By Roger Parloff
September 27, 2016

A high-end ticket broker was instructed to divert almost $1.9 million that he owed Republican presidential candidate Donald J. Trump for business transactions to Trump’s private foundation instead, the Washington Post reported yesterday, citing two unnamed sources.

Such a diversion, known among tax lawyers as “an assignment of income,” would ordinarily violate the law unless the taxpayer also reported the funds as income on his tax returns. Trump has not disclosed his income tax returns—the first presidential candidate in decades not to do so—and his campaign declined to tell Post reporter David A. Fahrenthold (or Fortune) whether he reported the Ebers income on his return.

In an email to Fortune, the Trump campaign flatly denied the Post allegations. The Post‘s claim “is inaccurate in every respect and completely and totally unfounded,” Trump spokesperson Hope Hicks wrote in the email.

Though Farenthold’s reporting had previously raised questions about a possible pattern of relatively modest improprieties by the foundation, the new allegation raises the ante considerably. If $1.9 million in taxable income went unreported, that would be more serious, and if the failure to report were proven to be knowing and willful, it could be a criminal matter, according to tax law experts.

The Post’s two unnamed sources said they did not know if it was Trump himself or an employee who instructed that Ebers’s money be sent to the foundation rather than to Trump. (If anything improper occurred, Trump would still owe taxes, but might be less culpable if it was merely an employee’s mistake.)

The disputed donation relates to four huge gifts to the Donald J. Trump Foundation paid between 2011 and 2014 by Richard Ebers, the chief sales officer for a company then called Inside Sports. The company obtains sought-after sports and concert tickets for customers, and also often books them reservations at ultra-luxury hotels and posh golf resorts. My colleague Shawn Tully wrote about Ebers and his donations last week, noting that Ebers’ donations accounted for 58% of all funds contributed to the foundation during those four years. Ebers’ donations amounted to 96% of Trump Foundation funds raised in 2014.

Ebers’s donations, marked in the foundation’s tax returns as coming from “Richard Ebers Inside Sports and Entertainment,” made him the second largest donor to the Trump Foundation since 2007. The largest donor since 2007 was World Wrestling Entertainment, which contributed $5 million between 2007 to 2009. NBC Universal Media, which aired Trump’s Apprentice series for 14 years, was the third largest. It donated $500,000 in 2012. Trump has not donated a dime to his eponymous fund since the end of 2008, according to publicly-filed returns, as Farenthold first reported.

Inside Sports has since been purchased by CAA and is now known as CAAPremium. A message left there was not immediately returned, and an email was returned “undeliverable,” with an explanation that the company “only accepts messages from people in its organization or on its allowed senders list.” (A message left there for Ebers by my colleague Shawn Tully last week was never returned.)

The Ebers contributions were unusual on their face, because of both their size, given that Inside Sports was not a huge public company, and because they were not round-figure sums, like most charitable donations. He gave $450,960 in 2011; $522,828 in 2012; $435,832 in 2013; and $477,400 in 2014, according to the foundation’s tax returns. (Unlike private taxpayers, private foundations and public charities are required to file their returns publicly. Fortune has viewed the returns from 2003 to 2014, the last year for which a return has yet been publicly filed.)

In his article, the Post‘s Fahrenthold—who has broken most of the key news concerning the Trump Foundation (see here, here, and here)—also reported that a $400,000 donation made to the foundation by Comedy Central in 2011, in payment for Trump’s appearance at a celebrity roast, was also an assignment of income. But the Trump campaign told him that it had reported that money as taxable income.

When income is diverted to a foundation or charity, the recipient of the income is usually supposed to report the income on his tax return, according to Marcus Owens, a partner at the law firm of Loeb & Loeb and a past director of the Internal Revenue Service’s exempt organizations division. The recipient can then also take a tax deduction for having then donated the money to the tax-exempt organization where the money ended up, Owens explains. But since tax deductions are capped, and some taxpayers may not be paying any tax to begin with—due to losses or other deductions—recipients may still have to pay some tax on assigned income. (At yesterday’s presidential debate, Trump appeared to concede that he may have owed no federal taxes in some years.)

Deductions for donations to a private foundation, like the Trump Foundation, have a lower cap (30% of adjusted gross income) than do donations directly to a public charity (50% of adjusted gross), raising further questions about why Ebers would have opted to donate so much to a private foundation, rather than directly to a public charity.

The whole topic of assignment of income was effectively raised as an issue last Wednesday when, oddly enough, Lynne Patton, a senior assistant to three Trump children and the vice president of the foundation of Trump’s son Eric, gave an interview to the Des Moines Register. Patton was attempting to contradict the notion that the Donald J. Trump Foundation was, since 2008, composed entirely of other people’s money.

“A lot of times,” she told the Register, “Mr. Trump will give a speech somewhere or he’ll raise money in some way and he asks that that entity, instead of cutting a personal check to him, cut it to his charity. . . . That’s money that otherwise would’ve been in his personal account, right?”

Three tax experts told me last week that Patton’s comment immediately raised red flags about assignment of income, though, as noted, assignment of income is not illegal so long as the income diverted to the foundation is also reported as taxable income.

Campaign spokesperson Hicks did not immediately respond to an inquiry about whether Patton’s comment was accurate. Fahrenthold reports that Trump senior advisor Boris Epshteyn originally told him Patton was wrong, and that there were no such diverted payments, but later told him that the Comedy Central donation was such a payment, but had been reported as taxable income.

Epshteyn then also told Fahrenthold, the Post reported, that Trump sometimes would follow the dictates of a 1942 federal appeals court precedent under which he could “provide a service, renounce any fees, and then merely suggest that the other party make a donation to a charity of their choosing,” Fahrenthold wrote, paraphrasing the spokesperson.

Asked about the Ebers’ gifts last week, in light of Patton’s comments, Owens, the former director of the IRS exempt organizations division, told Fortune that if Ebers’s donations to the foundation were actually payments for bookings, then they would have to be treated as taxable assignments of income.

“It’s theoretically possible that this scalper wanted to support Trump’s philanthropy,” he continued. “It’s like what Warren Buffett wanted to do with the Bill [and Melinda] Gates Foundation. It does happen. It’s a bit unlikely that a ticket scalper would do that with a New York casino/hotel mogul. But maybe not. Lots of things can happen.”

 

 

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