Late yesterday, The New York Times dropped a report resulting from an extensive investigation of the roots of Donald Trump’s real estate empire , going back decades to the era just before Trump himself became the self-promoting real estate magnate that earned him his reputation starting back in the early 1980s and continuing for the next three decades. What it found was a reality that is sure to earn the ire of the President and could result in serious tax problems for The Trump Organization and its various entities in the United States and around the world:
The president has long sold himself as a self-made billionaire, but a Times investigation found that he received at least $413 million in today’s dollars from his father’s real estate empire, much of it through tax dodges in the 1990s.
President Trump participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents, an investigation by The New York Times has found.
Mr. Trump won the presidency proclaiming himself a self-made billionaire, and he has long insisted that his father, the legendary New York City builder Fred C. Trump, provided almost no financial help.
But The Times’s investigation, based on a vast trove of confidential tax returns and financial records, reveals that Mr. Trump received the equivalent today of at least $413 million from his father’s real estate empire, starting when he was a toddler and continuing to this day.
Much of this money came to Mr. Trump because he helped his parents dodge taxes. He and his siblings set up a sham corporation to disguise millions of dollars in gifts from their parents, records and interviews show. Records indicate that Mr. Trump helped his father take improper tax deductions worth millions more. He also helped formulate a strategy to undervalue his parents’ real estate holdings by hundreds of millions of dollars on tax returns, sharply reducing the tax bill when those properties were transferred to him and his siblings.
These maneuvers met with little resistance from the Internal Revenue Service, The Times found. The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances.
The Trumps paid a total of $52.2 million, or about 5 percent, tax records show.
The president declined repeated requests over several weeks to comment for this article. But a lawyer for Mr. Trump, Charles J. Harder, provided a written statement on Monday, one day after The Times sent a detailed description of its findings. “The New York Times’s allegations of fraud and tax evasion are 100 percent false, and highly defamatory,” Mr. Harder said. “There was no fraud or tax evasion by anyone. The facts upon which The Times bases its false allegations are extremely inaccurate.”
Mr. Harder sought to distance Mr. Trump from the tax strategies used by his family, saying the president had delegated those tasks to relatives and tax professionals. “President Trump had virtually no involvement whatsoever with these matters,” he said. “The affairs were handled by other Trump family members who were not experts themselves and therefore relied entirely upon the aforementioned licensed professionals to ensure full compliance with the law.”
The president’s brother, Robert Trump, issued a statement on behalf of the Trump family:
“Our dear father, Fred C. Trump, passed away in June 1999. Our beloved mother, Mary Anne Trump, passed away in August 2000. All appropriate gift and estate tax returns were filed, and the required taxes were paid. Our father’s estate was closed in 2001 by both the Internal Revenue Service and the New York State tax authorities, and our mother’s estate was closed in 2004. Our family has no other comment on these matters that happened some 20 years ago, and would appreciate your respecting the privacy of our deceased parents, may God rest their souls.”
The Times’s findings raise new questions about Mr. Trump’s refusal to release his income tax returns, breaking with decades of practice by past presidents. According to tax experts, it is unlikely that Mr. Trump would be vulnerable to criminal prosecution for helping his parents evade taxes, because the acts happened too long ago and are past the statute of limitations. There is no time limit, however, on civil fines for tax fraud.
The findings are based on interviews with Fred Trump’s former employees and advisers and more than 100,000 pages of documents describing the inner workings and immense profitability of his empire. They include documents culled from public sources — mortgages and deeds, probate records, financial disclosure reports, regulatory records and civil court files.
The investigation also draws on tens of thousands of pages of confidential records — bank statements, financial audits, accounting ledgers, cash disbursement reports, invoices and canceled checks. Most notably, the documents include more than 200 tax returns from Fred Trump, his companies and various Trump partnerships and trusts. While the records do not include the president’s personal tax returns and reveal little about his recent business dealings at home and abroad, dozens of corporate, partnership and trust tax returns offer the first public accounting of the income he received for decades from various family enterprises.
What emerges from this body of evidence is a financial biography of the 45th president fundamentally at odds with the story Mr. Trump has sold in his books, his TV shows and his political life. In Mr. Trump’s version of how he got rich, he was the master dealmaker who broke free of his father’s “tiny” outer-borough operation and parlayed a single $1 million loan from his father (“I had to pay him back with interest!”) into a $10 billion empire that would slap the Trump name on hotels, high-rises, casinos, airlines and golf courses the world over. In Mr. Trump’s version, it was always his guts and gumption that overcame setbacks. Fred Trump was simply a cheerleader.
