One of the most amazing aspects of the college admissions scandal unveiled this week is that alleged bribes to get rich child seats in elite schools were tax deductible. This means that US taxpayers may have contributed to paying the alleged fraudulent charge.
"That's why we should be interested in this issue, aside from the fact that the rich are well paid," said Sam Brunson, a professor of tax law at Loyola University in Chicago.
"It's a really difficult situation and it's a situation that people will quickly tell as a warning, but there are a lot of charities doing great work."
-Ashley Post, spokesperson for Charity Navigator
In the worst case, if the $ 25 million that the arrested parents would have paid would have been sent by a public charity and claimed as a tax deduction, as the prosecutor stated in a criminal complaint, taxpayers paid between 7 and 10 millions of dollars, said the prosecutor. Phil Hackney, Professor of Tax Law at the University of Pittsburgh.
"Assuming it's high income people, they all pay at the highest tax rate, which was probably about 40%," Hackney told MarketWatch . "Assuming they were able to deduct the entire amount, that would be 40% of the $ 25 million. That is about $ 7-10 million, which taxpayers are paying, and that is worrisome. "
Suspected bribes were channeled through a charitable organization
Federal prosecutors say arrested parents channeled funds to pay for coaches, exam supervisors and test-takers who replaced their children through a public charity approved as tax-exempt by the Internal Revenue Service.
Rich parents include actresses Felicity Huffman and Lori Loughlin and financial titans Bill McGlashan of TPG Growth, a private equity and venture capital firm, and ex-PIMCO
CEO Doug Hodge. They would have paid college counselor William "Rick" Singer to secure the place of their children in elite schools. They made the donation payments to The Key Worldwide Foundation, a nonprofit organization that Singer created in 2014 in Newport Beach, California, according to a criminal complaint.
If the IRS decided to reject these allegedly fraudulent deductions, parents would have to repay that money to the government, along with penalties.
In telephone calls recorded by investigators, parents accused of the scheme could be heard by asking for receipts and other documents in order to be able to list the "donations" they made to Key Worldwide Foundation as tax deductions , according to the criminal complaint.
"We'll send it to you to get your [IRS tax] customs clearance, "said one witness." Oh, even better! "said the prosecutor, who made a" donation "of $ 50,000 to the foundation for Singer to make the necessary arrangements for someone to d & rsquo; Another passes the college entrance exam ACT, on behalf of his son.
If the IRS decided to reject these allegedly fraudulent deductions, parents would be forced to repay that money to the government, along with penalties, said Hackney. The IRS did not immediately respond to a request for comment. Singer's lawyer said he cooperated with the investigators and was "remorseful," the Good Non Profit reported.
Hidden at the sight
The charity at the origin of the alleged scam worked in public view. The Key Worldwide Foundation is registered with the Secretary of State of California (although the registration status is currently pending), she filed a Form 990 (the documents that non-profit organizations must submit to the IRS) and its website has a noble mission. statement on student aid "surrounded by gang violence downtown."
Charity Navigator evaluates nonprofit organizations only after seven years of paperwork with the IRS and the Key Worldwide Foundation has only submitted four years of tax documents.
It is even listed on the Charity Navigator Charities website. Charity Navigator did not give a rating to the nonprofit, but it's not because of suspicious activity, said Charity Navigator spokeswoman Ashley Post. "We want to be clear: a charity that is not being evaluated does not make a positive or negative judgment about its activities," said Post, adding that Charity Navigator had advice for donors on how to evaluate charities he has not yet rated.
Red flags in documents of the charity
Charity Navigator evaluates non-profit organizations only after seven years of paperwork with the IRS and the Key Worldwide Foundation has only submitted four years of tax documents, said Post.
If Charity Navigator's critics had reviewed Key Worldwide Foundation, some red flags would have stood out immediately, she said. On the one hand, the charity reported $ 3.7 million in revenue in 2016 (the last year it filed a 990 form) but said to have spent nothing on costs Fundraising. This is unusual, said Post. The association also claims to award grants to other non-profit organizations, but despite the nearly 4 million US dollars received in 2016, it has only granted a grant of $ 10,000 to another group. That would be "worrying" for Charity Navigator, Post said.
Post cautioned against interpreting the circumstances of the Key Worldwide Foundation as saying that nonprofit organizations are generally prone to fraud. "It's a really difficult situation and it's a situation that people will quickly tell as a warning, but there are a lot of charities doing great work," she said. declared.
"They saw philanthropy as a weak space"
Well-to-do parents in the scheme seemed to assume they would not get caught until their payments were disguised as charitable contributions, which worries Hackney, a professor of tax law. This suggests a perception that charities are not scrutinized and that the rich can use them to meet their needs, he said.
"Something is wrong with our system of inequality and our philanthropic systems. Although it was not a true charity, they saw philanthropy as a weak space, a place they could arbitrate and exploit. "
-Phil Hackney, Professor of Tax Law at the University of Pittsburgh
"It tells us that there is a problematic culture of charitable giving that is growing at high income levels," said Hackney. "Something is wrong with our system of inequality and our philanthropic systems. Although not a true charitable organization, they saw philanthropy as a weak space, a place in which they could mediate and take advantage of it. "
This is partly a reality, said Hackney, who worked in the office of the chief counsel of the IRS before becoming a professor. The IRS is underfunded and understaffed. The audit rate is generally "very low" and even lower for charities, he noted.
And philanthropy is indeed more and more the domain of the very rich. Charitable donations reached an all-time high in 2017, but it was in large part because of the large donations of the wealthiest families in America. In 2018, donations of $ 1,000 or more increased by 2.6%, while donations of $ 250 to $ 999 decreased by 4% and those of less than $ 250 by recent report of the Association of Fundraising Professionals.
"Donations are increasing because of larger donations from richer donors," said Elizabeth Boris of the Association of Fundraising Professionals. "Smaller and medium-sized donors are slowly but surely disappearing – in all areas, in all organizations."
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