Trump Likely Committed $100 Million Tax Fraud

Shady accounting practices from well before he entered politics are coming back to bite him in the ass.

ProPublica (“IRS Audit of Trump Could Cost Former President More Than $100 Million“) and NYT (“Trump May Owe $100 Million From Double-Dip Tax Breaks, Audit Shows“):

Former President Donald J. Trump used a dubious accounting maneuver to claim improper tax breaks from his troubled Chicago tower, according to an Internal Revenue Service inquiry uncovered by The New York Times and ProPublica. Losing a yearslong audit battle over the claim could mean a tax bill of more than $100 million.

The 92-story, glass-sheathed skyscraper along the Chicago River is the tallest and, at least for now, the last major construction project by Mr. Trump. Through a combination of cost overruns and the bad luck of opening in the teeth of the Great Recession, it was also a vast money loser.

But when Mr. Trump sought to reap tax benefits from his losses, the I.R.S. has argued, he went too far and in effect wrote off the same losses twice.

The first write-off came on Mr. Trump’s tax return for 2008. With sales lagging far behind projections, he claimed that his investment in the condo-hotel tower met the tax code definition of “worthless,” because his debt on the project meant he would never see a profit. That move resulted in Mr. Trump reporting losses as high as $651 million for the year, The Times and ProPublica found.

There is no indication the I.R.S. challenged that initial claim, though that lack of scrutiny surprised tax experts consulted for this article. But in 2010, Mr. Trump and his tax advisers sought to extract further benefits from the Chicago project, executing a maneuver that would draw years of inquiry from the I.R.S. First, he shifted the company that owned the tower into a new partnership. Because he controlled both companies, it was like moving coins from one pocket to another. Then he used the shift as justification to declare $168 million in additional losses over the next decade.

The issues around Mr. Trump’s case were novel enough that, during his presidency, the I.R.S. undertook a high-level legal review before pursuing it. The Times and ProPublica, in consultation with tax experts, calculated that the revision sought by the I.R.S. would create a new tax bill of more than $100 million, plus interest and potential penalties.

There’s a whole lot more (the reports at both links are identical) but that’s the gist.

I claim no expertise in tax law, let alone the machinations of commercial real estate accounting. This certainly seems dubious on its face, though, and Trump has such a long history of fraud that my default assumption is that he’s been dishonest here.

That said, and even granting that the IRS is vastly under-resourced and tends to go after those without the ability to drag matters out for years because they can afford to hire armies of top-notch lawyers and accountants, the fact that the infractions happened in 2008 and 2010 and is just bubbling up in 2024 is just bizarre.

Trump is, as one might expect, claiming that this audit is politically motivated. Given how much the Biden administration has bent over backward to avoid giving the appearance of using the levers of power against the President’s former and presumptive future opponent, I dismiss that notion completely. But this is quite likely yet another case where Trump’s political career has shone light on his shady business dealings. He’s quite rightly getting far more scrutiny as a former and would-be-again President than he did as a con artist masquerading as a real estate tycoon.

FILED UNDER: Taxes, US Politics, , , , , , ,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Rick DeMent says:

    Most Mob types shy away from the limelight in order to avoid attention which could lead to prosecution. Trump seems to take a different approach.

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  2. MarkedMan says:

    the fact that the infractions happened in 2008 and 2010 and is just bubbling up in 2024 is just bizarre.

    My understanding is a significant part of the delay is due to Trump challenging every facet of the audit.

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  3. Kathy says:

    Bankruptcy declaration in 3, 2…

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  4. steve says:

    IANAL but I find it pretty odd that you have a building where you project a low occupancy rate and then you get to declare the whole building worthless. He still has a 92 story building on a piece of land that is worth something. Also, markets change. If the market picked up again the building could be pretty valuable again.

    Steve

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  5. On the one hand, as per @Rick DeMent‘s point, Trump has clearly created a situation in which he is receiving a lot of scrutiny.

    On the other, I can’t help but note that while some of this stuff is costing him money, he seems to largely be getting away with it in the main. That may cease to be true at some point, but I am beginning to wonder.

