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Will college admission scandal lead to charges for tax crimes?

Lori Loughlin, Felicity Huffman and dozens of others have received negative publicity for their alleged roles in a college admission scandal. The scandal involved a relatively large payment in exchange for admission to well-known universities. Yale and USC are among those implicated.

The accused face various white-collar crime charges, including mail fraud. But will the allegations extend to include tax crimes?

What could the Internal Revenue Service (IRS) claim? Almost any issue involving money can bring the attention of the IRS. Based on a review of the evidence available to support the allegations against Ms. Loughlin and Ms. Huffman, it appears both claimed the payment as a charitable donation.

The man leading the alleged admission scheme, Rick Singer, would have parents donate to his charitable organization, Key Worldwide Foundation. The organization claims to help underprivileged get into college. In exchange for the payment, Singer is accused of promising high college admission exam results or a spot at a university on an athletic scholarship. Mr. Singer would send the parents a letter thanking them for their donation. The letter would state “no goods or services were exchanged.” This letter could then be used to support the claim of a donation on the parents’ tax filings.

And the payments were not negligible. Estimates put the payments at anywhere between $200,000 to $6.5 million.

Will the IRS succeed? In order to build a successful case, the prosecution will likely need to establish the accused intentionally underpaid their taxes. The intentional requirement is often the most difficult.

The IRS has stated it is investigating. It is possible the agency is reserving this charge as a bargaining chip for the prosecution during the initial negotiations.

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