Mainstream (and not so mainstream) media outlets continue to mischaracterize certain aspects of The Donald J. Trump Foundation (and, by implication, all private foundations) by implicitly and expressly characterizing Trump’s use of donations to The Foundation for charitable purposes, instead of Trump using his own money-exclusively– as improper. This article is solely limited to this topic and the author is in no way intending to discuss, defend or explain any other actions by The Donald J. Trump Foundation or by Donald Trump related to The Donald J. Trump Foundation.
Donations made by The Donald J. Trump Foundation in the name of The Donald J. Trump Foundation, using funds donated to The Donald J. Trump Foundation by people other than Donald Trump, are not, per se, improper for the sole reason that funds of such other people besides Trump himself were used for such Donald J. Trump Foundation donations. There is no legal or generally accepted practice requiring Trump to name and credit others whose funds may have been incorporated into any specific grant or donation by his foundation.
While, often, foundations may be funded entirely by a benefactor and his or her family (and by subsequent capital earned on the initial funds granted to create a respective foundation) – it is not always the case. A private foundation is a charity, just like any other charity. While there are differences in some of the rules for private foundations vs. public charities, there is no special requirement that all funds for grants and donations from a private foundation come from only a single source.
If you go to The Clinton Foundation website, the landing page asks for donations. Are we to think that with each grant made by The Clinton Foundation, each of us who donated $25.00 will be named and credited in such grant? It is common knowledge that The Clinton Foundation has donors from all over the word. Are such donors all personally named in each grant made by the foundation? Certainly not.
Likewise, Warren Buffet has pledged enormous amounts of money to the Bill & Melinda Gates Foundation. Is Warren Buffet to be specifically credited on each grant by the Gates Foundation where such Buffet donated funds are used in whole or in part? To my knowledge, the answer is “no”.
Many professional athletes and musicians from Jon Bon Jovi to Boomer Esiason to Derek Jeter….and on and on…. have foundations (many of which are named after them) that accept donations. Certainly, they don’t name and give credit to each and every donor when fundraiser grants are made using donor funds. The grants are made in the name of their respective foundations….and the creators of the foundations get the credit, and, as with The Donald J. Trump Foundation, there is nothing legally improper about that. Even if these nonprofits are filed as public charities, and not as private foundations, the net effect is the same…monies are disbursed by the organization (which is named after the organization’s founder), providing such founder with lots of public recognition and esteem, and the organization never mentions all of the sources of the underlying funds. This is, simply, the nature of charities which are founded by, and named after, known personalities. Celebrities form nonprofits named after themselves in order to maximize exposure and fundraising, the public donates in order to be a part of it, the money goes to good things, and the celebrity gets the praise. It’s not a “Trump-specific” structure of things- at all.
Did you know that most 501(c)(3) nonprofit corporations don’t want to be treated as private foundations because of the extra burdens and rules? They have to meet requirements under the Internal Revenue Code so that they do not have to pay taxes or be regulated like private foundations because private foundations are subject to greater regulations and excise taxes. In other words, Trump would benefit if he could meet the Code’s requirements to be a public charity that can raise and use funds of others- as opposed to being a private foundation where he can’t do that to the same degree. He would have less regulations and less tax liabilities with which to deal. Moreover, the public charity model, a business model used by many philanthropists, nonprofit operators, and celebrities, can use other people’s money to a far greater degree than can a private foundation. Trump could have elected to be a public charity instead of a private foundation- he elected to not.
The differing treatment of private foundations compared to public charities is as follows:
- (a) a foundation must pay out 5% of its assets each year, while a public charity does not;
- (b) donors to a public charity receive greater tax benefits than donors to a foundation;
- (c) a public charity must collect at least 10% of its annual expenses from the public in order to remain tax-exempt while a foundation does not- meaning that a foundation expects to pay all of its own expenses.
Further, in exchange for exemption from paying most taxes and for limited tax benefits being offered to donors, a private foundation must (a) not own or operate significant for-profit businesses; (b) file detailed public annual reports and conduct annual audits in the same manner as a for-profit corporation; (c) meet a suite of additional accounting requirements unique to nonprofits.
Moreover, a private foundation has to pay a two (2%) percent tax on income earned by the private foundation – – – this is called an excise tax.
When a 501(c)(3) filing is made, a filing corporation is automatically considered to be a private foundation which has to elect to be considered a public charity, instead of a private foundation, in order to avoid excise taxes on their net investment income. So, when Trump, or any other foundation owner, fails to elect to be a public charity, it is actually accepting a tax liability to which others are not subject.
By raising funds (when properly registered to do so), a foundation is not acting improperly; it simply may be acting a bit more as a public charity, rather than a private foundation. In other words, raising outside funds is not a bad thing. It’s just another method of operating a nonprofit.
The main points to understand are:
- Trump could have filed to be a public charity and accept many public donations and government funds, but chose not to; and
- By using the monies of others for charitable causes, a private foundation is not acting improperly, so much as it is acting more like a public charity than an actual private foundation and should be regulated and taxed as such (it would mean less regulations and less taxes).
While Trump may have acted improperly in some foundation activities [1], the act of putting donated funds to use, in and of itself, is not one of them. Yet, the media regularly implies and states that Trump’s foundation “improperly” makes grants and donations in its own name using the funds of other donors. But, this practice is both common and legal, as well as a more conservative approach to collecting the money of others than the approach allowed for by public charities- an approach used by many celebrities.
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Footnote:
1. The Donald J. Trump Foundation has been accused of improper activities related to fundraising and political contributions, among other things.
Endnote:
My aim in this article is not to defend Donald Trump. My aim is to clarify persistent incorrect legal analyses by the media with regard to the use by a foundation of raised funds, and to point out the media’s attempt to pass off “dicta” as fact, and to mislead a misinformed public through the use of artful suggestion to taint legitimate activity.
-Neil S. Siskind, Esq., President
The Siskind Law Firm
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