Why the I.R.S. Should Go After Trump. (NY Times column)

Former IRS lawyer Phillip T. Hackney writes, "If I were still at the I.R.S., based on the lawsuit, I would make a criminal referral, on charges of tax evasion or false statements on a tax return, or both.

Why the I.R.S. Should Go After Trump

By Philip T. Hackney
From 2006 to 2011, Mr. Hackney was an attorney for the chief counsel of the I.R.S. specializing in nonprofit organizations.
June 15, 2018
The New York Times

A lawsuit by the New York State attorney general documents that in 2016, Donald Trump directed his charitable foundation to operate as a political arm of his campaign.CreditDamon Winter/The New York Times
The New York State attorney general yesterday filed a lawsuit against the Donald J. Trump Foundation and its directors, accusing the charity and the Trump family of violating campaign finance laws, self-dealing and illegal coordination with the presidential campaign. It asks that Mr. Trump pay restitution and be prohibited from leading a nonprofit in New York for 10 years.

As a former attorney for the chief counsel of the I.R.S. who specialized in nonprofit organizations, I believe Mr. Trump is also criminally liable for his actions. If I were still at the I.R.S., based on the lawsuit, I would make a criminal referral, on charges of tax evasion or false statements on a tax return, or both.

On the tax evasion charge, the government must demonstrate that the defendant willfully failed to pay a tax he owed and acted to disguise or attempted to disguise that evasion. For a false statement charge, the government must show the defendant willingly signed a return under penalties of perjury, making a materially false statement that he knew was false.

These are not easy charges to prove, but the Trump Foundation is a nonprofit organization that is entrusted with money to be used exclusively for public charitable purposes. Any use of foundation money to benefit himself is akin to theft.

The government could anchor a tax evasion and false statement case upon the multiple instances of self-dealing, as cataloged by the New York attorney general, between Mr. Trump and the foundation. The attorney general details occasions when Mr. Trump directed the foundation to acquire expensive things like paintings of himself for himself; paid $258,000 to settle two private lawsuits; and made political contributions by paying $25,000 to the re-election campaign of Pam Bondi, the Republican attorney general of Florida. The attorney general also amply documents that in 2016, Mr. Trump directed the foundation to operate as a political arm of his campaign.

These acts fail to meet the basic requirement of a charitable organization to operate exclusively for charitable purposes. Yet Mr. Trump signed tax returns year after year through 2014 stating that these expenditures went for charitable purposes.

Congress imposes rigorous rules on private foundations; for example, each of these self-dealing transactions probably subjected Mr. Trump to a 10 percent tax applied to the value of the transaction. In addition, he may owe other excise taxes and penalties.

In 2016, when reporters were exposing these uncharitable acts, the Trump Foundation admitted that a contribution to Ms. Bondi’s campaign violated tax law in a tax filing and paid a fine.

The I.R.S. does not bring criminal charges for every violation of the tax law. While bad, none of the alleged acts by the Trump Foundation, combined with false statement on a return, would necessarily result in criminal tax implications.

The I.R.S. saves criminal consequences for notorious and continuous violations of the law. And the misuse of a charity for personal and political purposes over years — as alleged by the New York State attorney general — is in fact the type of case that the I.R.S. goes after with criminal sanctions.

Still, the government would need to weigh many factors in considering prosecution. Mr. Trump appears to have signed a form, 990PF, on behalf of the foundation for most years through the 2014 tax return. However, he did not sign the 2015 or 2016 returns. The misuse of the most significant amount of money that the lawsuit alleges happened in 2016. This would make acts of evasion harder to prove.

The most difficult element for the government is Mr. Trump’s knowledge of the tax law. In 2016, he tweeted: “I know our complex tax laws better than anyone who has ever run for president.” But he has also suggested that his lawyers handle all foundation matters and he hopes they advised him correctly. Both ignorance of the law and a reasonable reliance upon opinion of counsel are defenses to criminal tax violations, and the tax law regarding nonprofits is complex and subtle.

A criminal prosecution may be unlikely for both political reasons and issues of proof, but I still think the I.R.S. has a duty to open an investigation under the egregious set of facts the lawsuit laid out. If Mr. Trump has made false statements on these returns, is it possible he made false statements on other tax returns? He has never released his tax returns, so we have no way of knowing that.

I do not believe these violations are within the norm of mistaken or accidental use. It represents a continued willingness to violate basic charitable norms. He may see it as a petty violation, but it is an enormous breach for the broader community.

The I.R.S. owes it to the public to investigate such egregious acts for criminal violations.
Philip T. Hackney, a professor of law at Louisiana State University Law Center, was from 2006 to 2011 an attorney for the chief counsel of the I.R.S. specializing in nonprofit organizations.