Trump’s taxes: Red flags, big losses and a windfall from his father

At first glance, the income-tax data released this week by a House committee seems to show a turnaround in 2018 for former President Donald Trump. After a decade in which he declared no taxable income, his 2018 return reported taxable income of more than $24 million. He paid nearly $1 million in federal income taxes.

In fact, his year in the black appears to have resulted largely from the final windfall of the vast inheritance that financed much of his business career — more than $14 million in gains from the sale of his father’s 1970s investment in the housing development of Starrett City in the New York City borough of Brooklyn.

But precedent soon reasserted itself. Because of business losses, he paid no income taxes in 2020, his last year in the White House.

That year, after obtaining more than two decades of Trump’s tax returns, The New York Times traced the boom-and-bust arcs that had marked his financial history: dubious tax avoidance, huge losses and a life buttressed by an inherited fortune. The newly released tax information, from 2015 to 2020, shows how that pattern extended through his years in Washington.

Also Read | Donald Trump paid $1 million in tax while in office but nothing in 2020

The new material, obtained by the House Ways and Means Committee after a yearslong legal battle, raised a multitude of questions about the methods Trump had employed while president to lower his income taxes, and about failures by the Internal Revenue Service to fully investigate those deductions.

The congressional Joint Committee on Taxation, a bipartisan panel that is known for reviewing the impact of tax legislation and has a staff with deep tax law expertise, reviewed the Trump returns and found dozens of red flags that it believed required further investigation.

One involved transactions with his children. According to the tax data, Trump annually received tens of thousands of dollars in interest income from three of his grown children — Donald Jr, Ivanka and Eric — money that stemmed from what his returns described as personal loans to them. The committee questioned whether the loans actually “were disguised gifts” to evade gift taxes and allow the children to write off interest payments to their father.

The congressional report said the IRS explored whether Trump correctly deducted the $21 million he had paid to settle a series of fraud claims against the now-defunct Trump University. It was not clear, the report said, whether Trump had received any insurance proceeds that offset some portion of the settlement. The outcome of that review was not known.

Also Read | IRS let Trump avoid tax audits while in office

The committee also questioned whether Trump had charged expenses from his personal life and hobbies as business expenses, mentioning travel on his aircraft in particular. The Times’ 2020 investigation found that he had frequently written off questionable expenses, including more than $70,000 paid to style his hair during his years on “The Apprentice.”

One point of potential trouble for Trump emerged from the report. The IRS is considering disallowing the $21 million write-off Trump claimed in 2015 for agreeing not to develop much of the land on a sprawling estate in Westchester County, New York, known as Seven Springs. After not examining the transaction for a period of time, the agency is exploring whether the value Trump claimed was based on a qualified appraisal.

The committee requested that the IRS also verify charitable contributions Trump reported making with cash, checks or credit cards.

Besides Trump’s returns, the Ways and Means committee obtained roughly 1,100 electronic files containing working papers, memos and other internal documents showing how the IRS had handled them. The records, according to the report, depict an agency that seemed reluctant to aggressively examine a wealthy taxpayer who was difficult to deal with and had complex returns.

After the Times published its investigation revealing years of Trump’s tax data, IRS officials met to decide how to respond to the numerous revelations, including questionable deductions, tax credits and cancellation of debt. Yet the agency set a high bar for what to examine.

For instance, the Times reported that Trump had a pattern of writing off payments to unidentified consultants, totaling $26 million over nine years across all of his projects, and that at least some of that money went to his daughter Ivanka, even though she was earning a salary as an executive at his company. It raised the question of whether the payments reflected actual consulting work or were simply a way to claim an unwarranted tax deduction.

The IRS seemed to find the payments worthy of scrutiny, but worried that, because they were spread out over many years and were made by numerous corporate entities, “the resources needed to examine would far outweigh any potential benefits,” the report said. In a bit of circular reasoning, the agency ultimately determined that the fees were too “difficult to examine unless they were found to be fraudulent payments.”

Similarly, agency officials initially flagged a detail in the Times’ reporting about how Trump had used $9.7 million in business investment credits, in part related to the renovation of the Old Post Office hotel in Washington, to wipe out his tax obligations for 2016 and 2017. But to pursue it further, they concluded, “the credits would need to be material,” and the committee found that the IRS was ultimately “not interested.” Trump is seeking a refund of nearly all of the $641,931 in income taxes he paid for 2015 using the same credit for historic rehabilitation, the report noted. He wants a refund for all but $750, the same total income tax he paid in both of the following two years.

The internal records indicated that, in determining which issues to pursue, IRS officials discussed “the history of difficult negotiations between Mr. Trump’s counsel and IRS. personnel” and fretted that opening new examinations of past tax returns could damage the “good relationship” they had recently established with Trump’s representatives.

Steven M Rosenthal, a senior fellow at the Tax Policy Center, said the committee’s findings “just goes to show you how far behind the ball the IRS is.”

“It’s unfortunate that they just don’t have the resources or the expertise to keep up with a sophisticated taxpayer like Trump,” he said, “let alone a sophisticated taxpayer like Trump who specializes in obstruction and delay.