Wednesday, March 13, 2019

Nonprofits Are Front & Center in College Admissions Scandal


One would be hard pressed to find a news source that is not covering the recently unearthed college admissions scandal.  The focus of particular articles vary, but the central theme is consistent--a tax-exempt, nonprofit organization was used to perpetrate the fraud. The Key Worldwide Foundation was founded by Rick Springer, with a mission "to provide guidance, encouragement, and opportunity to disadvantaged students around the world."  In reality, KWF was used primarily as a conduit to solicit funds from parents eager to get their children into elite universities and then use those funds to bribe both test administrators and university administrators and coaches to effect those admissions.  As Sam Brunson discusses in his entry on The Surly Subgroup blog, not only were parents' contributions laundered through KWF, but added insult to injury, they also were entitled to deduct those payments as charitable contributions. 

As discussed in one of many articles by the Los Angeles Times, KWF boasts on its website and tax filings that it provides grants to assist needy Cambodians and after-school programs for children across the country.  According to another news source, one purported grant recipient, Friends of Cambodia, never received any of the money reported by KWF.  Rather, as reported by the Times' pursuant to its review of KWF's "federal tax records" (presumably their Forms 990), a vast majority of the Foundation's grants went directly to elite, private and public universities and their athletic programs (USC, Yale, University of Texas).  

Notwithstanding the gross misuse of the tax-exempt, nonprofit sector and tax incentives for contributions to charities, this scandal sheds even more light on a persistent issue making a lot of headlines lately--unprecedented wealth inequality in America.  Even with tax proposals being floated to effectively tax wealth accumulation, this scandal proves that the privilege conferred by wealth can be boundless.


(Hat tip:  The Surly Subroup, TaxProf Blog)

Nicholas Mirkay

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The Form 990 for 2016 states that $825,000 was paid to an independent contractor, George Ernst, for consulting services. This should have been a huge red flag to the IRS, and I wonder why it wasn't investigated.

Posted by: Jessica | Mar 13, 2019 10:54:06 PM

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