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  6. Tony W says:

    @Steven L. Taylor: This goes directly to yesterday’s discussion about rules and the fact that unless they are enforced, and result in consequences that the perpetrator finds intolerable, then they are not actually rules.

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  7. @Tony W: It definitely relates. I also think Trump shows the weaknesses in our rules. Weaknesses that allow the very wealthy to exploit them and for the powerful to get substantial passes.

    And, to James’ point in the OP, when the enforcer of rules is understaffed (in this case, the IRS), it makes it easier for rules to be unenforced.

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  8. Jack says:

    You do realize that the tax code is complicated beyond all belief.

    You do realize that because of that accountants can take aggressive or conservative positions. There are few bright line distinctions in complicated tax matters.

    You do realize that tax accountants have standards of ethics. They can’t just make things up out of whole cloth.

    Do you care? Or is it just “get Trump?”

    “First, he shifted the company that owned the tower into a new partnership. Because he controlled both companies, it was like moving coins from one pocket to another. Then he used the shift as justification to declare $168 million in additional losses over the next decade.”

    No, that first sentence is just flat damned wrong. It meant that they had an argument that the transfer came over with a non-zero tax basis. (but that might leave prior year tax accounting subject to review and restatement) No one here, or perhaps anywhere, has a definitive answer to these issues. That’s why there are tax accountants, tax attorneys and tax court cases, the obvious rush to judgment here notwithstanding. The tax code is a travesty. And anyone who doesn’t understand why is a dolt.

    If the position is wrong, Trump will pay fines, interest and tax. If correct, he will pay legal defense fees. It doesn’t make it fraud. That is a careless and juvenile charge. It means that taxes are (needlessly) complicated and a true vipers pit.

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  9. Jack says:

    @Rick DeMent:

    Which should tell you something. Taxes is not physics. Its designed that way by Washington DC. The very reason for high powered tax accountants and attorneys is to minimize taxes. Sad that its not easier, but its what Big Government proponents have produced.

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  10. Jack says:

    @Steven L. Taylor:

    They are not understaffed, Dr Taylor. As recently revealed, 60% of the audits recently have not been of billionaires, or people making $400K………..but rather under $200K.

    The reason isn’t the simple minded “the rich have big time accountants.” Rather, its that those big time accountants are smart and experienced, and have substantial arguments for their position. IRS agents can intimidate the Average Joe and induce them to pay. (some would call it extortion) Smart counsel? Not so much. A miserably complex code means you are creating so much grey area that the IRS can prey on the little guy, but realize they best not mess with Tyranisauras Rex. Dry holes are expensive.

    Here’s a hint. Most of that tax fraud in the US comes from two groups: 1) John Q Public (sorry, its true) and 2) small business owners who write off the country club, dinners, trips, the mistress etc as business expenses. Its a fact.

    Oh, and Hunter Biden and his chemicals and bimbos. But that would be piling on.

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  11. Andy says:

    Trump knows nothing about the tax code. Like all rich people, he hires a bunch of really good lawyers and accountants who probably know more about the tax code than most people who work at the IRS.

    Is he committing tax fraud? Well, if we still don’t know after more than a decade, then that points to a systemic problem.

    And that problem isn’t that the rules are clear and the IRS doesn’t have the staff or money to make a decision and enforce it, the problem is that the rules are not clear, and the IRS has to prove its interpretation of the code, and tax filers (even Donald Trump) have rights of appeal. And for people with deep pockets, who have a lot of money on the line, they can take that pretty far.

    This is just one example of why I’ve long advocated for tax code simplification so that the rules are more black and white, and there is much less room for gaming and the ability of rich people like Trump to drag out audits for a decade and waste IRS resources. The tax code is so complex the IRS sometimes doesn’t know what it means, and if you call the IRS and they give you incorrect advice, the IRS is not responsible if you incorrectly file based on that erroneous information.

    One of the many reasons that in Andy’s fantasy world, we’d have a much simpler income tax system with few to no deductions and a progressive VAT.

