RI historian Pat Conley says he unknowingly ran afoul of IRS 'self-dealing' rule
PROVIDENCE − Patrick Conley, the 85-year-old lawyer who has led a trio of nonprofits including the Heritage Harbor Foundation − and a controversial Heritage Hall of Fame − acknowledges that he probably violated an IRS prohibition against "self-dealing."
In an email to The Journal on Monday, Conley, who is also the state's honorary historian laureate, wrote: "My current reading of IRS regulations on self-dealing ... indicate[s] that I violated the regulation which classifies the transfer of real property to the foundation that is encumbered by our mortgage as a form of self-dealing."
He said he has now "asked the foundation auditors to call the IRS to meet with a local agent familiar with IRS rules and regulations as they pertain to 501(3)(c) charitable foundations and arrange to pay whatever excise tax penalty (if any) is assessed for this well-intentioned transfer."
"I have learned the hard way that no good deed goes unpunished," he wrote. "I already knew that ignorance of the regulation is no defense."
The terms of the gift
The gift was given under the terms of a "life estate" that would enable the couple to continue living there as tenants while the foundation paid one or more of their mortgages, according to a board member and a fundraising letter written by Conley.
On paper, it may have sounded like a win-win for both the Conleys and the foundation.
The couple could live out their lives mortgage-free. The foundation would get what was described in a January 2023 fundraising package as a "prestigious headquarters ... [a] site for small scale, but elegant events" and a "voluminous library" for potential use by the Roger Williams University law school.
In May 2023, however, the foundation deeded "Gale Winds" back to the Conleys after an effort to raise enough money to free the property – valued at a potential $4.5 million – of "$880,000 of encumbrances," according to a letter from Conley to potential donors. The fundraising effort had fallen short.
Patrick T. Conley signed the quitclaim deed as "President, Heritage Harbor Foundation, a Rhode Island nonprofit corporation."
The IRS rules
It is not known whether anyone on the board, at any time, questioned how the gift and the giveback comported with the state and federal rules that govern private foundations, including the rule that prohibits the "transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation."
Conley did not, prior to publication of the Jan. 8 Journal story, comment on this.
But in his email to The Journal on Monday, he said: "I was totally unaware of this regulation, and it was never brought to my attention until you did."
He said the foundation's board members, auditors and CPAs "did not call this self-dealing rule to my attention ... The 53 leading Rhode Islanders whom I identified as potential donors did not call this irregularity to my attention even though it was evident in the 80-page funding prospectus sent to them."
He said he "discussed the transfer personally at a meeting I requested with officers of the Rhode Island Foundation," where his nonprofit had most of its money invested, "and they never raised it."
He also suggested that lawyer James Hackett, who cited the IRS regulations in a letter to the editor published in The Journal, could have told him as the husband of Roberta Feather, a former member of the board of the Rhode Island Heritage Hall of Fame.
In his letter, Hackett said the "Internal Revenue Code defines 'self-dealing,' among other things, as the transfer to a “disqualified person” of the assets of a private foundation. A “disqualified person” is a person who is in a position to exercise substantial influence over the affairs of the foundation during the five-year period ending on the date of the transaction."
On Tuesday, Hackett questioned why Conley was blaming him - and others - "who didn't tell him that what he was doing was wrong ... [He] first transferred his home to the Foundation which agreed to pay his personal mortgage debt while he continued to reside there."
"He is an attorney who should have realized that he had potential conflicts of interest ...[and] sought independent third-party advice with respect to each transaction," said Hackett, noting that neither he nor his wife had anything to do with the foundation.
At the point the Heritage Harbor Foundation transferred his property back to him, Conley told The Journal, he reimbursed it for the $87,181 − plus interest − in mortgage payments.
Who is Patrick Conley?
A lawyer, real estate investor and former professor of history and constitutional law at Providence College, Conley has been a familiar and sometimes controversial figure for decades.
On his résumé, he wrote: "Owner of more individual parcels of Providence real estate than any individual in the city’s history, and holder of more Rhode Island real estate titles (via tax sale purchases) than any person in Rhode Island history."
He made news most recently as the defender of the Rhode Island Heritage Hall of Fame's decision to induct – and in his words, vindicate – retired Lt. Gen. Michael Flynn, a Middletown native who was pardoned by then-President Donald Trump after pleading guilty to lying to the FBI about his contacts with Russia during the transition period before Trump's 2017 inauguration.
Revelations about those contacts had led Flynn to resign as Trump's national security adviser after only 24 days.
This article originally appeared on The Providence Journal: Patrick Conley says gift of home to foundation probably broke IRS rule
