By Sam Brunson
When I first read about the massive college admissions scam, I read it for roughly the same schadenfreude as everybody else. It was an interesting—and frankly, kind of pathetic—story of wealth and entitlement.
And then I read the affidavit supporting the criminal indictment. And I learned that, as much as this is a story of wealth and entitlement, it’s more than that: this is a story that revolves around taxes. And specifically, the abuse of a tax-exempt organization.
There seem to have been two main schemes to get participants’ kids into schools they wouldn’t have otherwise qualified for. The first involved cheating on entrance exams. The second involved bribing athletic directors and others to designate their kids as athletic recruits (often in sports the kids didn’t play), and , each of which had its own fee structure. But each scheme had something in common. The recipient of the payments was Key Worldwide Foundation.
What was Key Worldwide Foundation? It was a charitable organization created by the sponsor of the admissions scams, Rick Singer.
(All of the screenshots in this post will come either from the affidavit linked to above or KWF’s 2016 Form 990).
If a parent wanted a fake SAT score,
If they wanted their child to be a fake athlete, they likewise paid an amount to KWF (though that amount seemed to be bigger—more in the $200,000 range—for fake athletes). And how did that money flow? A long excerpt from the affidavit gives us a rough outline:
In other words, parents would pay KWF. KWF would use their payments to bribe coaches, either directly or through programs they designed and presumably ran, to help get the kids into college.
I mean, the whole thing is bad, but I really want to dwell on this. KWF is a charity. And not only is it a charity, it’s a public charity (as opposed to a private foundation).
How is it a public charity? More than 1/3 of its revenue came from people who weren’t disqualified persons—presumably parents paying for access, though, for reasons I’ll mention in just a minute, we can’t know that for sure. From the KWF Form 990:
And what does it mean that a tax-exempt organization checks box 7? Well, as a public charity, it offers donors a higher deduction threshold—they can deduct up to 60% of their (roughly) adjusted gross income, rather than 30%. With these wealthy people, that probably wasn’t an issue.
Public charities also face far fewer rules (and excise taxes) than private foundations.
And importantly, where private foundations have to disclose their donors on their form 990s, public charities don’t. That means we don’t have a record of who gave money to KWF (which is why I said I assume it’s parents).
Speaking of: not only did parents launder their money through KWF, but they got a charitable deduction for that laundered money. That in spite of the fact that quid pro quo donations aren’t deductible. (That’s why, if you donate $150 to NPR and get a $32 tote bag, you can only deduct $128.) But KWF illegally sent letters telling donors that they had received nothing in exchange for their donations, allowing donors to substantiate that the whole amount was a deductible charitable contributions.
Even public charities have to disclose where they make distributions, though. So I was curious how KWF managed to pay coaches directly. (I mean, the 990 lists a bunch of donations to school athletic programs, but the affidavit says money went directly to coaches, too.)
And I think I figured out how: alongside donations to colleges are some other non-academic donations:
Given the scam, a donation to DePaul makes sense. But an $18,550 donation to Friends of Cambodia? Could it be that KWF was doing charitable work alongside its scammy work?
Maybe. But probably not. Friends of Cambodia says it has no record of an $18,550 donation. Which makes sense, right? If you’re running a scammy fake charity to illegally buy clients’ kids a “side door” into colleges they didn’t qualify for, what’s a little lying on your tax return?
So a fake charity laundered money to buy access to schools. Parents could treat their payments for the illegal service as deductible charitable donations (though I suspect the IRS will be busy over the next little while auditing and disallowing the deductions, and imposing interest and penalties on the donors). And here, at the end, a little schadenfreude: let’s end (without comment, but with a deep sigh of irony) with KWF’s alleged charitable mission:
The Key Worldwide Foundation endeavors to provide education that would normally be unattainable to underprivileged students, not only attainable but realistic. With programs that are designed to assist young people in every day situations, and educational situations, we hope to open new avenues of educational access to students that would normally have no access to these programs. Our contributions to major athletic university programs, may help to provide placement to students that may not have access under normal channels.
The Surly Subgroup 