FundSvcs Community

I haven’t researched it, Alan, but would the same guidance apply to book royalties? Anita ________________________ Anita Farris Lynn Hidden Springs Farm Consulting Phone/Cell: 610.761.4218 From: Advancement Services Discussion List <FUNDSVCS@LISTSERV.FUNDSVCS.ORG> On Behalf Of Hejnal, Alan Sent: Tuesday, March 05, 2019 9:28 AM To: FUNDSVCS@LISTSERV.FUNDSVCS.ORG Subject: [FUNDSVCS] Another Cautionary Tale: Gifts Made in Lieu of Speaker's Fees Anne's post about a cautionary tale jogged my memory about an interesting item in the coverage of Michael Cohen’s testimony last week. <https://www.washingtonpost.com/politics/house-democrats-see-new-probes-in-cohens-testimony/2019/02/28/80f47888-3b81-11e9-a2cd-307b06d0257b_story.html> The article talks about the issue of a charitable foundation making payments that benefit a disqualified person, which we talk about fairly regularly, and the issue of directing speaking fees to a charitable organization in lieu of paying the speaker, and references an earlier article that looked at both of those points <https://www.washingtonpost.com/politics/trump-directed-23-million-owed-to-him-to-his-charity-instead/2016/09/26/7a9e9fac-8352-11e6-ac72-a29979381495_story.html> . Not sure whether those articles are behind a pay-wall, but I’d missed that the issue of directing speaker’s fees had become an issue in this context. It was interesting to see discussion of issues that we talk about here (this is from the earlier article): But, tax experts say, the IRS generally requires that the person who was owed the money pay income tax on it. One key factor: Did the person exercise control over where their money went? If the money was directed to a specific recipient, it generally counts as income. “You cannot take money that you earned, that’s your income, and direct it elsewhere” without paying taxes, said <http://www.lls.edu/aboutus/facultyadministration/faculty/facultylista-b/aprillellen/> Ellen Aprill, a professor at Loyola Law School in Los Angeles. “If you do it, you have to treat it as your income, and you have to pay tax on it first.” […] Instead, Epshteyn said, Trump had all along been following the dictates of an obscure 1942 court case, which he cited by name: Commissioner of Internal Revenue v. Giannini. That case involved a San Francisco bank president who had decided he had been paid enough and renounced the rest of his salary for the year. The bank gave his money to the University of California instead. The court held that the bank president didn’t have to pay taxes on that money, because he hadn’t controlled where it went. Trump, Epshteyn said, was just like that. He had not exercised control over where his money went. Indeed, Epshteyn said, when Trump helped someone, he never asked specifically for a gift to the Donald J. Trump Foundation — but rather suggested a gift to some charity, somewhere. But sometimes, Epshteyn said, a gift arrived at the Trump Foundation. “He’s Donald J. Trump,” Epshteyn said, explaining why donors had chosen this particular charity. Under the set-up that Epshteyn described, tax experts said, Trump might have escaped paying income taxes on donations to the Trump Foundation — as long as he truly had no influence over where the money went. “Trump directed $2.3 million owed to him to his tax-exempt foundation instead,” Washington Post, 09/26/2016 So, possibly, another cautionary tale, that we need to be very careful about the details of these arrangements where someone waives a speaker’s fee in lieu of a gift to our organizations. It sounds like the speaker indicating a specific charity may be enough to call the arrangement into question! It does strike me as a very subtle distinction: did the organization making the gift decide to make it to the speaker’s organization because it was the speaker’s organization and that seemed natural, or did the speaker have any “influence” over the gift being made to that organization? At the very least, it seems to me that we should be careful about how we characterize such arrangements. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 *: 202-633-8754 | *: <mailto:HejnalA@si.edu> HejnalA@si.edu <https://www.si.edu/>

Anne's post about a cautionary tale jogged my memory about an interesting item in the coverage of Michael Cohen’s testimony last week.<https://www.washingtonpost.com/politics/house-democrats-see-new-probes-in-cohens-testimony/2019/02/28/80f47888-3b81-11e9-a2cd-307b06d0257b_story.html> The article talks about the issue of a charitable foundation making payments that benefit a disqualified person, which we talk about fairly regularly, and the issue of directing speaking fees to a charitable organization in lieu of paying the speaker, and references an earlier article that looked at both of those points<https://www.washingtonpost.com/politics/trump-directed-23-million-owed-to-him-to-his-charity-instead/2016/09/26/7a9e9fac-8352-11e6-ac72-a29979381495_story.html>. Not sure whether those articles are behind a pay-wall, but I’d missed that the issue of directing speaker’s fees had become an issue in this context. It was interesting to see discussion of issues that we talk about here (this is from the earlier article): But, tax experts say, the IRS generally requires that the person who was owed the money pay income tax on it. One key factor: Did the person exercise control over where their money went? If the money was directed to a specific recipient, it generally counts as income. “You cannot take money that you earned, that’s your income, and direct it elsewhere” without paying taxes, said Ellen Aprill<http://www.lls.edu/aboutus/facultyadministration/faculty/facultylista-b/aprillellen/>, a professor at Loyola Law School in Los Angeles. “If you do it, you have to treat it as your income, and you have to pay tax on it first.” […] Instead, Epshteyn said, Trump had all along been following the dictates of an obscure 1942 court case, which he cited by name: Commissioner of Internal Revenue v. Giannini. That case involved a San Francisco bank president who had decided he had been paid enough and renounced the rest of his salary for the year. The bank gave his money to the University of California instead. The court held that the bank president didn’t have to pay taxes on that money, because he hadn’t controlled where it went. Trump, Epshteyn said, was just like that. He had not exercised control over where his money went. Indeed, Epshteyn said, when Trump helped someone, he never asked specifically for a gift to the Donald J. Trump Foundation — but rather suggested a gift to some charity, somewhere. But sometimes, Epshteyn said, a gift arrived at the Trump Foundation. “He’s Donald J. Trump,” Epshteyn said, explaining why donors had chosen this particular charity. Under the set-up that Epshteyn described, tax experts said, Trump might have escaped paying income taxes on donations to the Trump Foundation — as long as he truly had no influence over where the money went. “Trump directed $2.3 million owed to him to his tax-exempt foundation instead,” Washington Post, 09/26/2016 So, possibly, another cautionary tale, that we need to be very careful about the details of these arrangements where someone waives a speaker’s fee in lieu of a gift to our organizations. It sounds like the speaker indicating a specific charity may be enough to call the arrangement into question! It does strike me as a very subtle distinction: did the organization making the gift decide to make it to the speaker’s organization because it was the speaker’s organization and that seemed natural, or did the speaker have any “influence” over the gift being made to that organization? At the very least, it seems to me that we should be careful about how we characterize such arrangements. My US$0.02 worth; the usual disclaimers apply. Good luck! Alan Alan S. Hejnal Data Quality Manager Smithsonian Institution - Office of Advancement 600 Maryland Avenue SW, Suite 600E P.O. Box 37012, MRC 527 Washington, DC 20013-7012 •: 202-633-8754 | •: HejnalA@si.edu<mailto:HejnalA@si.edu> [SNAGHTML5cbfa34]<https://www.si.edu/> [AASP_FundSvcs_LOGO-01(040pct)(mark)]