Is There Any Criminal Jeopardy for the President In the New York AG’s Accusations Against His Charity?

Brian Galle
Jun 14, 2018 · 6 min read

Today the New York Attorney General’s office filed a complaint seeking penalties against Donald Trump’s New York charity, the Donald J. Trump foundation. The complaint also seeks to dissolve the foundation, and to collect restitution (basically, repayment of misspent money) from the Donald and his kids. There’s lots here to excite a nonprofit law professor, and lots to puzzle and confound his students on future exams. But let’s cut to the chase. Is there anything here that puts the President himself, and not just his checkbook, in legal jeopardy?

Yes. But most of the issues I see are, while perhaps technically a source of federal criminal liability, not the kinds of things that are typically prosecuted. Still, let me emphasize that I am not an expert either in criminal campaign finance violations nor in New York fraud law. I think the alleged federal tax law violations probably wouldn’t usually be prosecuted, but the campaign and New York stuff, I’m not so sure.

Though the complaint is a civil document, seeking action only under New York charities law, it alleges conduct that could violate some federal criminal statutes. The main one to keep your eye on is 26 USC 7206, the prohibition against fraud or false statements on a federal tax return. It’s not enough to simply sign a tax return with inaccurate information. The misstatement has to be “material.” And though the statute itself doesn’t say so, courts have long held that filing false returns is only criminal if the false statement is made “willfully.” That’s a special term of art in tax law. It means not only did the person know their statement was false, but they also knew that what they were doing was illegal. You can find lots of good details about 7206 in the DOJ Tax Division Manual, which is available online here.

What did the President say that was false? The AG’s complaint flags two big statements on DJT Foundation tax returns, signed under the pains of penalty by Trump in his capacity as the head of the foundation. The one I’d find the most worrisome, were I the President’s lawyers, is the claim on the 2013 tax return that the organization did not engage in any prohibited political expenditures. The other, the AG’s complaint strongly suggests, was a similar statement in 2016, along with statements in both years that the foundation engaged in no prohibited transactions with “insiders,” or people in control of the organization.

The 2013 statement was wrong, the AG’s complaint explains, because the Foundation made a $25,000 gift to the campaign of Florida AG Pam Bondi. (Perhaps coincidentally, Bondi’s office dropped an investigation into Trump University around the same time as the contribution). As the AG complaint details in paragraphs 61 through 68, the Foundation claims that there was a mix-up in which the accountants who filed the tax return thought the check was to go to a similarly-named charity (if so, I’ve argued before, this was almost unbelievably bone-headed of them). Somehow, Bondi got her money. The return then inaccurately listed yet a third similarly-named organization, with a different address, as the ultimate payee.

The AG says that it can find “no credible explanation for the false reporting.” The clear implication is that the AG’s office believes the Foundation misleadingly used the name and address of the third organization to deliberately cover up an improper payment. I probably don’t have to tell you that deliberately concealing an improper act is classic evidence that you knew that act was wrongful — in other words, evidence of acting willfully. The statement is probably “material” because campaign expenditures trigger federal penalty taxes, and so it had the effect of reducing the Foundation’s tax bill.

Still, in my experience this wouldn’t typically be the kind of misstatement that would lead the IRS to open a criminal investigation, a necessary step in most tax-fraud prosecutions. There isn’t smoking-gun evidence that Trump himself knew that the donation was improper, only that someone in the organization did. Did he read the many pages of attachments to the tax return closely enough to spot that the $25,000 payment was to the wrong, similarly-named firm? More than that, the IRS is, to grossly understate, incredibly reluctant to enforce the campaign expenditures limitation. There are probably thousands of charitable organizations that make political expenditures without reporting them. None have ever been prosecuted to my knowledge, though perhaps few take affirmative steps to cover up the misdeed in the way that the DJT Foundation did. And Trump did ultimately repay $25,000 to the Foundation, though only after the incident came to public light.

Of course, with these kinds of politically fraught prosecutorial-discretion judgment calls, it would be nice to have head of the IRS and the DOJ Tax Division who were Senate confirmed. And, even better, reasonably independent from the possible defendant.

Let’s look at the second set of false statements the AG identifies. These were similar claims in 2016, again that the Foundation made no improper political contributions. As the complaint sketches in great detail, the Foundation essentially handed over operations to the Trump for President campaign for a stretch of 2016. The Foundation raised money at an Iowa veterans event, and then the campaign staff decided which charities to give the money to, and made each check delivery a campaign event. It did this for more than $2 million worth of donations.

The AG’s office hints strongly that it views these 2016 claims as potentially criminal under federal law. In paragraph 60, they write that Trump was “willful and knowing” in using the organization’s money for his own political ends. They go to some pains — with no real relevance to New York law — to point out that Trump knew of and complained publicly about federal restrictions on political contributions by charities. I think the law isn’t 100% clear, and this uncertainty would prevent a prosecutor from proving Trump knew his statements were unlawful.

Why isn’t it 100% clear? All the money it disbursed went to real veteran’s charities. Trump took credit for raising and giving away the money, but then so do most philanthropists. Been to the David Koch Auditorium at Lincoln Center? The close coordination with a political campaign, and the ceding of decision-making power to that campaign, are troubling and probably should violate federal restrictions. The difficulty is that there is no clearly established law to show that it does violate those guidelines. Perhaps the closest precedent is Situation 11 of this guidance, holding that a candidate can permissibly appear at charity events in a personal capacity. The guidance notes, without stating its importance, that a candidate in the situation it approves made “no reference” to his candidacy. As the Complaint alleges, Trump did make reference to his candidacy and used the MAGA slogan at some of the check-delivery events. Does that take him outside of the safe harbor of Situation 11?

These tax fraud allegations don’t exhaust the legal jeopardy for Trump suggested by the complaint. For example, it’s also a crime in New York to lie in a statement to the Attorney General, and paragraph 113 of the complaint notes that the campaign falsely reported its January 2016 fundraising as a charitable event rather than a campaign event. I’m not versed enough in New York law to know whether the possibility that event could have been a little of both would be enough to protect the signatories of that document from prosecution.

There are other federal possibilities, as well. It is a federal crime to make campaign contributions without reporting them. The definition of a campaign contribution under election law is in many respects broader than the definition under nonprofit law, and can include “in kind” as well as cash contributions. In essence, what the NY AG’s office alleges in paragraph 60 and the paragraphs preceding is that the Foundation conducted its giving campaign in such a way as to deliver in-kind publicity benefits to the Trump campaign (the office lays out its case in much more detail in a referral letter the FEC, which you can read here — ht electionlaw blog). The complaint seems to suggest that the campaign — which after all was being run by the same people — knew that it should have reported that contribution. It will interesting to hear what election-law scholars have to say on that front.

Whatever Source Derived

Thoughts on tax and the law

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