Most people know Carl Icahn as a real-life Gordon Gekko — the investor who helped drive Trans World Airlines to bankruptcy, selling the company’s prime routes and saddling it with debt, while pocketing millions for himself. Today, Icahn is once again in the national spotlight with Donald Trump, his former business associate, floating the possibility of making him Treasury Secretary.
Like Trump, Carl Icahn has also named a school after himself — seven charter schools in New York City to be exact (Icahn Charter School 1, Icahn Charter School 2, Icahn Charter School 3, etc.). And as with Trump University, the money trail suggests the organization running these schools may have served to enrich its billionaire founder, Icahn, at the expense of its own students. An AlterNet investigation finds that Carl Icahn appears to have treated his charity like a personal piggy bank, using it to make potentially tens of millions for himself while benefiting from tens of millions in tax deductions.
In 1997, Carl Icahn made a $100 million tax-deductible “contribution” to his public charity, the Foundation for a Greater Opportunity, scoring about a $45 million income tax reduction, according to an estimate by Gregg Polsky, a law professor at UNC. In January 2006, Icahn’s foundation suddenly sold back the stock gift to an Icahn corporation, Modal LLC. The $100 million gift in American Railcar Industries Inc. shares was conspicuously sold three days before the company was to go public, a process that often sparks a short-term hike in share value. The convenient date of the sale strongly suggests Icahn knew his limited liability corporation, rather than his educational charity, would make a killing off the public offering.
Three days after the sale was inked, American Railcar Industries went public, opening at $23.60 a share and jumping up almost 40 percent in a month. As of 2016, Icahn holds a majority stake in ARII and the company’s shares are up nearly 70 percent more than when Icahn reacquired them. Thus, even if his LLC held onto his foundation’s former shares, rather than selling in the initial surge, Icahn would be in line for tens of millions in profit.
“When he donates the $100 million, it’s not his asset anymore,” explains Marc Owens, a tax expert with the law firm Loeb & Loeb. “It can’t be transferred back other than as a sale at true fair market value. So Icahn basically induced the charity, presumably ignorant of the impending company’s public sale, into selling him the stock at an artificially low value.”
Since the profits off the IPO surge went to Icahn, rather than his educational charity, Icahn was liable for a 25 percent “excess benefit” tax for that profit, potentially another 10 percent because of his role as director of the charity, and a “correction” to make “the charity whole by repaying the full excess benefit amount, plus interest,” according to Owens.
Yet on its 2006 tax forms, Icahn’s charity did not check the box indicating that it was aware of the existence of an excess benefit transaction, and almost a decade later Icahn has still not paid back $90 million owed to the charity (at least according to the foundation’s latest publicly available filings from 2014). “Because the note remains outstanding,” concludes Owens, “the tax law treats the transaction as a continuing event, despite the passage of time, a situation that has the makings of first class tax problem for Mr. Icahn. That’s all I can say.”
To summarize, Icahn’s initial $100 million gift to the charity in 1997 reduced his overall income tax bill by around $45 million. Then nine years later, just before the charitable “contribution” was about to surge in value, Icahn’s charity, operating “exclusively” for the good of low-income families, sold back the stock to Icahn, giving away tens of millions in potential post-IPO earnings to the billionaire. Since then, Icahn appears not to have paid an excess benefits tax for those earnings, or given the earnings back to the charity. As of 2014 records, the charity still lacks the $90 million in principal originally lost in the deal.
Icahn did not respond to AlterNet’s requests for comment.