By Jay Starkman
Now that New York has announced it will initiate criminal tax probes against President Trump’s foundation and his former lawyer Michael Cohen, a review of past politically motivated state tax probes reveals that prosecutions of controversial figures are not unprecedented.
Civil rights leader Martin Luther King Jr. first rose to fame by leading the successful Montgomery, Alabama, 1955-1956 bus boycott. Alabama sought retribution by deploying its tax agency, which audited his 1956-58 income tax returns. It is unheard of for a state tax agency to initiate a tax audit for an individual at King’s income level. States piggyback their income tax off the federal return and rely largely on federal enforcement.
Alabama assessed $1,722.23 in back taxes and interest for the three years. King paid the tax on Jan. 27, 1960. The following week, he moved to Atlanta. King wasn’t in Atlanta a month when Georgia sheriffs arrested him for an Alabama warrant charging that he had falsified his 1956 and 1958 Alabama state income tax returns. Income tax evasion is not a felony under Alabama law, but swearing to a fraudulent return constitutes perjury, which is a felony punishable by one to five years in prison.
This was a very grave situation for King. He lacked funds to pay for his legal defense. He would be tried by an all-white jury in Alabama. The mere charges stained his reputation. And he faced prison time. If convicted, Alabama might signal to the world that while leading thousands in the bus boycott, King was dishonest in his financial dealings.
A six-day trial began on Monday, May 23, 1960, on the 1956 charge that he underpaid his tax by $318.81, with the state holding off on bringing the 1958 charges for a second trial. The all-white male jury returned a stunning “not guilty” verdict, which no one had predicted amidst all of the sit-ins and racial tension at the time.
King remains the only person known to have been charged in Alabama with perjury in filing state income tax returns, perhaps in any state.
His political persecution continued. The FBI began an intensive campaign to neutralize him as an effective civil rights leader, using wiretaps, scrutinizing his tax returns, monitoring his financial affairs, searching for any secret foreign bank account and trying especially hard to find evidence he was a communist. The agency audited King’s Southern Christian Leadership Conference in 1968. The IRS even began an investigation of the Ebenezer Baptist Church where King served as pastor, seeking to revoke its tax-exempt status.
Upset at the acquittal, Montgomery officials and Alabama Gov. John Patterson sued the New York Times and four Alabama black clerics – Ralph D. Abernathy, Solomon S. Seay Sr., Fred L. Shuttlesworth and Joseph E. Lowery – for libel based on a full-page advertisement the newspaper ran on March 29, 1960, soliciting funds for King’s legal defense. It was signed by Eleanor Roosevelt, religious and union leaders, many stars of stage and screen and 20 Southern civil rights leaders, including the four Alabama clerics. That $4,800 ad had the Times facing $3 million in damages. Following a three-day trial, the jury returned a verdict in favor of the plaintiffs.
The case went to the U.S. Supreme Court. In a 1963 landmark decision, it unanimously ruled in favor of the Times, transforming American libel law by requiring a showing of “actual malice” before damages can be awarded to a public official.
The Trump Foundation is a private foundation with virtually no overhead. Available returns show it has not raised more than $3 million in a single year.
By contrast, the Clinton Foundation is a public charity empire with unconsolidated far-flung international affiliates and suspicious arrangements like the Clinton-Giustra Enterprise Partnership. Frank Giustra is perhaps the Clinton Foundation’s largest donor whose largest donations overlapped with the 2010 sale of 20 percent of the U.S. uranium deposits to a Russian entity. The Foundation provides employment for Clinton apparatchiks, spends millions annually on fundraising and even more on overhead, while raising hundreds of millions of dollars that ebb and flow with Hillary’s political prospects.
New York’s tax department claims “a responsibility to the public and to the individual taxpayer to enforce the law with fairness and reasonableness.” Yet, New York is initiating criminal tax investigations of the Trump Foundation and Michael Cohen while ignoring the potentially massive irregularities at the Clinton Foundation.
Comparisons are made of Trump associates to the Al Capone trial. Capone was a murderous thug. His and the King investigations were handled by Treasury, which is normally the responsible agency. Trump’s federal and state tax investigations are pursued through attorneys general, which is irregular. Jury instructions only require proving that a substantial tax was due from the defendant, that he attempted to evade or defeat this tax, and he acted willfully.
Willfulness is a very hard charge to defend against, as the conviction of former Trump campaign manager Paul Manafort confirmed. Under this standard, millions of taxpayers commit perjury when they sign their returns – all those “instant” lottery winners, for example – especially if they claim the standard deduction because all winnings are taxable income, while losses are only deductible if they itemize.
Author and former newspaper magnate Conrad Black, once wrote “To use the government’s legal apparatus to terrorize opponents and whitewash supporters while putting on the airs of pristine political virtue is abusive and hypocritical.” He could have written this about the present assault against President Trump and his associates.
Jay Starkman is a CPA in Atlanta.