Dec.26

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Dem 51

   

GOP 49

Trump's Tax Returns Are Full of Red Flags

Donald Trump's tax returns are extremely complicated since he owns over 500 entities personally and all of the profits and losses of all of them show up on his personal tax returns. No member of Congress could possibly understand what he did and whether it was legal or not. Well, OK, maybe Reps. Brian Fitzpatrick (R-PA), Steven Palazzo (R-MS), Tom Rice (R-SC), Brad Sherman (D-CA), Victoria Spartz (R-IN) and Tom Suozzi (D-NY), since they used to be CPAs. But not the other members. Fortunately, Congress possesses a secret weapon: the Joint Committee on Taxation. It is a nonpartisan agency that advises Congress on tax issues and is staffed with people who actually understand the tax laws. It would be nice if the people who wrote the tax laws actually understood what they were doing, but such is not the case.

For the last few weeks, the JCT has had Donald Trump's past 6 years; worth of tax returns and has been studying them intensely. They have already flagged five items that IRS really needs to examine very closely, as follows:

• Business losses: The single biggest reason Trump paid no taxes in many years is that he is a terrible, awful, dreadful businessman. He routinely "loses" tens of millions of dollars a year. He can't compete with Elon Musk, who can lose tens of millions of dollars in a few hours, but really good businessmen (and businesswomen) make millions a year. They don't lose millions (or billions) a year.
  
  But there is a huge question of whether the reported losses are real or more like the "fake news" Trump likes to talk about. The returns the Ways and Means Committee got may not help clarify this because the losses happened in previous years and carried forward. It is known that Trump casinos, Trump Airlines, Trump steak, Trump vodka, and many other Trump products were indeed failures, but there is a huge difference between "I bought this building for $40 million and then had to sell it for $30 million so I get a $10 million loss" and "My brand is tarnished so I am deducting $50 million for that." IRS might be able to sort this out, but some of the losses are so long ago that Trump could legitimately respond to questions from IRS with "I threw out all the paperwork years ago."
  
  
• Mingling expenses: There are multiple places where Trump apparently bought things for personal use and deducted them as business expenses. That's one of IRS' little no-nos. It is known that closely held entities often mix up business expenses with personal expenses. In Trump's case, he deducted $342,182 in 2020 for a rental property that had no income. If it was a rental property, shouldn't there have been some income? Could it be that he used the property personally (which means the expenses are not deductible)?
  
  One of his companies, DT Endeavor I LLC (aviation), reported gross income one year of $680,886 and expenses of $680,886. Coincidences happen, of course. It's normal. Also Melania Trump (modeling) took in $3,848 in income and reported $3,848 in expenses. Must be those pesky coincidences again. But coincidences aside, buying a large Boeing 757 jet and using it a couple of times a year to visit a rental property and using it the rest of the time for personal trips doesn't mean you can deduct the whole purchase price and operating costs as a business expense.
  
  
• Loans to his kids: Trump reported receiving over $100,000 in interest from Ivanka, Junior, and Eric. Apparently not from Tiffany. If you're not a "10," you don't count with Trump. Disguising a gift as a loan could be an illegal way to try to avoid paying gift tax. Also, the kids would get to deduct the interest they paid on the "loan," but if it really wasn't a loan, that would be illegal, too. To qualify as a legitimate loan, there would have to be an agreement about when the loan was to repaid, potential penalties for not repaying on time, etc. IRS could (and should) ask for a copy of the loan agreement. This fails the smell test.
  
  
• Land conservation: Trump owns a property called Seven Springs in Westchester County, NY. Lovely place. He took a conservation easement on it in 2015. This means that the deed was updated to prevent anyone from ever developing the property into houses, a shopping center, etc., in the future. Giving up the development rights (or equivalently selling or donating these rights to an environmental organization) would entitle Trump to a tax deduction because the property would then be worth less. He claimed a $21 million deduction for this. Was the property really worth that much less without the possibility of development? If local zoning laws prohibited development in the first place, then voluntarily "giving up" his rights to development meant nothing and the $21 million deduction is completely fraudulent. It wouldn't be hard for IRS to contact a local real estate broker in Westchester to ask about zoning laws and get property appraisals for the land, with and without development rights. The agency finally got around to talking to property appraisers—last month. It should have done it years ago.
  
  
• Foreign taxes: The U.S. has double-taxation treaties with many countries that state how international taxation is handled. For example, if an American has income in, say, Scotland, from a golf course he owns, the treaty specifies which country can tax it. These treaties are immensely complicated and run hundreds of pages because many situations are complex. Imagine an American citizen living in England who has stock in a French company that owns a mine in Arizona that produces ore that is sold to buyers in Germany and Michigan. Who gets to tax what? In some cases, when an American pays taxes to a foreign government, the treaty states that the American gets a credit for the foreign taxes paid against his U.S. taxes (and vice-versa, of course). But this applies only if the taxes are really paid to the foreign government and accrued taxes weren't avoided by some accounting trick. IRS could (and should) ask to see the bank statements showing the wire transfers for the tax payments.
  

And these are only the most obvious red flags. Knowing that Trump pushes the envelope on everything, the JCT (and certainly the IRS) should assign experts to go over every line on Trump's recent tax returns and demand proof for every questionable item. (V)