Baltimore City Council President Nick Mosby and his wife, State’s Attorney Marilyn Mosby, seem to jump from one ill-conceived idea to another. This is the case of “The Mosby 2021 Trust”, which is currently in the process of being dissolved.
The trust, set up to administer the Mosby’s legal defense fund, ran into a problem last week with the city’s ethics board.
The board found that Nick Mosby violated the city’s ethics ordinance by accepting contributions to the fund from “controlled donors” – people doing or seeking to do business with the city.
(Marilyn Mosby, subject to state ethics law, was not part of the council action.)
Dissolving the trust will likely help the Mosbys avoid another issue — this one with the IRS, which previously placed a lien on their Reservoir Hill home for non-payment of taxes.
The problem lies in the trust’s claimed status as a tax-exempt “political organization” governed by Section 527 of the Internal Revenue Code.
The only reason to apply for Section 527 status for a legal defense fund is to secure certain tax benefits. They include the elimination of potential gift tax for donors and the protection of Mosby from individual tax on contributions and expenses of the trust.
Get into the weeds
According to the trust’s website (deactivated over the weekend), the purpose of the trust is to receive and distribute funds to help the Mosbys pay legal fees incurred as a result of a “criminal tax investigation unfair and politically motivated federal government”.
There is nothing wrong with the purpose of the trust stated on the Form 8871, which in this instance does not include any reference to the payment of legal fees described on the website.
Indeed, if the trust is used to pay legal fees incurred by the Mosbys during the federal criminal investigation – or in the defense of Marilyn Mosby against the criminal charges brought against her as a result of this investigation – such use would appear to violate the relevant provisions of the Internal Revenue Code.
They state that a Section 527 entity must be organized and operated for an “exempt function”.
The term is defined as “the function of influencing or attempting to influence the selection, appointment, election, or appointment of any person to federal, state, or local public office”, and includes the “incurring of expenses relating to” that office which be deductible under Section 162(a) of the Internal Revenue Code for a trade or business.
Section 162(a) allows the deduction of legal fees arising directly from the trade or business of a taxpayer, but do not personal affairs or private financial affairs of a taxpayer. Only legal fees which are “ordinary expenses necessary for the operation of the [taxpayer’s] business” may be deductible.
On the way to trouble
The legal fees incurred by the Mosbys during the federal investigation were not ordinary and necessary expenses to seek or hold their respective political offices. Nor did Marilyn Mosby’s indictment stem from her conduct as a state’s attorney.
Instead, the charges stemmed from his submission of mortgage applications for homes in Florida as well as representations made on a request for early withdrawal from a city retirement plan.
The Mosbys have repeatedly claimed that the purpose of the federal investigation was to politically embarrass them and prevent them from being re-elected — to “influence” the outcome of their election in the parlance of Section 527.
I have no doubt that the IRS would conclude that the purpose of the investigation was not “political”, but rather to determine whether any federal crimes were committed.
If, as advertised on the trust’s website, the purpose of the Mosby trust was to raise money to cover legal costs incurred as a result of the federal criminal investigation, the trust and the Mosbys were headed for trouble with the IRS.
• David A. Plymyer retired as Anne Arundel County Attorney after 31 years with the county law firm. He can be reached at firstname.lastname@example.org and Twitter @dplymyer.