Contrary to that image, though, the evidence indicates that Trump’s wealth originated with money he received from his father in the form of “salary” and other distributions. Trump has also claimed that until his father and mother passed away nearly twenty years ago, the only money had received from his father was a “small loan” of $1,000,000 and that the remainder of his fortune came about because of his own investments, business skills, and business acumen. The reality, not surprisingly, is quite different:
By age 3, Mr. Trump was earning $200,000 a year in today’s dollars from his father’s empire. He was a millionaire by age 8. By the time he was 17, his father had given him part ownership of a 52-unit apartment building. Soon after Mr. Trump graduated from college, he was receiving the equivalent of $1 million a year from his father. The money increased with the years, to more than $5 million annually in his 40s and 50s.
Fred Trump’s real estate empire was not just scores of apartment buildings. It was also a mountain of cash, tens of millions of dollars in profits building up inside his businesses, banking records show. In one six-year span, from 1988 through 1993, Fred Trump reported $109.7 million in total income, now equivalent to $210.7 million. It was not unusual for tens of millions in Treasury bills and certificates of deposit to flow through his personal bank accounts each month.
Fred Trump was relentless and creative in finding ways to channel this wealth to his children. He made Donald not just his salaried employee but also his property manager, landlord, banker and consultant. He gave him loan after loan, many never repaid. He provided money for his car, money for his employees, money to buy stocks, money for his first Manhattan offices and money to renovate those offices. He gave him three trust funds. He gave him shares in multiple partnerships. He gave him $10,000 Christmas checks. He gave him laundry revenue from his buildings.
Much of his giving was structured to sidestep gift and inheritance taxes using methods tax experts described to The Times as improper or possibly illegal. Although Fred Trump became wealthy with help from federal housing subsidies, he insisted that it was manifestly unfair for the government to tax his fortune as it passed to his children. When he was in his 80s and beginning to slide into dementia, evading gift and estate taxes became a family affair, with Donald Trump playing a crucial role, interviews and newly obtained documents show.
The line between legal tax avoidance and illegal tax evasion is often murky, and it is constantly being stretched by inventive tax lawyers. There is no shortage of clever tax avoidance tricks that have been blessed by either the courts or the I.R.S. itself. The richest Americans almost never pay anything close to full freight. But tax experts briefed on The Times’s findings said the Trumps appeared to have done more than exploit legal loopholes. They said the conduct described here represented a pattern of deception and obfuscation, particularly about the value of Fred Trump’s real estate, that repeatedly prevented the I.R.S. from taxing large transfers of wealth to his children.
“The theme I see here through all of this is valuations: They play around with valuations in extreme ways,” said Lee-Ford Tritt, a University of Florida law professor and a leading expert in gift and estate tax law. “There are dramatic fluctuations depending on their purpose.”
The report itself is lengthy and includes a number of interactive features going through the evidence that the Times investigation, which is likely the result of months of effort by a number of reporters, has uncovered as well as links to many of the supporting documents that it has obtained, including tax returns for Trump’s father, Fred Trump Sr., and a number of Trump family entities that were utilized in the past. This report is simply far too extensive to fairly excerpt so, I recommend that anyone interested in the details simply read the report for themselves. Be warned, though, that it is a long read that goes into extensive detail regarding the history not only of the origins Additionally, the Times has provided a summary article going through what it calls the biggest takeaways from the investigation.
By way of summary, what the Times has uncovered is a story that largely contradict the myth that Trump built up around himself dating back to the 1980s when he first came to the attention of the media first in New York City and then, rather quickly, nationally to the point where he was appearing on national television, meeting President Reagan, and becoming part of Americ’s “celebrity” culture as early as the early 1980s. According to this image, Trump was the classic example of the self-made American who took a small amount of money and built it up into a real estate empire that expanded across the island of Manhattan, into other American cities, and eventually around the world. It’s an image that he used not only to build his “brand,” but also in some sense to support his seemingly endless efforts to obtain financing for his projects and ultimately in his bid for the Presidency in 2016. Indeed, a significant part of Trump’s campaign platform was built on the claim that his business acumen meant that he could negotiate better deals for the American people than any of his predecessors, and it’s a message that his opponents, whether in the race for the Republican nomination or in the General Election and it’s an image he’s sought to perpetuate since becoming President.
