The Donald J. Trump Foundation will shut down and distribute the money it has left to charities approved by the New York state attorney general, while the state’s lawsuit against the president and his three oldest children alleging violations of state laws governing charities proceeds.

Under the deal New York Attorney General Barbara Underwood reached with the foundation two weeks before she will leave her post and be replaced by fellow Democrat Letitia James, the state attorney general’s office will wield veto power over which charities receive the foundation’s remaining US$1.7 million in assets.

Meanwhile, Underwood’s lawsuit against Donald Trump and three of his children – Donald Jr., Ivanka and Eric – will go forward even as the family foundation winds down. Underwood’s lawsuit seeks more than $2.8 million in restitution plus additional penalties from these four members of the Trump family for allegedly misusing charitable assets and to temporarily prohibit them from serving on the board of any nonprofit incorporated or authorized to conduct business or solicit donations in the state.

As a scholar of federal and state tax law, I believe that this agreement marks at most a modest victory for Underwood in her effort to hold Trump and his children accountable for alleged violations of state charity law. The more serious test will be whether a state court holds Trump personally liable for using his foundation to aid his campaign and benefit himself.

A courtroom defeat

Underwood and the foundation reached this agreement less than one month after the attorney general scored a preliminary win in her lawsuit against the Trumps.

That lawsuit details several apparent violations of federal and state law by the Trump Foundation dating back to 2007.

Among the most flagrant of these is a $25,000 contribution that the foundation made in 2013 to the re-election campaign of Florida Attorney General Pam Bondi. Not only did that run afoul of laws barring foundations from contributing to political campaigns, but the Trump Foundation now admits that it misreported the gift in federal and state tax filings.

The lawsuit also alleges that Trump allowed his campaign to distribute more than $2.8 million in foundation funds to advance his presidential bid in the run-up to the 2016 Iowa caucuses – money that the attorney general says Trump should be required to pay back. And it alleges that he used tens of thousands of dollars of foundation money to benefit his hotels and golf clubs.

The Trump Foundation asked Judge Saliann Scarpulla, a trial court judge in Manhattan, to dismiss the lawsuit, but Scarpulla ruled in late November that the case could move forward.

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