Trump’s brazen tax cheating revealed

That Trump persisted in using the same fraudulent technique in 6 years of recent tax returns is evidence of intent

Published December 28, 2022 9:02AM (EST)

Donald Trump | Taxes (Photo illustration by Salon/Getty Images)
Donald Trump | Taxes (Photo illustration by Salon/Getty Images)

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Donald Trump knowingly committed dozens of brazen tax frauds during the six years when he ran for office and was President, my analysis of the Congressional report on his tax returns and other documents shows. This explains why he fought all the way to the Supreme Court in a failed effort to keep his tax information secret.

One technique he used at least 26 times between 2015 and 2020 was as simple as it was flagrant. Trump filed sole proprietor reports, known as Schedule C, that showed huge business expenses despite having zero revenue. That created losses which Trump used to offset his income from work and investments, thus lowering his income taxes. Additional Schedule Cs had expenses exactly equal to revenues while only a few showed profits.

Trump knew this was unlawful because he lost two trials over his 1984 income taxes in which he did the exact same thing, a story I broke in June 2016. Both judges, in scathing opinions, ruled that Trump committed civil tax fraud.

Trump knew this was unlawful because he lost two trials over his 1984 income taxes in which he did the exact same thing, a story I broke in June 2016.

That Trump persisted in using the same fraudulent technique in six years of recent tax returns is powerful evidence of mens rea or criminal intent. This device is not Trump's most lucrative tax cheating technique, but it is the easiest for jurors to understand should Trump be indicted on tax charges.

The 65 Schedule Cs Trump filed as a candidate and as president helped him convert a federal tax bill that could have been as high as $46 million into a $2.1 million profit from the federal tax system, my analysis of the Congressional Joint Committee on Taxation staff report shows.

Trump received more than $154.2 million in wages, interest, dividends, capital gains, and pensions over the six years when he ran for president or lived in the White House. Despite this huge revenue stream, Trump reported minus $53.2 million in Adjusted Gross Income, the last number on the front page of your Form 1040 income tax return.

Other Tax Schemes

The Congressional report raises questions about numerous other tax deductions Trump took, including charitable deductions that may be bogus or overstated; treating personal expenses as business expenses; loans to his three older children that may be to escape gift taxes; and reporting almost $5 million of capital contributions as tax-deductible business expenses.

In short, Trump's tax returns are a rich environment in which questionable conduct is found throughout the filings and needs only seasoned auditors to uncover fictional expenses.

Should our Justice Department or the Manhattan District Attorney's office ask grand juries to indict Trump for tax crimes, the losses on supposed businesses with no income would be easy for jurors to understand. In contrast, a kitchen sink tax prosecution could confuse jurors because it would involve obscure tax law issues, possibly allowing Trump to slip away.

Year by Year

In four of the six years, Trump's taxable income was zero.

The report shows that Trump paid no income tax in three of the six years and just $750 in 2016.

Over the six years, he paid $776,126 in net federal income tax. That's just half of one percent of his positive income, the equivalent of a married couple earning $100,000 paying $500 instead of the typical $8,500. The typical tax rate for Trump's income class is more than 25%.

Trump didn't limit himself to lawful tax avoidance, my analysis of the Congressional report and other documents shows.

Trump received $18.7 million in refunds under the Alternative Minimum Tax, which is $2.8 million more than he paid, a nifty profit off that tax law. Three decades ago Trump lobbied Congress for generous Alternative Minimum Tax refund provisions for himself and other real estate investors.

In four of those six years, all but 2016 and 2017, his Schedule Cs showed losses totaling almost $1.3 million.

Shocking But True

Because New York State tax returns adhere closely to federal rules on reporting income and tax-deductible expense, Trump almost certainly made additional profit off the Empire State tax system.

It may shock you to learn that there are legal ways to turn the burden of income taxes into a source of profit. Still, every sophisticated tax accountant and lawyer knows how business owners, especially real estate operators like Trump, can do this legally. As a leading Manhattan tax lawyer told me years ago: "If you're big in real estate and pay any income tax, you should sue your tax lawyer for malpractice."

Workers and pensioners are excluded from the rules that let rich business people and landlords convert the burden of income taxes into the joy of financial gains.

Accounting Alchemy

Medieval alchemists claimed that the mythical Philosopher's Stone would turn lead into gold. They failed, but thanks to the modern alchemy of tax accounting, the black ink of taxable income can be transformed into the red ink of losses that in turn reduce or eliminate income taxes and can even turn the income tax system into a source of profit.

