Senators urge IRS to investigate those involved in college admissions scandal

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking member Ron Wyden (D-Ore.) are urging the IRS to enforce any tax laws that have been violated by individuals and organizations involved in the college admissions scandal.

In a letter to IRS Commissioner Charles Rettig dated Wednesday, the lawmakers said they “expect the IRS to be vigorous in enforcing the applicable tax laws.”

Federal prosecutors have charged dozens for their roles in a scheme in which parents allegedly paid for fraudulent test scores and bribed college administrators and coaches to get their children into selective colleges. Among those charged are actresses Felicity Huffman and Lori Loughlin.

According to charging documents, the scheme often involved parents making payments to a nonprofit organization called Key Worldwide Foundation (KWF), which would be funneled to coaches and administrators. KWF has status by the IRS as a tax-exempt 501(c)(3) organization, so donations to the organization can be deducted on tax returns as charitable contributions.

Grassley and Wyden said that KWF said on recent tax forms that it hopes to help underprivileged students get an education. However, the organization instead “apparently acted simply as a conduit for high-net-worth parents to pay bribes to college administrators for bogus college admissions,” the senators added.

“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, both as to KWF as well as to the parents who may have claimed such payments as deductions on their personal income tax returns,” the Finance Committee leaders wrote.

Grassley and Wyden also said that the charging documents suggest other potential instances of tax-law violations.

They said that based on court papers, it appears some parents may have made self-dealing payments to KWF from foundations they control. They also said it appears some parents made payments to KWF through accounts related to their businesses and that the IRS should take action if the payments were improperly written off as business expenses.

Additionally, Grassley and Wyden said that prosecutors allege some parents made transfers of stock holdings to KWF. The lawmakers said that in circumstances like that, the transfers may not have triggered the realization of capital gains because they were purportedly charitable contributions.

“If these transfers of stock are found to be in exchange for illicit services and not qualified as charitable contributions, we expect the IRS will fully enforce the law with regard to any resulting gain recognition,” the senators wrote.