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Table of Contents
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Table of Contents
U.S. Tax Law and Real Estate Business
Questionable Tax-Reduction Strategies
The IRS and the Endless Audit
FAQs
The Bottom Line
Personal Finance
Taxes
What Former President Trump's Taxes Reveal About US Tax Law
How Trump managed to pay only $750 in income tax and other discoveries
By
Michelle P. Scott
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Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.
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Updated April 03, 2024
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Ebony Howard
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Ebony Howard
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Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.
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On September 27, 2020, The New York Times published a report on former President Donald Trump's taxes, spotlighting serious legal, financial, and political risks, as well as a history of startlingly low tax payments.
According to report, Trump paid no federal income tax for 11 of 18 years that reporters examined; he paid $750 in taxes in each of 2016 and 2017. He also reportedly pumped cash into money-losing businesses, and incurred hundreds of millions of dollars in debt through personally guaranteed loans.
What can we learn about U.S. tax law from the complicated picture of former President Donald Trump's taxes that emerged from the report?
Key Takeaways
In 2020, The New York Times published an investigation into former President Donald Trump taxes based on more than two decades of return data.The report contained notable findings, including that Trump had paid no federal income tax for 11 out of the 18 years that the publication examined.He reportedly paid $750 in taxes in each of 2016 and 2017.Trump's low tax bills are partly attributable to losses he's claimed for his businesses.Meanwhile, debt deadlines and audit questions continue to loom over Trump and have placed him in a potentially precarious financial position.
U.S. Tax Law and Real Estate Business
How could Donald Trump have avoided income taxes while earning more than $427 million from “The Apprentice,” licensing, and endorsements between 2000 and 2018?
Tax law affords special rules and benefits to real estate professionals, defined as those actively engaged in the real estate business. These advantages—typically unavailable to other individuals—permit developers like Trump to claim losses from real estate to offset income from other sources. Employees and taxpayers engaged in other lines of business generally must net their income and losses separately for each source of income.
The revelations cast a light on the special write-offs available to business owners and other wealthy individuals, particularly real estate professionals, whose tax planning can result in tax liabilities that are lower than those of average-income taxpayers.
For instance, tax-law rules on depreciation permit the cost of constructing a building to be deducted as a “loss” over 27.5 years for residential realty and 39 years for commercial buildings, even when the building’s fair market value is increasing over time. Trump’s properties are held in “pass-through” entities. This is a standard industry arrangement for avoiding corporate taxation and enabling an individual to report an entity’s income and deductions on a personal tax return, benefitting in particular from the latter.
Additionally, until 2020, tax law permitted taxpayers to carry back or carryforward net operating losses (NOLs). (For tax years after 2020, NOLs can only be carried forward.) According to the Times, Trump claimed losses of $915.7 million in 1985 that likely offset decades of TV, branding, and investment income estimated at $600 million. Although he paid taxes of $70.1 million from 2005 through 2007, the NOL rules allowed him subsequently to carry back NOLs to these years and receive a refund of the full amount. As discussed below, this refund appears to have been contested retroactively in the former president’s ongoing IRS audit.
Questionable Tax-Reduction Strategies
The Times report described a number of operational and transactional tax claims that presented substantial audit issues for the former president and his business organizations.
Casino 'Abandonment' Loss
The $70.1 million refund obtained for the period from 2005 to 2007 appears attributable to the carryback of approximately $700 million of business losses claimed for 2009. These losses likely were based on a claim of complete “abandonment” of the Trump Atlantic City casino business.
Such would be allowable, provided Trump received nothing in return for giving up his interest in the business. However, bankruptcy proceedings records indicate that Trump received 5% of the successor company’s stock, which would have disqualified any abandonment loss and limited his deduction to a $3,000 loss for the year.
Consulting Fees vs. Employee Compensation vs. Gifts
Per the Times report, unspecified “consulting fees” point to another strategy that can reduce business income and taxes. Some of these fees were likely paid out to his daughter Ivanka Trump, the publication found, a questionable arrangement given that as an employee of the Trump organization, she should not have been paid as a consultant, also known as an independent contractor.
Unlike employee compensation, consultant fees are not subject to withholding taxes from the payor. But to be deductible, the fees must be reasonable, market-value amounts. The Times pointed out that such a payment raises questions about whether some consulting fees were de facto asset transfers, which should have incurred a gift tax.
Business vs. Personal Expenses
Although not all of Trump's business expenses are explained, the article identified items that might properly be nondeductible personal expenses. It noted that the IRS might disallow deductions for aircraft used for personal travel and grooming costs for TV appearances on that basis.
In addition, because deductions for legal fees are reported as a lump sum, the Times also questioned whether the total paid to attorneys includes fees that weren't directly related to business operations, which could run afoul of IRS rules.
Residence vs. Investment
The Trump Seven Springs residential estate in Bedford, N.Y., also raises questions. Previously, Forbes reported that the former president's son Eric Trump described the property as a personal residence; in contrast, Donald Trump has characterized it as an investment and deducted property taxes worth $2.2 million as a business expense. The discrepancy in how the estate has been characterized is important: Deductions for local and state taxes (for both income and property) are subject to a ceiling of $10,000.