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  12. Jack says:

    @Andy:

    Amen

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  13. Kathy says:

    @Andy:

    How much of the tax code overcomplication is due to loopholes, exemptions, exceptions, and other bits and pieces added at the behest of lobbyists for the rich?

    So, he may be a victim of an overcomplicated system, but also one of the many perpetrators and long term beneficiaries of the built-in complexity.

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  14. DrDaveT says:

    @Jack:

    Taxes is not physics. Its designed that way by Washington DC.

    I had no idea the city was sentient. Does it sit on the Ways and Means Committee?

    The tax code was written by Congress, and is interpreted as best they can (given the contradictions and inconsistencies) by the IRS. If you don’t like the way it is, blame Congress.

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  15. DrDaveT says:

    @Jack:

    They are not understaffed, Dr Taylor.

    I laughed so hard at this one that I hurt myself.

    Tell you what: check out how the IRS was staffed 30 or 40 years ago. Now check out how they are staffed today. Be sure to also look at what their workload was 30 or 40 years ago, and what it is today. Then you can eat your words.

    The GOP has a strong financial interest in making sure that the tax laws passed are not actually enforced. They act on this by consistently and increasingly underfunding tax enforcement activities. Congress’s own GAO has estimated that each additional dollar appropriated for IRS tax enforcement would return somewhere between $8 and $20 to the budget under current laws… and yet somehow the Fiscally Responsible Party doesn’t think that would be a worthwhile investment. Whodathunkit?

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  16. DrDaveT says:

    @Andy:

    One of the many reasons that in Andy’s fantasy world, we’d have a much simpler income tax system with few to no deductions and a progressive VAT.

    As you and Jack probably both know, the hard part about tax enforcement isn’t the tax rate — it’s defining what counts as “income”. Joe Wage Earner can’t really hide — he gets a paycheck, and a W-2, and everyone knows what he earned. The opportunity to cheat exists mostly in the sectors that don’t earn wages — the self-employed, and the wealthy. (And in the cash economy, but that’s relatively small beans.)

    I am entirely agreed with you that the definition of what counts as “income” should be vastly simpler than it is. That isn’t going to happen, so long as political campaigns are mostly funded by the people who stand to lose the most from an accurate accounting.

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  17. Andy says:

    @Kathy:

    How much of the tax code overcomplication is due to loopholes, exemptions, exceptions, and other bits and pieces added at the behest of lobbyists for the rich?

    Probably a lot of them.

    @DrDaveT:

    I am entirely agreed with you that the definition of what counts as “income” should be vastly simpler than it is. That isn’t going to happen, so long as political campaigns are mostly funded by the people who stand to lose the most from an accurate accounting.

    Unfortunately there are few of us interested in real systemic reform, so the future is more rearranging the deck chairs.

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  18. Jack says:

    @DrDaveT:

    Of course its Congress. When did I say it was not? Reading comprehension problem?

    Or was it a refusal to understand that Big Government is a big poker game: send your guy in to get the laws you want. Its rigged against the Average Joe. Period, full stop.

    Joe Biden lied through his addled brain teeth that only the rich would be audited by his newly IRS funded crew. Its the average American. A pox on Joe Biden, a cruel man and an incompetent president.

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  19. Jack says:

    @DrDaveT:

    Pure tripe. Only the Democrat Party has an interest in siccing the IRS on US citizens. It runs on the issue all the time. But it does a bait and switch: only the rich will be investigated, but they know where the money is – John Q Public.

    You aren’t very versed in tax are you?

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  20. Jack says:

    @DrDaveT:

    That’s actually flat damned wrong. So many small business owners don’t report income. Nor individuals doing odd jobs in the dark economy. How is a “rich” guy going to avoid K-1s, 1099’s etc?? How? How???

    The complexities arise in the ultra-exotic business transactions. Made exotic by Congress, and lobbyists. If you think that’s the province of the right, as I suspect you do. look at our economy, and who supports Democrats. The elite. Tech. Large Corporate. Wall Street. Hollywood.

    The Average Joe doesn’t have access to this. Is the trump phenomenon so hard to understand in this context?

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