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Finance & Tax

FIVE RED FLAGS IN TRUMP'S TAXES

The Joint Committee on Taxation says in a report released this week by Democrats
that there are multiple issues that the IRS should be examining.

Information on former President Donald Trump's tax returns, released in a staff
report by the Joint Committee on Taxation, are photographed on Dec. 21, 2022. |
Jon Elswick/AP Photo

By Brian Faler

12/22/2022 04:36 PM EST

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An entire office of tax experts has been quietly studying former President
Donald Trump’s still-unreleased tax returns for weeks and produced a report
showing he paid little or no federal income tax while in office.

Though not well known outside tax circles, the Joint Committee on Taxation is
Congress’ brain on tax issues, and the House Ways and Means Committee turned to
the nonpartisan agency for help deciphering Trump’s exceedingly complicating
filings.

Since late last month, JCT has been poring over documents behind closed doors
and says in a report released this week by Democrats that there are multiple
issues that the IRS should be examining. (Lawmakers say Trump’s raw returns will
soon be released after they’ve been scrubbed of sensitive information like his
Social Security number.)

Here are five potential red flags in Trump’s returns:

MAMMOTH BUSINESS LOSSES: The single-biggest issue in Trump’s taxes is the
massive losses he is claiming — it is the primary reason he paid little or no
tax between 2015 and 2020.

Businesses are taxed on their profits, so if they can show their earnings are
being swamped by their expenses, they can erase their IRS bills. And if those
losses are more than big enough to wipe out income in one year, the remainder
can be deducted in subsequent years too, offsetting earnings and thereby
reducing tax bills in them as well.

Without those losses, Trump’s taxes would look fundamentally different. In 2016,
for example, when he paid just $750 in federal income taxes, he reported $30
million in earnings but also $60 million in losses.

Watch: Trump’s tax documents wheeled in ahead of House Ways and Means meeting

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The big question is whether those losses are legitimate.

“It’s the elephant in the room,” said Steve Rosenthal, a senior fellow at the
Tax Policy Center.

It’s hard to tell because it appears those losses began in years that predate
the returns Democrats received.

Rosenthal said lawmakers made a mistake in not demanding more of Trump’s filings
from previous years, when the losses were first claimed.

Little has been publicly known about how the IRS goes about implementing its
long-standing policy of auditing every president. But JCT’s report indicates the
IRS has been examining those losses, and it appears to be one reason why the
department was slow to audit Trump’s subsequent returns.

The IRS’s approach to auditing Trump’s 2015 return was affected, JCT said, by
“the complexity of issues being worked for tax years 2009 through 2013” and “the
prior years’ tax liabilities have not been settled.”

MINGLING EXPENSES?: There are multiple instances in which Trump may be
improperly deducting money spent on personal activities and hobbies as business
expenses.

JCT says it found many filings that are used to report streams of income where
his earnings and expenses exactly matched, or where there was no reported income
at all — a sign of potential improper mingling of expenses.

In 2016, for example, the filing for DT Endeavor I LLC (aviation) reported gross
income of $680,886 and expenses that also totaled $680,886. A filing for Melania
Trump (modeling) said it took in $3,848 and reported the same amount of
expenses. A filing for Donald J. Trump (speaking) reported $50,000 in gross
income and $46,162 in travel expenses.

Aside from the unlikelihood of income and costs exactly equaling, it raises the
question of whether someone would bother with a business in which their expenses
consumed every dollar they made.

“Audits of closely held entities often find personal expenditures being
improperly deducted as business expenses,” said JCT.

It also found Trump deducting expenses — $342,182 in 2020 — for a single family
home deemed a rental property that had no income associated with it.

“We would recommend inquiring about the high level of expenses for the
residential rental property, as well as whether such property was actually held
for rent during 2020,” the report said. “If the property is not used in a rental
real estate activity, it raises the question of whether the residence might be
held for personal use.”

LOANS TO HIS KIDS: Trump reported receiving hundreds of thousands of dollars in
interest payments on loans he gave Ivanka Trump, Donald Trump, Jr. and Eric
Trump.

That raises eyebrows because that could be a way to get around the gift tax. If
he gave money outright to his kids, it would likely be subject to a stiff 40
percent tax. The gift tax is designed to prevent people from escaping the estate
tax by giving money away to their kids, for example, while they’re alive.

Calling that money a loan would avoid the gift tax while also allowing his
children to deduct from their own taxes the interest they paid him.

The IRS has seen this before and has rules about when those would be considered
legitimate loans by requiring minimum interest rates being paid.

Trump reported about $51,000 in interest from his kids each year between 2015
and 2019, and $46,000 in 2020. JCT did not provide additional details about the
loans.

LAND CONSERVATION: Analysts question a $21 million deduction Trump took in 2015
for a conservation easement at his Seven Springs estate in Westchester County,
New York.

The easements allow people to take charitable deductions for promising to cordon
off property from development to protect wildlife, for example. The question
here is the value assigned to the land — the bigger the value, the larger the
deduction.

New York Attorney General Letitia James is now challenging this same
conservation easement valuation in court, alleging Trump and his business
“manipulated the appraisals to inflate the value of the donated development
rights” at Seven Springs and another property.

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