Amid the many legal problems swirling around President Trump, New York state authorities have launched significant investigations of the Donald J. Trump Foundation. The Attorney General of New York sued for illegal misuse of the Donald J. Trump Foundation, and the New York tax authorities are investigating potential violations. While not as high profile as some of the other legal liabilities the President faces, these Trump Foundation investigations raise significant questions of corruption, fraud, and campaign finance violations.

During the 2016 campaign, there were reports that something dishonest was going on at the Trump Foundation. Shortly before the 2016 election then-Attorney General of New York Eric Schneiderman issued a Notice of Violation to the Donald J. Trump Foundation. The notice from the attorney general stated that the Trump Foundation was “in violation of section 172 of Article 7-A New York’s Executive Law, which requires charitable organizations that solicit contributions in New York State to register with the Charities Bureau and to provide annual financial reports and annual audited financial statements.” The notice also required the Trump Foundation to cease and desist from soliciting charitable donations in New York and to otherwise comply with New York State law. Even as Trump ascended to the presidency, the New York attorney general’s office continued to investigate the Foundation.

The fruit of that investigation resulted in a suit on June 14, 2018, by the new New York Attorney General Barbara D. Underwood to dissolve the Trump Foundation. Attorney General Underwood’s lawsuit is against the Donald J. Trump Foundation, and its directors, Donald J. Trump, Donald J. Trump, Jr., Ivanka Trump, and Eric Trump. One of the allegations in the suit is that the board which is made up of President and his three eldest children, had not bothered to meet in 19 years. This suit seeks $2.8 million in restitution, dissolution of the foundation, and bans from running charities for its directors, including the President of the United States.

Allegations of Conversion of Foundation Resources to Personal Use

Part of this case alleges that the Trump Foundation was used as Donald Trump’s personal piggy bank for years, paying off the settlement of a lawsuit for his private business. The Foundation’s treasurer was Allen Weisselberg, the CFO of the Trump Organization (the for-profit business Mr. Trump owns) who seemed surprised to be listed as such when New York state investigators inquired. The New York attorney general made 41 exhibits to the suit public so that average citizens can see for themselves things like a handwritten note from Donald Trump to Allen Weisselberg approving the use of foundation funds for personal use.

Allegations of Illegal Political Use of Foundation Resources

The New York attorney general suit also alleges that the Trump Foundation was illegally helping the Trump campaign. The State alleges that

In 2016, the Board knowingly permitted the Foundation to be coopted by Mr. Trump’s presidential campaign, and thereby violated its certificate of incorporation and state and federal law by engaging in political activity and prohibited related party transactions. Donald J. Trump for President, Inc. (the “Campaign”), Mr. Trump’s political committee, extensively directed and coordinated the Foundation’s activities in connection with a nationally televised charity fundraiser for the Foundation in Des Moines, Iowa on January 28, 2016 (the “Iowa Fundraiser”), and the disbursements of proceeds from the event.

Nonprofits like the Trump Foundation are not allowed to get involved in electoral politics like the 2016 Trump campaign under the Internal Revenue Code because it is a 501(c)(3). For example an IRS Tax Guide from 2015 states “statements of position … made by or on behalf of [a foundation] in favor of … any candidate for public office clearly violate the prohibition against political campaign activity[.]”

The Federal Election Campaign Act (FECA) also bars all corporations including nonprofit foundations such as the Trump Foundation from giving directly to a federal candidate such as candidates for president.

Interlocking Players in the Trump Foundation and Businesses

There are not that many figures involved in the running of the Trump Foundation. One of course is the president. Another is Weisselberg, and the president’s eldest three adult children, Ivanka, Eric, and Donald Jr. There is great overlap between the Foundation and the Trust which has taken over the Trump Organization while Donald Trump is President.