Valuation of Conservation Easement
The report also examined a 2015 charitable deduction of $21.1 million for a conservation easement, which gave up the right to develop some of the Seven Springs estate. Such a deduction is meant to reflect the decrease in a property’s fair market value after the donation. Tax experts debate whether some conservation easements actually increase real property values, particularly where they protect the natural attractiveness of the donor’s remaining land. In view of the reported questions around inconsistencies in valuations of Trump properties for different purposes, the value claimed for the Seven Springs’ easement drew scrutiny from the New York attorney general.
The IRS and the Endless Audit
Trump's tax returns have drawn a years-long audit battle with the IRS. A partial cause of this lengthy fight may be the interplay of loss carrybacks and carryforwards, which require exceptional extensions of the statute of limitations.
The Times reported that the refund of $70.1 million was eventually referred, as required by law, to the Congressional Joint Committee on Taxation (JCT) for review by the Committee’s nonpartisan, expert professional staff. The question of whether JCT staff—the same group that in 1974 reviewed President Nixon’s taxes and found certain deductions improper—may challenge the refund and demand its repayment remains unsettled.
How Did Trump Respond to Reporting on Tax Returns?
Alan Garten, a lawyer for the Trump organization, disputed the accuracy of the Times report on the former president's taxes. According to the publication, he contended that Trump paid “tens of millions of dollars” in personal federal taxes since 2015. The Times suggested that Garten may have been referring to Social Security, Medicare, and household employee taxes—as well as federal alternative minimum tax (AMT)—rather than income taxes, and it noted that Garten had inaccurately equated the use of tax credits to tax payments.
What Is Donald Trump's Net Worth?
Former President Donald Trump's net worth has been the matter of debate for decades. During the 2016, Trump's campaign claimed that his net worth exceeded $10 billion, though the figure has been disputed. In March 2024, Forbes published an asset-by-asset analysis of Trump's worth, determining an estimate of around $6.4 billion.
What Is Joe Biden's Net Worth in 2024?
According to another report by Forbes, published in August 2023, President Joe Biden's net worth is approximately $10 million. This estimate is based largely on owned assets such as real estate and property.
The Bottom Line
According to the Times report, former President Trump did earn hundreds of millions of dollars over the past decades, most from “The Apprentice” and licensing fees. However, at the same time, with a few exceptions, the Trump real estate business produced enormous losses. Apparent inconsistencies between his tax return losses and his federal financial reports of annual income in the hundreds of millions raised both reputational and legal issues.
In a diminished financial position, the former president may face enormous liabilities. He will be personally liable on personally guaranteed loans worth $421 million. In addition, the Times estimated that his federal tax liabilities could exceed $100 million. The reports of Donald Trump’s tax avoidance and looming financial exposures may disturb ordinary voters, and may undercut his self-proclaimed image as a astute billionaire.
The Times report also drew significant attention to opportunities that the tax code offers to wealthy business owners to avoid taxes lawfully—opportunities that are unavailable to average taxpayers—and may generate support for tax reform in the years to come.
Article Sources
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The New York Times. “Long-Concealed Records Show Trump's Chronic Losses and Years of Tax Avoidance.”
Internal Revenue Service. “Publication 925, Passive Activity and At-Risk Rules,” Page 6.
Internal Revenue Service. “Publication 925, Passive Activity and At-Risk Rules,” Pages 2-6.
Internal Revenue Service. “Publication 946, How To Depreciate Property,” Page 31.
The Tax Foundation. “Pass-Through Businesses Q&A.”
Internal Revenue Service. “Net Operating Losses.”
Internal Revenue Service. “Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts,” Pages 2, 5-6.
Internal Revenue Service. “Publication 544, Sales and Other Dispositions of Assets,” Page 5.
Internal Revenue Service. “Publication 535, Business Expenses,” Pages 8-9.
Internal Revenue Service. “Publication 15-A, Employer's Supplemental Tax Guide,” Page 7.
Internal Revenue Service. “Frequently Asked Questions on Gift Taxes,” Select “Who pays the gift tax?” and “How many annual exclusions are available?”
Internal Revenue Service. “Publication 529, Miscellaneous Deductions,” Pages 7-8.
Forbes. “Inside Seven Springs, The Lavish Mansion Where The Trumps Spent Summers.”
Internal Revenue Service. “Topic No. 503 Deductible Taxes.”
Internal Revenue Service. “Publication 5464, Conservation Easement Audit Technique Guide,” Page 61.
Internal Revenue Service. “Large Tax Refunds and Credits Subject to Review by the Joint Committee on Taxation – What to Expect.”
United States Capitol Historical Society. “JCT Investigation of Nixon’s Tax Returns.”
NBC News. “Donald Trump Claims That He's Worth $10 Billion.”
Forbes. “Here's How Much Donald Trump Is Worth.”
Forbes. “Here’s How Much Joe Biden Is Worth.”
Internal Revenue Service. “Statistics of Income: Individual Income Tax Returns 2019 Complete Report,” Pages 29, 45-46.
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