What this report reveals in stunning detail is that the entire origin story that Trump told about himself, as well as the manner in which he built up his wealth, is false. Trump received tens if not hundreds of millions of dollars from his parents not only to help him start his “empire,” but also to bail him out of transactions that had gone bad and especially when the projects that he created based largely on leveraged debt began to collapse in the early 1990s. This doesn’t mean that Trump didn’t earn money on his own, of course, but the extent to which he relied on his father both to get him started in business and to bail him out when necessary. At one point, for example, the Times reports that Fred Trump went to one of his son’s casinos and purposely lost more than $3,000,000 as a way to surreptitiously provide Donald with funding needed to stave off one of the many financial crises that the casino businesses would face before finally being forced into bankruptcy in the early 1990s. The report also catalogs other financial dealings that the two Trumps engaged in that were clearly designed to exploit tax loopholes and stretch the meaning and intent of those laws. Finally, in one of the more shocking revelations in the report, the Times reporters have uncovered that, as his father was slipping into dementia in his final years, Donald sought to make changes to his father’s will that benefited him to the detriment of his brothers and sister, including his two brothers Fred Jr. and Robert and his sisters Maryanne Trump Barry, a retired Federal Judge, and Elizabeth Trump Grau, who apparently lives a quiet life in Florida and has escaped media attention over the years.
Legally speaking, it isn’t entirely clear what repercussions there could be for Trump personally or any of his business entities. The statute of limitations on any applicable criminal statutes at either the state or Federal level expired long ago and can’t be revived. At the same time, though, there apparently is no statute of limitations on civil tax fraud claims that could end up tying up Trump and his businesses in Federal and state court for years to come if charges are pursued. In that regard, it’s worth noting that New York state tax authorities are already saying they will consider opening an investigation based on the report. Potentially, this investigation could encompass not only the origins of Trump’s empire and the shady dealings of his father but also the strong possibility that Trump himself has done the same things with regard to his own children. The White House, meanwhile, is predictably downplaying the report:
The White House pushed back against an exhaustive investigation published by The New York Times on Tuesday that alleged Donald Trump perpetrated various tax schemes and fraud during the 1990s to bolster the inheritance he received from his parents, calling the report a “misleading attack” on the president’s family.
“Fred Trump has been gone for nearly twenty years and it’s sad to witness this misleading attack against the Trump family by the failing New York Times,” White House press secretary Sarah Huckabee Sanders said in a statement, referring to Trump’s late father — a powerful New York real estate developer and housing magnate.
“Many decades ago the IRS reviewed and signed off on these transactions,” Sanders said. “The New York Times’ and other media outlets’ credibility with the American people is at an all time low because they are consumed with attacking the president and his family 24/7 instead of reporting the news.”
The president’s spokeswoman went on to flaunt various economic accomplishments that she said Trump had realized in his administration, remarking that The Times “can rarely find anything positive about the President and his tremendous record of success to report.”
Sanders added: “Perhaps another apology from the New York Times, like the one they had to issue after they got the 2016 election so embarrassingly wrong, is in order.”
(…)
An attorney for the president, Charles J. Harder, said in a statement to The Times that its reporting was incorrect.
“The New York Times’s allegations of fraud and tax evasion are 100 percent false, and highly defamatory,” Harder said. “There was no fraud or tax evasion by anyone. The facts upon which The Times bases its false allegations are extremely inaccurate.”
Politically speaking, it’s not clear that all of this will have much of an impact on Trump at all. While Trump himself has not yet responded to the report outside of the White House statement, it’s not hard to predict how he’s likely to react to this and the odds that he’ll remain silent are small. Most likely he will use this as yet another opportunity to attack the “failing” New York Times as he calls it, and the news media in general. Trump’s supporters, meanwhile, aren’t going to be persuaded by anything like this notwithstanding the mountains of proof that the Times report has amassed to support the conclusion the reports reach. Trump’s critics, meanwhile, never really believed his claims about this fortune. The only potential impact will come if Federal and state tax agencies decide to open investigations based on this report, at which point this could become yet another one of the President’s big legal headaches.
Update: The President has responded as expected on Twitter:
The Failing New York Times did something I have never seen done before. They used the concept of “time value of money” in doing a very old, boring and often told hit piece on me. Added up, this means that 97% of their stories on me are bad. Never recovered from bad election call!
— Donald J. Trump (@realDonaldTrump) October 3, 2018
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Photo via The New York Times
