Here’s what you need to know about the Eric Trump charity scandal

Here’s what you need to know about the Eric Trump charity scandal
A Forbes magazine report on the tax returns for the Eric Trump Foundation has raised some uncomfortable questions about his charity golf tournaments. (Spencer Platt/Getty Images)

Although the news was largely buried by the avalanche of Comey-related stories last week, the inter-related network of Trump family charities inched its way back into the spotlight after a report in Forbes accused the Eric Trump Foundation of, among other things, shifting money that was raised for cancer into fees for golf courses owned by his father, President Donald Trump.

Forbes also alleged that Eric Trump misled donors as to the recipients of certain funds, claiming that at least $500,000 that was earmarked for children’s cancer research was, in fact, diverted to other Trump-related entities.

Bloomberg has reported that longtime Trump nemesis and New York Attorney General Eric Schneiderman (who is also continuing an investigation into alleged fraud related to the now-defunct Trump University) has opened an investigation into the payments made by Eric Trump’s charity to various properties owned by Donald Trump. It should be noted that all the alleged payments at issue occurred before Donald Trump was elected president.

The Undisputed Facts

● THE ERIC TRUMP FOUNDATION has raised millions of dollars over the years to fight pediatric cancer. The foundation has given at least $11 million to St. Jude Children’s Research Hospital alone. (SOURCE)

● ONE OF THE WAYS the foundation raised money was by hosting golf tournaments on properties owned by Donald Trump. (SOURCE)

● FOR YEARS, ERIC TRUMP has claimed to the public at large that his charity has been allowed to use the golf courses for free by his father. (SOURCE)

State laws pertaining to charitable solicitations also tend to require scrupulous honesty from charities about the particulars of their fundraising activity. Therefore, a charity is allowed spend reasonable amounts of their donated funds on raising more money; however, if a charity actively promises donors that none of their money will be used for fundraising purposes, or that 100 percent of donations will actually go toward program funds, they can be held criminally liable for failing to meet those standards.

● THE FOUNDATION HAS PAID at least $1.2 million to the Trump Organization over the years, ostensibly for the use of Trump golf courses for these charity events. (SOURCE)

● THE FOUNDATION SUSPENDED operations on Dec. 22 after Donald Trump’s election. (SOURCE)

Disputed Territory

● WASHINGTON POST REPORTER David Fahrenthold discovered that the 2014 tax returns for the Eric Trump Foundation showed a payment for more than $87,000 to one of Donald Trump’s golf courses. The payment would seem to belie Eric Trump’s claim that his father allowed him to use golf courses for “free.” (SOURCE)

● ERIC TRUMP SAID the payment to the course was not for use of the course but for the use of third-party vendors. The payment was made to the course itself to reduce the administrative burden. Fahrenthold reported:

But Eric Trump said the payment was not actually for the use of the club. In fact, he said, the Trump golf course had made no money at all from hosting his foundation’s tournament: “Zero. Zero.”

Instead, Eric Trump said, the payment was actually to cover the cost of outside vendors: to rent a stage, to rent extra golf carts and to hire extra golf caddies. In the past, Eric Trump said, his foundation had cut separate checks to all these outside parties. In 2014, he said, they decided to have the golf course handle the administrative burden of paying all the outside vendors. Then his foundation wrote one check to reimburse the golf course.

“Its just much easier for me to say, ‘Guys, give me an invoice for everything that the property had to pay out of pocket for third-party vendors,'” he said. Eric Trump said he prides himself on the low administrative costs of his foundation. “I never thought that somebody would sit there on other end and just tear me apart.”

● ACCORDING TO FORBES, unnamed “golf charity experts” said that the amounts paid to the Trump golf courses “defy any reasonable cost justification” and are thus improper and possibly illegal under the law pertaining to tax-exempt charities. (SOURCE)

● REGARDLESS OF THE MARKET FAIRNESS or cost justifications of the transaction, any payment by the Eric Trump Foundation to any organization controlled by Donald Trump is legally problematic.

IRS regulations on self-dealing prohibit tax-exempt entities from providing goods and services (or compensation or expenses) to a “disqualified person,” which is defined as “any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization,” such as Eric Trump. Regulations are also clear that, “[f]amily members of the disqualified person and entities controlled by the disqualified person are also disqualified persons.”  (SOURCE) Thus, Donald Trump, and entities controlled by Donald Trump, are generally prohibited from engaging in transactions with the Eric Trump Foundation, including the provision of golf course time, unless such services are rendered “without charge.” (SOURCE – see p. 8). The penalty for violation of these self-dealing rules, however, is merely loss of tax exempt status for the organization for one year; given that the Eric Trump Foundation is not currently operating. It may not have even been permitted, under these regulations, for the Eric Trump Foundation to have used the Trump Organization as a pass-through to pay third party vendors, as he claimed in his interview with Fahrenthold – IRS Reg. 53.4941(d)-2(d)(3) seems to prevent any such payments that are made “directly to the disqualified person.” (SOURCE)

● FORBES ALSO CLAIMED that Eric Trump Foundation donors were misled by Eric Trump about $500,000 worth of funds that were allegedly earmarked for pediatric cancer research but that instead were “re-donated to other charities, many of which were connected to Trump family members or interests, including at least four groups that subsequently paid to hold golf tournaments at Trump courses.” (SOURCE)

● A FORMER BOARD MEMBER of the Eric Trump Foundation has alleged that until 2010 or 2011, the Eric Trump foundation was, in fact,  allowed to use Donald Trump’s golf courses for charity events, but that at Donald Trump’s insistence, the golf courses began charging the Eric Trump Foundation for the full costs of these tournaments. The Foundation’s tax returns do suggest a massive, sudden increase in money paid to the Trump Organization that seems to buttress this story; however, there is nothing to verify that the change was instituted at Donald Trump’s insistence. (SOURCE)

● ERIC TRUMP HAS STRONGLY DENIED any wrongdoing related to his charity or its use of funds, and has promised that the foundation will cooperate with any review. (SOURCE)

What it all means

It appears, based on the known facts, that the Eric Trump Foundation may have violated IRS regulations pertaining to self-dealing, and thus may lose tax-exempt status for one year. However, since the Foundation is not currently operating, this will be essentially a meaningless penalty.

If payments were made by the Eric Trump Foundation to the Trump Organization that were in excess of fair market value, then all the directors and officers of the Eric Trump Foundation, including Eric Trump himself, are subject to potential civil and criminal sanction for both fraud and possibly tax fraud, depending on the severity of the offense. If it can be proven that Donald Trump knowingly received such tax-free payments in excess of fair market value from a charity controlled by his son, then he would likewise be subject to possible civil and criminal sanction as well.

If donors were explicitly promised that none of their money would be used to pay for fees on golf courses owned by Trump, or if solicitation material expressly promised that the Foundation received access to the courses for free as a means of reducing overhead, then a number of possible penalties for Eric Trump Foundation officers and directors might be in play, under the patchwork of state charity solicitation laws.

Otherwise, this mostly consists of a political story that would have limited effect. Trump’s charitable giving, or lack thereof, was already examined exhaustively during the 2016 campaign; in fact, Fahrenthold’s reporting on it was so extensive that it won him a Pulitzer. Voters, on the other hand, seem to have not cared, based on Trump’s general election victory. If it turns out that Eric Trump lied about his father’s donation of golf course time, it is difficult to imagine that significantly denting Donald Trump in any political way.