For decades I've been exposing ways that tax law and accounting rules favor the wealthiest business owners, hoping the voters would realize that the tax system that burdens them is, perversely, a lawful source of income for people like Trump.

Trump didn't limit himself to lawful tax avoidance, my analysis of the Congressional report and other documents shows.

Fraud Trials

This takes us back to 1984, by far Trump's most lucrative year up to that point. Trump Tower opened at the end of 1983, and his first Atlantic City casino opened in the Spring of 1984. Rivers of greenbacks flowed into Trump's accounts.

State and city auditors spotted a Schedule C consulting business that showed no fees or other revenue but more than $600,000 in costs. State and city auditors disallowed the losses. Trump appealed. I couldn't find a record of the IRS taking any action.

In scathing decisions following administrative trials, judges for New York State and City ruled that Trump was not entitled to use losses from this supposed consulting business to offset his other income.

Trump produced no receipts, no invoices, no work papers — nothing indicating the 1984 consulting business was more than a figment of his imagination.

There is no statute of limitations on civil tax fraud, so even if Trump is never indicted, he could be pursued to collect taxes owed, along with penalties and interest, going back years or even decades.

"The record does not explain how Petitioner [Trump] had significant expenses without any concomitant income from his consulting business," wrote H. Gregory Tillman, the city administrative law judge who tried the case in 1992.

Trump complained of double taxation, but Judge Tillman ruled that claim baseless. Using bold face to emphasize his point—an extraordinary step in a judicial opinion—Judge Tillman wrote, "The problem at issue is not one of double taxation, but of no taxation."

Trump's longtime tax accountant and lawyer, Jack Mitnick, gave damning testimony before Judge Tillman.

Photocopier Enables Fraud

The tax return the city received was not an original with "wet" (ink) signatures, but a photocopy.

Asked about the validity of the photocopy, Mitnick gave astonishing testimony.

"We did not" prepare that return, Mitnick testified, referring to himself and his firm. In other words, the tax return was a forgery. Mitnick's signature was applied using scissors and a photocopy machine. (My first national journalism award, in 1975, was for exposing a corrupt Michigan state senator who put his name on his predecessor's medical records using a photocopier, then tricked the state Supreme Court into giving the supposedly dying senator a law license after he badly flunked the bar exam, and then miraculously recovering and using his law license to swindle his predecessor's widow out of her fortune.)

Imaginary Businesses?

The Congressional report assumes that all the Schedule Cs on Trump's recent tax returns are actual businesses. Some of them may not exist except in tax filings. Auditors would be smart to demand evidence of business activity such as calendars, correspondence, travel to see potential clients, and the like to determine whether some or all of these businesses exist only on paper, if that.

While we only have details from six recent years of Trump's taxes, it's reasonable to suspect that he has used this technique continually since 1984 and may have well used it before then.

There is no statute of limitations on civil tax fraud, so even if Trump is never indicted, he could be pursued to collect taxes owed, along with penalties and interest, going back years or even decades.

But the beauty of the particular Schedule C scheme is that this is plain and simple.

Much more lucrative for Trump, the Congressional report indicates, was Trump apparently treating real estate as a Cost of Goods business rather than applying the real property rules. Bogus or overvalued charitable donations are another area of inquiry the Congressional report recommended.

Much of tax law is esoteric and difficult to grasp. But what Trump did again and again and again—taking expenses for businesses with no revenue—is so simple that jurors should have no trouble understanding the issues were Trump to be indicted by a federal or New York state grand jury.

The Congressional report also notes another tax integrity issue I have spent years exposing: the least compliant taxpayers get away with wrongdoing because fighting them consumes vast amounts of limited government resources. The IRS today is a mere shell of what it was at the turn of the century, or in 1980, in terms of capacity to uncover tax frauds and to pursue enforcement, civil or criminal, against those who thumb their nose at the law. The Transactional Records Access Clearinghouse at Syracuse University is a rich source of information on the decline of the IRS.

The Congressional report notes "the history of difficult negotiations between Mr. Trump's counsel and IRS personnel" implying this explains why only one auditor was assigned to only one of the six Trump tax returns and that auditor was not allowed to seek advice from the specialists the IRS employees in fields from biology to real estate partnership rules.

Considering that Trump headed our government for four years while obviously cheating on his income taxes, his case deserves whatever resources it takes to bring him to civil and criminal justice.

By David Cay Johnston

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