The charitable organization bearing President-elect Donald Trump's name admitted in tax filings that it engaged in "self-dealing," an illegal practice in which a registered US nonprofit uses its resources for the benefit of its own major donors or stakeholders.
The violations occurred both last year and in years prior.
The revelation appears to confirm some media reports during President-elect Trump's presidential campaign regarding his personal taxes and the relationship between his for-profit and not-for-profit organizations. But the 30-page 2015 tax return signed by Donald Bender, treasurer of the Donald J. Trump Foundation, provides no information about specific acts of self-dealing.
"I think we are in uncharted territory in that the reporting to date raises more questions than answers and that this has been an ongoing issue with respect to the tax questions that were raised during the campaign," Caroline Bruckner, executive-in-residence in the American University Kogod Tax Policy Center accounting and taxation department, tells The Christian Science Monitor.
The filing's release, which was first reported Tuesday by The Washington Post, comes as the New York Attorney General Eric Schneiderman investigates allegations that Mr. Trump benefited personally from the foundation's spending. Details surrounding that investigation have not been made public, so it remains unclear whether there is a direct connection between it and the foundation's admission, Bruckner notes.
Mr. Schneiderman launched his investigation in early October after Post reporter David Fahrenthold reported that Trump's foundation had been soliciting donations in New York without the proper registration, meaning the charity had avoided mandatory annual audits that could have determined whether money was being used inappropriately to benefit Trump or his companies.
Linda Sugin, a law professor at Fordham University in New York, says she was astounded to see Americans flock to support Trump despite the hard-hitting reporting by Mr. Fahrenthold and others.
"The idea that there’s a president who used his private foundation for his personal benefit in total disregard of the legal rules for charities is just a really frightening thing," Professor Sugin tells the Monitor. "The kinds of rules that the foundation violated are really not the complicated ones. They’re the pretty simple ones that any lawyer would tell you, 'This is how you need to behave.'"
The consequences for such violations could include financial penalties or worse.
"This is really a case where, if there is a pattern of repeated violations of these rules, that the foundation would lose its exemption," Sugin says, pointing to an op-ed she wrote for The New York Times in September, when she said the foundation's board members either knew or should have known that activities reported by Fahrenthold would constitute self-dealing.
"Given the explicit questions that the tax form asks, it is hard to believe that the foundation omitted so much relevant information by mistake," Sugin wrote.
Additionally, the foundation has come under fire for a $25,000 donation it made in 2013 to a political committee supporting Florida Attorney General Pam Bondi because charities are prohibited from engaging in political activity. Trump's staff said the check he signed was a clerical error and that he had intended to use personal funds to support Bondi's bid for reelection.
Bondi's office, at the time of receiving the foundation's donation, was fielding media questions asking if she would follow Schneiderman's lead and file a lawsuit against Trump University and Trump Institute. Former students of Trump's programs said they were scammed, but Bondi elected to take no action in the case.
Last week, Trump settled three separate lawsuits regarding Trump University, agreeing to pay $25 million without admitting any wrongdoing. Separately, Bondi met with Trump in Manhattan, causing some observers to wonder if she might be under consideration for an appointment in his administration.
Michael Knoll, co-director of the Center for Tax Law and Policy at the University of Pennsylvania Law School, says it is appropriate for the American public to scrutinize the dealings of their president-elect's nonprofit, but the even bigger story could be the potential conflicts of interest posed by Trump's business relationships. Past presidents have traditionally divested themselves of their business interests and established blind trusts to avoid perceptions that they might use the White House as business leverage. But converting his assets to a blind trust, could prove challenging for Trump, given that so much of his business is built on licensing and branding.
"It’s very easy to sell a building, but people are paying him an awful lot of money to put his name on their buildings," Dr. Knoll tells the Monitor.
Writing for The Fiscal Times, Rober Garver noted that at least some of the questionable behaviors Trump's campaign exhibited before the election could be continuing with his transition team thereafter:
During his presidential campaign, Trump’s properties billed the campaign for the use of office and event space and were paid with funds donated to the campaign. Whether or not the Trump organization is now billing the transition team – which is funded by taxpayer dollars – is unclear. And, according to groups promoting ethics in government, that’s a problem all by itself....
Meredith McGehee, strategic advisor with the Campaign Legal Center, a nonprofit that focuses on free and fair campaigns and elections, said that there is no precedent for this situation in modern US history.
"I think we’re in a brave new world because so much of the transition is being run out of Trump’s own facilities,” she said. “The conflicts of interest and the self-dealing potential here is much more difficult and complicated and unclear. It’s going to be very difficult to figure out what’s going on."
Vice President-elect Mike Pence said on CBS's "Face the Nation" over the weekend that he remains "very confident that we will operate an administration that is above reproach," and incoming White House Chief of Staff Reince Priebus assured the public "that there wouldn't be any wrongdoing or any sort of undue influence over any decisionmaking," as Mr. Garver reported. In a tweet, Trump blamed the critical coverage of his business connections on "crooked media" hype.
The bottom line when it comes to Trump's foundation, Sugin says, is that when money goes in, it is never allowed to go back out into his pocket: "It is not his money."
Tax laws are enforced by the Internal Revenue Service (IRS), which is a bureau of the US Department of the Treasury, which ultimately answers to the US president as the head of the executive branch, so any potential enforcement of the law against Trump's foundation could prove tricky.
"It’s the IRS that has to enforce against him here, and they have a lot of discretion, enforcement discretion," Sugin says, "so I wouldn’t hold my breath for the IRS to start to enforce against the president-elect."
Material from The Associated Press and Reuters was included in this report.