December 23, 2016; ABC News (Associated Press)
Eric C. Trump founded a charity bearing his name in 2007. Unlike his father’s 501(c)(3) private foundation, Eric’s nonprofit is a public charity, the most common form of 501(c)(3) tax-exempt corporation. Publicity surrounding his father’s winning the presidency and questions about the elder Trump’s own charitable activities have called the operations of the son’s foundation into question, prompted Eric Trump and his 16-member board to announce suspension of operations on December 22, 2016.
The conflicts arise in three areas. First, the foundation’s board members included employees of the Trump Organization and Trump Winery. This was not disclosed on the foundation’s annual Form 990 filings with the IRS. Second, until 2014, the foundation did not disclose on its Form 990 returns that it was using Trump-owned golf courses to host its annual golf tournaments—the only significant fundraising done by the foundation. This should have been disclosed on the form’s “Schedule L – Transactions with Interested Persons.” Third, until 2014, the foundation failed to disclose on its Form 990 returns that it was making payments to the Trump-owned golf courses for event expenses during the annual golf tournaments. It should be noted that in some years the foundation’s annual audit, submitted to New York state regulators, does include this disclosure.
Having made several valid points, the AP article went on to criticize Eric Trump for exaggerating the size and impact of his foundation during press interviews. While accuracy is not only always preferred, but also serves the best interest of the nonprofit sector and the public, Trump would certainly not be the first person with an inflated perception of their charitable deeds. It’s not a smart thing to exaggerate when the foundation’s records are publicly available, but it’s not illegal.
The AP article also ventured into uncertain territory when it said, “The golf club transactions violate a pledge made when Eric Trump sought tax-free status from the IRS. The charity said it wouldn’t do business with a company if any of its corporate officers also were on the charity’s board.” This may or may not be technically correct. When filling out the Form 1023 application for tax exemption, they checked the “no” box when answering Part V, question 3B:
Do any of your officers, directors, trustees, highest compensated employees, and highest compensated independent contractors listed on lines 1a, 1b, or 1c receive compensation from any other organizations, whether tax exempt or taxable, that are related to you through common control? If “Yes,” identify the individuals, explain the relationship between you and the other organization, and describe the compensation arrangement.
The key phrase is “common control,” determination of which would require a legal understanding of the term as applied by the IRS as well as specific understanding of the foundation board members’ ownership (not just operational control) of the Trump golf courses and related business entities.
Another curious criticism in the article is that, as the board’s size increased in recent years, and especially after Eric Trump’s wife joined the board, the foundation’s donation list grew to include some charities identified as favorite causes of the board members. Review of Form 990 returns from 2007 through 2014 shows that these additional gifts, in total, were less than 10 percent of the annual gift to St. Jude’s Children’s Research Hospital, the foundation’s overwhelming primary beneficiary.
The Eric Trump Foundation has apparently managed to achieve unusual success in minimizing event and administrative expenses. Event expenses were typically less than 10 percent of gross revenues from the golf tournaments, and the foundation has never claimed any salary or other personnel-related administrative expenses apart from Form 990 preparation and filing fees. As improbable as this may seem to experienced charity event organizers and nonprofit executives, the explanation probably lies in in-kind and volunteer services provided by board members and the Trump businesses.
Three Eric Trump Foundation board members reportedly received contracts or payments from Donald Trump’s presidential campaign, but those transactions happened after the latest Form 990 return was filed for 2014. It’s not yet publicly known how the foundation handled these potential conflicts, if it needed to at all; we must to wait until the 2015 and 2016 Form 990 returns ultimately become public record to find out.
It’s not unusual to look at a charity’s Form 990 and find omissions, discrepancies, and lapses in best practice governance. Perhaps the IRS’s deployment of its program of digitizing nonprofit returns and running analysis software to identify blank fields and internal inconsistencies will help fill in a lot of missing information on a lot of charities. In the case of the Eric Trump Foundation, it hosts an annual golf tournament that nets about 90 percent of the gross receipts and gives about 90 percent of that to one well-known, long-standing charity with no other known ties to the Trump family or its businesses. If it weren’t for his father becoming president, few would have noticed or cared about the proprietary way in which the foundation’s business has been conducted. The foundation’s potential and actual conflicts of interest would still need to be dealt with, but the political and governmental aspects of those conflicts would be absent. Suspending fundraising operations is the prudent thing to do and provides an opportunity to address governance issues with an eye to best practice over the current “friends and family” leadership model outlined in the foundation’s bylaws and reflected in its current board membership. Perhaps another foundation will take over the fundraiser benefitting St. Jude’s?—Michael Wyland