IRS scandal

What’s wrong with this picture?

Yes, the Planned Giving Blog is apolitical but there are times when I can’t resist getting into the spirit of politics – especially Presidential elections when they cross over into my territory! (For fun and a little education, of course!)

What caught my attention? A little article this morning on Foxnews.com entitled “Half of Clintons’ charitable giving in 2014 went to their own foundation.” Check out the article by clicking on the title and then come back here to read the rest!

So, I got into investigative reporter mode this morning and starting checking out the most recent 990s.

Here is what I found.

#1 – Yes, the Clintons contributed $3 million or so in 2014 to their small private foundation – The Clinton Family Foundation (CFF).

#2 – CFF granted out around half of its holdings to nonprofits in varying amounts between $5,000 and $200,000 to various good causes (I’m sure – it included a client of mine!) around the country.

#3 – The other half did stand out for 2014 Calendar Year: a grant of $1,865,000 to The William J. Clinton Foundation (PC – Public Charity)

Now point #3, of course, is strange. Presumably, the Clintons are involved plenty already with this public charity, The William J. Clinton Foundation (now doing business as the Bill Hillary and Chelsea Clinton Foundation – let’s refer to it as BHCCF). Why not just donate that $1.865 million directly to BHCCF, a full fledged public charity? Maybe a little better deduction on their tax returns? Actually, there is no difference for them on the surface. The charitable deduction is not affected either way. And, BHCCF’s public charity status seems pretty solid (at least on this issue!) – this $1.865 million won’t impact it as far as I can see with their public support test. Hmmm – why all of the subterfuge?

#4 – The above picture – here it is again (click picture to see larger view):

This is a snapshot from BHCCF’s 2013 990 tax return. It is showing the totals of their fundraising events in 2013. Did you notice that their 14 events or so actually lost money?

You could say that is certainly not out of the norm but not at this scale. To run 14 or more high end events like these, with the costs and revenue associated with them, you would need a team – a pretty big team of full time staff working their tails off. And, for what? To lose over $800,000 for the organization. What about the cost of probably 10 or more full-time staff members dedicated to running these events? The loss is probably more like $2 million, if you add in real staff costs like salaries!

If I were investigating this foundation, I would want to know why they are spending so much money and effort on so-called fundraising events when they are clearly not designed to actually raise money.

In other words, what I am looking for is whether these events are not really to support the charitable mission of the foundation (obviously not doing the job financially) but rather some other purpose (i.e. getting someone elected President – which actually is a pretty big issue for a public charity whose status also rests on the fact that politics must be severely limited if you want to keep your public charity status).

Last lesson – Step Transactions. I was an attendee of the S. Prestley Blake Law Center (building name of my law school), who just happens to be the founder of Friendly’s Corporation and also the taxpayer in one of the most infamous tax law cases (Blake v. Commissioner of Internal Revenue Service). That case set down the principle of step transactions, which means that you cannot do something indirectly that you couldn’t do directly (i.e. gift funds for a deduction to one entity that sends it to another which really shouldn’t have public charity status after all). Is this the answer as to why bother funneling funds through CFF?

Alright, this was a fishing expedition. I was just wondering if any nefarious tax or charitable issues would jump out at me. That event spreadsheet in the 990 hints to some serious issues with the public charity status of the BHCCF – which on its face should be questionable in any case. Someone seeking higher office, has huge “public charity” foundation at her beck and call, and runs presumably high end events that lose money hand over fist. Maybe, just maybe, much of the rest of the BHCCF activities are way over board towards helping Hillary’s election campaign. Of course, this isn’t a headliner issue, is it? Oh well, maybe next time.

Say it ain’t so! More on the IRS exempt org. scandal ;)

As a graduate of Western New England College School of Law (now known as Western New England University School of Law), our most famous graduate (at least for the tax guys like me) was none other than Lois Lerner, director for the IRS Exempt Organization Division!!!!

Well, she just got a lot more famous. Click here or on the Pinocchios to check out the Washington Post’s fact checking story on public statements of hers.

Just think, two day ago, she was supposed to be the honored Commencement Speaker at Western New England’s law school graduation. (click to see her bio on the Western New England website – soon to be removed once they see this post!). Apparently the scandal put an end to her commencement speech plans.

Today, she is at the head of the line to take the fall for IRS exempt org debacle.

At least our law school’s name recognition will be up. Ironically, the law school happens to have particularly good tax law professors and its building is even named after the one of the most notorious charitable tax cases: S. Prestley BLAKE v. COMMISSIONER OF INTERNAL REVENUE (Mr. Blake, founder of Friendlys Corporation, whose headquarters was located across the street from the campus). Who would have thought that Western New England’s law school would be all over the news!

The real story behind the IRS tax-exempt org. scandal

When the media gets hold of a controversial issue, it is always a good idea to hear what insiders on the issue think is the real story because it is often diametrically different than what we are hearing.

In this case of the IRS targeting political enemies of the ruling administration, what do tax lawyers for tax-exempt orgs think of the scandal?

If you are interested, click here to check out a post from the TaxGirl blogger (now on Forbes.com).

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In short, the IRS does this kind of stuff all the time (with or without the Obama administration)! Just bad timing for getting caught during a particularly strong scandal season for the President.

My own two cents: in my experience, the IRS has no problems with overstepping their jurisdiction. Orgs I have advised were held hostage over their exemption status over non-federal tax issues or issues irrelevant to tax-exempt status. One organization was forced to sign an agreement that they would never again participate in raffles schemes (clearly a state law issue) if they wanted their 501(c)(3) letter. Another organization was held hostage over their use of parsonage for their clergy-teachers (probably incorrectly and certainly not relevant to the 501(c)(3) application). Basically, they used their strong bargaining position to push around the nonprofit for any issue they didn’t feel comfortable with – regardless of whether it had anything to do with the application being submitted.

The message I took from my limited experience was that when you go to the IRS for tax-exempt recognition, go in with as clean an application as possible, plain vanilla, nothing out of ordinary. Nothing to give them reason to think twice.