SoS for big dollar foreign donations is a far bigger crime that what the Trump Foundation did."

Except the difference is that the Clinton Foundation hasn't been proven to do that, hasn't been indicted, and hasn't been adjudicated guilty, whereas the Trump Foundation has voluntarily admitted wrongdoing. One is conjecture, one is a fact. Comparing the two as anything approaching equality is partisanship. Deal in facts only.

Patrick LeClaireNov 23, 2016

" I found that the wealthiest people often came up with the most “creative” explanations for why they didn’t follow the tax laws." True!
I don't have a political opinion regarding this issue. After all, right or left wealth, will bypass the H&R Block store in favor of more professional help. I have noticed in my 20+ years in Corporate tax and resolution work that there is a behavioral "lowest common denominator" that all wealth sinks to in their approach to tax reporting. The whole process could use a little bit more truth. I dare you to try to speak truth from the inside, you might find the price a bit steep.

Mike55Nov 28, 2016

There's nothing whatsoever to suggest a criminal transgression occurred. To the contrary, it's difficult to imagine something more mundane that a $15M+ foundation failing to report $37K worth of self-dealing transactions over a 28 year period. What am I missing?

For what it's worth, the largest self-dealing transaction at issue here serves as the perfect microcosm for why I didn't support Trump: he bought a portrait of himself, had his foundation pay for said portrait, then had the thing installed in the bar area of a golf course he owns. The level of narcissism inherent in that chain of events is mind boggling! However, I learned very early on in my legal career that not everything I find distasteful is a crime. This remains true even where the perpetrator has political/ideological views different from my own.

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