When is a nonprofit not a nonprofit?

When is a nonprofit not a nonprofit?

By Ellen Ratner   
President-Elect Donald Trump, joined by children Eric, Ivanka and Donald Jr., waits to speak at his first press conference at Trump Tower in New York. January 11, 2017. Photo: Luke Vargas/TMN

NEW YORK — I am president of a nonprofit foundation in addition to being a journalist. We give away goats and wheelchairs to people who have nothing in South Sudan. Our wheelchairs are not like the ones in the U.S. They are made out of bicycles and made by those who need them: people who are recovering from polio. They are made to conquer the streets in South Sudan, streets that are not paved.

I know something about the laws of not-for-profits and they are very strict (as they should be). An IRS code for these kinds of charitable organizations is 501-C3. It is not the first nonprofit I have been involved in, as we had been approved to set up one in Mississippi after Hurricane Katrina and I am on the board of a few others.

Nonprofits in the United States were developed to inspire confidence in key areas in which the government does not participate. These include actual services and advocacy. Wikipedia says, “The key aspects of nonprofits are accountability, trustworthiness, honesty, and openness to every person who has invested time, money, and faith into the organization. Nonprofit organizations are accountable to the donors, funders, volunteers, program recipients, and the public community.”

The IRS rules state:

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

The organization must not be organized or operated for the benefit of private interests, and no part of section 501(c)(3) organization’s net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

So it was interesting that this week, the new attorney general of New York went after President Trump and his nonprofit. There was a long investigation. Barbara Underwood is the new attorney general after the former attorney general, Eric Schneiderman, resigned in May as one of the fallouts from the era of “MeToo.” The attorney general is suing for money and the non-ability of Trump to be on any board of a nonprofit for 10 years. Underwood said that she was suing because of “repeated and willful self-dealing transactions to benefit Mr. Trump’s personal and business interests.”

CNN (the president’s favorite network!) reported, “These instances include a $100,000 payment to settle legal claims against his Mar-a-Lago resort in Florida. The lawsuit contains a note from Donald Trump, which alleges that he personally directed his accounting staff to draw the $100,000 payment from the assets of the foundation to pay a legal settlement at his resort. Any personal, legal or business transactions, not having to do with the charity, should have been made from his personal or business accounts.

“The suit also alleges a $158,000 payment to settle legal claims against his Trump National Golf Club in 2008 from a hole-in-one tournament, and a $10,000 payment at a charity auction to purchase a painting of Trump that was displayed at the Trump National Doral in Miami.”

A painting might have been purchased to help the artist and that is a reasonable and good thing to have done, but then President (at the time, private citizen) Trump should have donated the painting to a place he had no control over. That is the way the IRS wants things done – and that is the law.

When the indictments came out, some of the pro-Trump talk show hosts I know said the Trump Foundation gave away more than it took in; and as far as I can tell, that is true. But that does not excuse self-dealing. Under U.S. law, you can’t purchase a painting and then put it into a for-profit entity you own.

One pro-Trump spokesperson said because the non-profit has few overhead expenses, that is why it was able to give more away. It is totally true that some non-profits put their money into buildings and outrageous staff salaries. Some of these are even religious organizations. That is not fair, and the attorney generals of the states in which they are incorporated should go after them as well.

The attorney general of New York is right to go after the Trump Foundation, but it should not stop there. It is time to clean up all non-profits and make sure that they are there to do what they were conceived of doing: to help people … and not just give huge salaries and benefits to a few.

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