Following up on my previous posts (links below): Daniel Hemel (Chicago; Google Scholar), The Trump Organization Is in Big Trouble:
If the facts alleged in yesterday’s indictment are true, the Trump Organization and its longtime chief financial officer, Allen Weisselberg, have engaged in blatant tax evasion for more than a decade.
Early reports characterized the crime in question as involving “fringe benefits.” This gives entirely the wrong impression. The Trump Organization and Weisselberg aren’t being charged with tripping over some hyper-technical provision on the margins of the tax system. They are being charged with blatantly violating basic tax-law requirements—and bilking New York State and New York City out of hundreds of thousands of dollars along the way.
Probably the strongest allegation relates to an apartment on Riverside Boulevard in Manhattan where Weisselberg lives with his wife. According to the indictment, the Trump Corporation—one of the Trump Organization’s many business entities—paid roughly $100,000 a year in rent, utility bills, and garage expenses for this apartment starting in 2005. The Trump Corporation allegedly didn’t report those payments as compensation on Weisselberg’s W-2 forms, and Weisselberg allegedly didn’t include those amounts in income on his own tax returns.
But the Trump Organization did, according to the indictment, maintain a separate set of books that accounted for the payments as part of Weisselberg’s compensation. Notably, when the Trump Corporation paid Weisselberg’s rent, according to the indictment, the Trump Organization reduced Weisselberg’s salary by a corresponding amount. (Both Weisselberg and the Trump Organization pleaded not guilty yesterday.)
One can describe this as a “fringe benefit”—a tax-law term for any payment for services that is not part of stated compensation—but it’s also plain old tax fraud. Under federal and New York State tax law, lodging provided by an employer to an employee is part of the employee’s gross income. There are limited exceptions to this rule—for example, if the employee is required to live on the employer’s business premises as part of the job, or if the employer is a religious institution and the employee is a clergy member. But Weisselberg wasn’t living on Trump Organization premises because of some business need (and Trumpism is only metaphorically a religion). And if the Trump Organization was keeping a separate set of books recording compensation that it didn’t report to tax authorities, then this was no unintentional oversight. ...
Usually, these types of tax crimes are prosecuted at the federal level. But state tax-fraud prosecutions are not unheard of. Helmsley was indicted on state tax-fraud charges before she was prosecuted federally. According to yesterday’s indictment, New York City and New York State lost out on nearly $345,000 in taxes owed by Weisselberg. And when New York Attorney General Letitia James opened her probe of the Trump Organization more than a year ago, both the IRS and the Justice Department were answerable to Trump himself. New York prosecutors took up this case at a time when their federal counterparts very likely wouldn’t. ...
Yesterday’s indictment may be part of a strategy to flip Weisselberg and use him as a witness against his former boss. But if the allegations in the indictment are true, Weisselberg is no innocent bystander in a battle between James and Trump. The indictment paints him as a financially sophisticated and well-compensated CFO of a sprawling commercial enterprise who went to great lengths to cheat on his taxes and now faces the consequences.
So yes, this is a politically tinged prosecution. But if the allegations in the indictment are true, it’s also out-and-out tax fraud—conduct that is criminal beyond question. Being connected to a controversial political figure shouldn’t send you to jail. It shouldn’t get you off the hook either.
David Frum, Trump Is Preparing for the Worst
Prior TaxProf Blog coverage: