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Color of Money: How the college-admissions scheme exploited the tax code to hide bribes

Michelle Singletary on

WASHINGTON -- The parents swept up in the nationwide college-admissions scam are accused of not only helping their children cheat their way into elite universities, but also of getting a tax deduction for their illicit payments.

The Justice Department last week alleged that dozens of wealthy parents -- including two well-known television actresses, a parenting-book author, a top attorney and several chief executives -- participated in a $25 million scheme to help their children get accepted to such top colleges as Yale, Georgetown, Stanford and the University of Southern California.

Law-enforcement officials charged ringleader William "Rick" Singer of Newport Beach, California, with racketeering, money laundering and obstruction of justice in what the FBI dubbed "Operation Varsity Blues." Singer has pleaded guilty and is cooperating with investigators. He owned the Edge College & Career Network, a for-profit college counseling and preparation business.

Singer was also the chief executive of the Key Worldwide Foundation (KWF), which claimed to the IRS that it was a nonprofit charitable organization.

In 2013, the IRS approved KWF as a tax-exempt organization under Section 501(c)(3), according to an affidavit filed by the FBI. This meant it didn't have to pay federal income tax, and individuals who contributed to the charity could receive a tax deduction for their donations.

In its most recent filing with the IRS, the KWF said the foundation "endeavors to provide education that would normally be unattainable to underprivileged students."

 

But wiretapped phone transcripts released by the FBI purport to show the true purpose of the charity -- to be the conduit for five- and six-figure bribes paid by parents. These parents allegedly include actresses Felicity Huffman, who starred on the TV show "Desperate Housewives," and Lori Loughlin, who appeared as Aunt Becky on "Full House."

Loughlin and her husband allegedly hid their payments in two $200,000 wire transfers to the charity to get their daughters into USC. Another couple allegedly made a contribution of $400,000 to KWF to secure admission for their daughter to Georgetown. One family is accused of "donating" $900,000. Huffman paid $15,000 to the fake foundation on behalf of her eldest daughter, according to the FBI.

Parents got written letters from KWF that said, "Thank you for your generous donation." To make the bribes appear legitimate they received receipts from KWF falsely indicating that "no goods or services were exchanged" for their supposed donations, according to authorities.

"Singer allegedly agreed with certain clients to disguise bribe payments as charitable contributions to the KWF, thereby enabling clients to deduct the bribes from their federal income taxes," the Justice Department said.

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