By David D. Dodge
When I initially started reading earlier this spring about the college admissions scandal, it seemed limited to the college admissions process at a number of elite universities across the U.S. However, it soon became apparent that the wrongdoing associated with the scandal involved real criminal activity far beyond the admissions process at these universities. In fact, it extended into a network of several major university athletic departments, a Southern California college admissions counseling company, the Key Worldwide Foundation (KWF), college entrance examination proctors, and dozens of wealthy parents.
The scam which led to the unfolding scandal was master-minded by William “Rick” Singer, owner of the admissions counseling company and director of KWF. On March 12, 2019, Singer pleaded guilty to money laundering, racketeering, obstruction of justice, and tax evasion for his role in the scheme which, according to the indictment against him, involved bribing coaches and athletic department administrators and paying off SAT exam proctors – all to allow wealthy teenagers admission into top universities.
As Singer’s scheme began to unravel, it was revealed he had struck a deal with federal prosecutors several months earlier, and was “spilling the beans” on parents, coaches and others, about 50 of whom would soon be charged with various crimes. One parent, Felicity Huffman-a well-known TV and film actress- has already been sentenced to 14-days in federal prison, a fine of $30,000 and 250 hours of community service for her involvement in paying Singer to fix her daughter’s SAT exam score through an exam proctor correcting her answers.
Sam Brunson of The Surly Group- a tax blog by tax academics- has written of his surprise upon learning that the college admissions scandal went well beyond “an interesting – and frankly, kind of pathetic – story of wealth and entitlement.” After reading the affidavit supporting the criminal indictment, Brunson wrote that actually the “story revolves around taxes, and specifically the abuse of a tax-exempt organization,” namely KWF. Brunson went on to blog that there were two main schemes to allow participants admission into universities for which they were otherwise not qualified: 1) cheating on entrance exams; and 2) bribing coaches and athletic administrators to designate the teenagers as athletic recruits, often when the teenagers did not even play the particular sport involved. Both schemes, Brunson noted, had something in common: the recipient of the payments was KWF.
Among other matters, the affidavit Brunson reviewed revealed the following:
- KWF is exempt from paying federal income tax and that individuals who contribute to it may deduct those contributions from their taxable income, subject to certain limitations;
- Clients paid Cooperating Witness – 1(Singer) between $15,000 and $75,000 per test to participate in the cheating scheme, with the payments typically structured as purported donations to the KWF charity;
- If parents wanted their child to be a fake athlete, they paid an amount to KWF roughly in the range of $200,000. These payments were used to bribe coaches and athletic administrators; and
- KWF illegally sent letters to donors advising them that they had received nothing in exchange for their donations, allowing donors to substantiate that the entire amount was a tax-deductible charitable donation, in effect falsely attesting that “no goods or services were exchanged” for the purported contribution.
There is more to the scam, as has been reported, and will continue to be revealed, but you get the idea – the college admissions scandal involves many layers of wrongdoing by Singer, the parents, coaches and administrators, KWF personnel, entrance exam proctors, and others. Without the broad complicity of all of these individuals, the scam would not have worked.
Brunson also notes the IRS will be busy in the months and years ahead auditing the KWF, disallowing the illegal deductions and imposing interest and penalties on the donors.
While federal prosecutors focus on the individuals involved, colleges and universities across the U.S. are reviewing their respective admissions processes, parents who may be considering skirting the normal applications processes for their children must be having second thoughts, and many foundations certainly will be reviewing their compliance checklists. Further, as they await their trials or sentencing dates, coaches and athletic administrators should be reflecting on their wrongdoing and alleged crimes. As Singer, awaits sentencing, the master-mind of the con hopefully is fixated on, “what was I thinking?” Of course, it is hardly surprising in this day and age that money is at the center of yet another scandal.