As the President admits in his answer to a complaint in an unrelated case, the District of Columbia v. Trump (one of the Emoluments Clause cases): “Donald J. Trump Revocable Trust indirectly owns all of the President’s financial interest in the [D.C.] Hotel, that the trustees (Donald J. Trump, Jr. and Allen Weisselberg), in consultation with the Chairman of the Advisory Board of that Trust (Eric. F. Trump), control the Trust assets and their distribution, and that the President is the beneficiary of the Trust.” In other words, Weisselberg, who was listed as “treasurer” of the Trump Foundation, is one of the few people in charge of the Trust. Press reports indicate that Allen Weisselberg is now cooperating with prosecutors under a limited grant of immunity in Michael Cohen’s case.

The Current Litigation Status: A Holding Pattern

On June 26, 2018, Judge Saliann Scarpulla who is overseeing the Trump Foundation case urged both sides to work together to settle the suit. As of yet, that has not happened. When it was first filed, President Trump tweeted “I won’t settle this case!” Instead both sides have been filing briefs. The Trump Foundation’s lawyer has asked for the case to be dismissed. Meanwhile Attorney General Underwood has argued, “the Trump Foundation was a shell corporation that functioned as a checkbook from which the business entity known as the Trump Organization made payments-using other people’s money, as Mr. Trump did not personally contribute to the Foundation after 2008–to charities and political committees.”

On October 25, 2018, Judge Scarpulla indicated that she won’t rule on the President’s motion to dismiss the case until former “Apprentice” contestant Summer Zervos’s appeal in an unrelated lawsuit is heard by a higher state court because the Zervos case will resolve whether a sitting president can be sued civilly in state court.

The Tax Investigation: A Potential Criminal Case

The New York attorney general’s case to dissolve the Trump Foundation was civil, but it may escalate into a criminal case. According to the Wall Street Journal (among other news outlets), the New York State Department of Taxation and Finance is investigating whether the Trump Foundation violated state tax laws. This department could issue a criminal referral to either the New York attorney general’s office or the Manhattan district attorney’s office. In October 2018, these state investigators apparently subpoenaed President Trump’s long-term personal lawyer, Michael Cohen after he (Cohen) pleaded guilty to violating federal campaign finance laws during the 2016 election. What we do not know is whether Cohen provided investigators with any information that might be helpful to investigation into the Foundation.

Another way that the New York attorney general’s civil suit could turn into a federal criminal case is she sent referral letters to the Internal Revenue Service (IRS), the Federal Election Commission (FEC), and the U.S. Department of Justice’s (DOJ’s) Public Integrity Section, noting that multiple federal laws may have been violated by the Trump Foundation.

Whether the IRS will pursue the case is another open question. If it does, the IRS can impose a 10% excise tax on self-dealing transactions with a private foundation as described in the Internal Revenue Code §4941. As the New York Law Journal catalogued: “the following self-dealing transactions are alleged. Trump Foundation assets were used to: (1) settle legal claims against Mar-A-Lago, LLC, and against The Trump National Golf Club—both companies owned directly or indirectly by Trump, (2) purchase a painting of Trump at a charity auction which then was displayed at an entity indirectly owned by Trump, (3) make a payment to D.C. Preservation League, a charitable organization, for promotional space which ultimately featured Trump International Hotels in the space and (4) pay a charity in satisfaction of a pledge made by Seven Springs, LLC, an entity indirectly owned by Trump.”

The IRS can also impose excise taxes on political spending by a private foundation. The Trump Foundation should already be well aware of this as it had to pay an excise tax for illegally giving money to the election of Florida Attorney General Pam Bondi. As the Alliance for Justice notes, this political intervention could also cost the foundation its federal tax exempt status (not just its New York charter).

So this story about the Trump Foundation is stalled for the moment as the unrelated Zervos case is resolved. But it could also kick back into high gear if any of the other regulators involved decide to dig further into what exactly was happening at the Donald J. Trump Foundation over the past 19 years.

Photo of Trump Tower on Fifth Avenue in Manhattan by Spencer Platt/Getty Images.