Daily Tax Report ®

Grassley and Wyden Put Pressure on IRS After Admissions Scandal (2)

April 3, 2019, 5:20 PMUpdated: April 3, 2019, 6:24 PM

Bribes funneled through a charity at the center of the college admissions scheme may break tax laws and should be scrutinized, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) said in an April 3 letter.

A nonprofit called the Key Worldwide Foundation, exempt under tax code Section 501(c)(3), is central to a scheme in which affluent families are accused of paying bribes to get their children into elite colleges. Because KWF is a charity, parents were able to claim tax deductions for the bribes. The scandal triggered scrutiny of the IRS, and nonprofit tax practitioners said it showed that the agency needs more enforcement capacity.

  • Parents involved in the scandal may have taken funds from private foundations to pay the bribes. The parents may also have paid bribes from their business accounts or transferred stock holdings to KWF, Grassley and Wyden said in the letter, addressed to Internal Revenue Service Commissioner Charles Rettig.
  • “If these allegations are true, such payments to KWF obviously should not be treated as legitimate charitable deductions, and we expect the IRS will enforce the law accordingly in this regard,” Grassley and Wyden said.
  • None of the individuals have been charged with tax crimes. William Rick Singer, the man at the center of the scam, has pleaded guilty to charges including obstruction and racketeering conspiracy. Thirteen parents, charged with conspiracy to commit fraud, were scheduled to appear in federal court April 3.
  • Andrew Grossman, chief tax counsel for House Ways and Means Democrats, said that while lawmakers are concerned about the scandal, there may not be a way to address it through the tax law. He spoke April 3 at an event hosted by the D.C. Bar.
(Updates with additional comment in final bullet point. )

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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