Journalists and commentators across the political spectrum have subjected both the Bill, Hillary & Chelsea Clinton Foundation and the Donald J. Trump Foundation to a withering barrage of criticisms. Without a doubt, both foundations and their managers, including Ms. Clinton and Mr. Trump, have made mistakes. The critical question, however, is whether those mistakes are illegal.
First, it is clear that both Clinton and Trump used their foundations to support various personal and professional relationships. As has been widely reported, donors to the Clinton Foundation asked for and received private meetings with Ms. Clinton while she was secretary of state. The Clinton Foundation also helped arrange multimillion dollar investments in an environmentally friendly business in which several Clinton friends and people with strong Democratic Party ties had also invested, according to the Wall Street Journal.
As has also been widely reported, the Trump Foundation made contributions to numerous charities favored by his personal or business associates including, ironically, the Clinton Foundation in 2009 and 2010. The Trump Foundation also has received all of its financial support since 2008 from people other than Mr. Trump and his family, and who have personal and business ties with him, including NBCUniversal.
But such use of charitable foundations is not illegal under the federal tax laws, even if it may appear unseemly. A foundation only crosses into illegality if a substantial return benefit is received by a foundation insider or a business in which they or their family has a substantial ownership stake.
This is where the Trump Foundation distinguishes itself from the Clinton Foundation.
As detailed in a series of articles by David Fahrenthold of the Washington Post, the Trump Foundation allegedly purchased a Tim Tebow helmet and paintings of Mr. Trump that may have been kept by Trump personally, bought an ad for a Trump business, made a $25,000 contribution to a political organization affiliated with Florida Attorney General Pam Bondi that Trump had promised to make at a time her office was considering possible action against Trump University, and paid over a quarter million dollars to charities in order to settle lawsuits against Trump businesses.
None of the allegations against the Clinton Foundation, much less the actually demonstrated facts, show this type of personal benefit to Ms. Clinton, her family or any business in which she or they had an interest.
Mr. Trump has in fact admitted that the payment to Attorney General Bondi was a mistake, and has repaid the foundation that amount, along with offering the IRS a payment to cover a potential penalty tax. So far, he and his campaign have flatly denied any wrongdoing with respect to the other transactions, including the payments to settle the legal claims brought against his businesses, however.
This is despite the fact that any use of a private foundation’s assets by its insiders for their own benefit is clearly self-dealing, which Congress prohibited for such foundations back in 1969.
The Clinton Foundation is actually subject to a less-strict prohibition on providing private benefit to insiders or others, because despite its name under the law it is not a “private foundation” since it enjoys relatively broad-based donor support. There do not appear to be any demonstrated facts that show the Clinton Foundation violated this prohibition or even the stricter self-dealing prohibition.
Both foundations have also admitted to reporting errors on the annual returns they file with the IRS. Late last year, the Clinton Foundation reported that it had amended its returns for four years because it incorrectly failed to report any government grants and instead reporting such grants as “other contributions,” incorrectly categorized speech fees as contributions to the foundation and, as a result, failed to report some donors that now met the threshold for reporting, and failed to report some entities related to the foundation.
This year, the Trump Foundation admitted it had incorrectly reported the contribution to Attorney General Bondi’s political organization by listing a different, similarly named entity as the recipient instead, although the foundation has not apparently amended its return for that year.
Both foundations plausibly assert these errors were inadvertent, and none of them rise to a level that likely would cause the IRS to pursue sanctions against either foundation. The Trump Foundation error is more troubling, however, as it had the effect of hiding an illegal payment.
The bottom line is that close ties between foundations, their leaders, the donors that support them and the causes they support are common. Members of the public can of course still be critical of such ties, but the law allows them.
What is not allowed is using assets dedicated to charitable endeavors to pay personal debts or support the personal business interests of the foundation leaders.
While both Ms. Clinton and Mr. Trump used their foundations to enhance their extensive networks of relationships, it seems that only Mr. Trump treated his foundation as just another pot of money he could draw upon whenever there was any type of “charitable” connection and even when the primary beneficiary of the foundation’s spending was himself or his businesses. This is where the Trump Foundation appears to have crossed into illegality, as the Post indicates, while the Clinton Foundation did not.
By Lloyd Hitoshi Mayer