Paul L. Caron
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Tuesday, May 14, 2024

NY Times & ProPublica: Trump May Owe $100 Million From Double-Dip Tax Breaks

Trumpo CHicago

New York Times, Trump May Owe $100 Million From Double-Dip Tax Breaks, Audit Shows:

Former President Donald J. Trump used a dubious accounting maneuver to claim improper tax breaks from his troubled Chicago tower, according to an Internal Revenue Service inquiry uncovered by The New York Times and ProPublica. Losing a yearslong audit battle over the claim could mean a tax bill of more than $100 million.

The 92-story, glass-sheathed skyscraper along the Chicago River is the tallest and, at least for now, the last major construction project by Mr. Trump. Through a combination of cost overruns and the bad luck of opening in the teeth of the Great Recession, it was also a vast money loser.

But when Mr. Trump sought to reap tax benefits from his losses, the I.R.S. has argued, he went too far and in effect wrote off the same losses twice.

The first write-off came on Mr. Trump’s tax return for 2008. With sales lagging far behind projections, he claimed that his investment in the condo-hotel tower met the tax code definition of “worthless,” because his debt on the project meant he would never see a profit. That move resulted in Mr. Trump reporting losses as high as $651 million for the year, The Times and ProPublica found.

There is no indication the I.R.S. challenged that initial claim, though that lack of scrutiny surprised tax experts consulted for this article. But in 2010, Mr. Trump and his tax advisers sought to extract further benefits from the Chicago project, executing a maneuver that would draw years of inquiry from the I.R.S. First, he shifted the company that owned the tower into a new partnership. Because he controlled both companies, it was like moving coins from one pocket to another. Then he used the shift as justification to declare $168 million in additional losses over the next decade.

The issues around Mr. Trump’s case were novel enough that, during his presidency, the I.R.S. undertook a high-level legal review before pursuing it. The Times and ProPublica, in consultation with tax experts, calculated that the revision sought by the I.R.S. would create a new tax bill of more than $100 million, plus interest and potential penalties. ...

The reporting by The Times and ProPublica about the Chicago tower ... was pieced together from a collection of public documents, including filings from the New York attorney general’s suit against Mr. Trump in 2022, a passing reference to the audit in a congressional report that same year and an obscure 2019 I.R.S. memorandum that explored the legitimacy of the accounting maneuver. The memorandum did not identify Mr. Trump, but the documents, along with tax records previously obtained by The Times and additional reporting, indicated that the former president was the focus of the inquiry.

It is unclear how the audit battle has progressed since December 2022, when it was mentioned in the congressional report. Audits often drag on for years, and taxpayers have a right to appeal the I.R.S.’s conclusions. The case would typically become public only if Mr. Trump chose to challenge a ruling in court. ...

The outcome of Mr. Trump’s dispute could set a precedent for wealthy people seeking tax benefits from the laws governing partnerships. Those laws are notoriously complex, riddled with uncertainty and under constant assault by lawyers pushing boundaries for their clients. The I.R.S. has inadvertently further invited aggressive positions by rarely auditing partnership tax returns. ...

[R]eporting by The Times in recent years has found that, across his business career, Mr. Trump has often used what experts described as highly aggressive — and at times, legally suspect — accounting maneuvers to avoid paying taxes. To the six tax experts consulted for this article, Mr. Trump’s Chicago accounting maneuvers appeared to be questionable and unlikely to withstand scrutiny.

“I think he ripped off the tax system,” said Walter Schwidetzky, a law professor at the University of Baltimore and an expert on partnership taxation.

https://taxprof.typepad.com/taxprof_blog/2024/05/ny-times-propublica-trump-may-owe-100-million-from-double-dip-tax-breaks.html

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