Trump's 1995 tax records leaked

SUBHEAD: A "Deep Throat" emerges leaking Trump's $900+ million 1995 income loss.

By Tyler Durden on 2 October 2016 for Zero Hedge -
Image above: Page on of three pages of Donald Trump's 1995 New York State Income Tax Form IT-201 indicating an adjusted federal gross income of of -$915,729,293. Click to enlarge Page 1. Click to see  Page 2. Click to see Page 3. From original article.

For months democrats had complained that it was only damaging information associated with Hillary and the Democratic party that had been leaked during the election season, a string of hacks which was promptly assigned to Russia and Putin. That changed overnight.

In its leading Sunday story, the New York Times reports that "Trump Tax Records Obtained by The Times Reveal He Could Have Avoided Paying Taxes for Nearly Two Decades."

Specifically, it reports that according to a previously undisclosed 1995 tax filing, Trump reported a $916 million loss on his income tax returns that year which could have allowed him to legally avoid paying any federal income tax for up to 18 years.

As it explains, "the 1995 tax records, never before disclosed, reveal the extraordinary tax benefits that Mr. Trump, the Republican presidential nominee, derived from the financial wreckage he left behind in the early 1990s through mismanagement of three Atlantic City casinos, his ill-fated foray into the airline business and his ill-timed purchase of the Plaza Hotel in Manhattan."

To be sure, since Trump has never released his tax returns, it's still unclear if he paid federal income tax in subsequent years.  At Monday’s presidential debate when Hillary Clinton accused him of not paying federal income taxes, he replied, “That makes me smart.”

As the NYT further details, in the early 1990s, Trump's real estate projects and other businesses were quickly losing money, New Jersey casino regulator records and other documents have shown, which has been known for years as was the fact that Trump faced near-ruin in the mid-90s.  The Times said that Trump reported earning $7.4 million in interest income for the year but just over $6,000 in wages, salaries and tips.
“He has a vast benefit from his destruction” in the early 1990s, said one of the experts, Joel Rosenfeld, an assistant professor at New York University’s Schack Institute of Real Estate. Mr. Rosenfeld offered this description of what he would advise a client who came to him with a tax return like Mr. Trump’s: “Do you realize you can create $916 million in income without paying a nickel in taxes?”
Of course, the NYT discovery in itself is hardly as exciting as it makes it out to be: all the paper has found is that Trump established a substantial Net Operating Loss, or NOL, which courtesy of the US tax code, could be carried forward for years.
Reports by New Jersey’s casino regulators strongly suggested that Mr. Trump had claimed large net operating losses on his taxes in the early 1990s. Their reports, for example, revealed that Mr. Trump had carried forward net operating losses in both 1991 and 1993. What’s more, the reports said the losses he claimed were large enough to virtually cancel out any taxes he might owe on the millions of dollars of debt that was being forgiven by his creditors. (The I.R.S. considers forgiven debt to be taxable income.)
Indeed, as the NYT itself admits there was nothing illegal about using such a manoeuvre: the world's rich take advantage of NOL tax planning all the time, and in fact acquiring corporations for their NOL benefit has long been a strategy in corporate America designed to minimize Federal and State tax outflows.
The tax experts consulted by The Times said nothing in the 1995 documents suggested any wrongdoing by Mr. Trump, even if the extraordinary size of the loss he declared would have probably attracted extra scrutiny from I.R.S. examiners. “The I.R.S., when they see a negative $916 million, that has to pop out,” Mr. Rosenfeld said.
Considering that according to Trump he has been the subject of numerous tax audits by the IRS that appears to be indeed the case.

Furthermore, the NYT itself is perfectly happy to take advantage of the US tax to minimize the amount of money it pays to the government: in 2014 the company got a tax refund of $3.6 million despite having a $29.9 million pretax profit, an effective negative tax rate for 2014, which it explained was favorably affected by approximately $21.1 million for the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.

owever, the biggest news in the NYT report is not so much the glimpse into Trump's income statement over 20 years ago, but the fact that unexpectedly a Deep Throat appears to have emerged within Trump's organization, someone found directly inside the Trump Tower. This is how the NYT explains where it got the questionably obtained filings:
The documents consisted of three pages from what appeared to be Mr. Trump’s 1995 tax returns. The pages were mailed last month to Susanne Craig, a reporter at The Times who has written about Mr. Trump’s finances. The documents were the first page of a New York State resident income tax return, the first page of a New Jersey nonresident tax return and the first page of a Connecticut nonresident tax return.

Each page bore the names and Social Security numbers of Mr. Trump and Marla Maples, his wife at the time. Only the New Jersey form had what appeared to be their signatures.

The three documents arrived by mail at The Times with a postmark indicating they had been sent from New York City. The return address claimed the envelope had been sent from Trump Tower.
Missing, however, was Trump's comprehensive Federal tax return: "because the documents sent to The Times did not include any pages from Mr. Trump’s 1995 federal tax return, it is impossible to determine how much he may have donated to charity that year.

The state documents do show, though, that Mr. Trump declined the opportunity to contribute to the New Jersey Vietnam Veterans’ Memorial Fund, the New Jersey Wildlife Conservation Fund or the Children’s Trust Fund. He also declined to contribute $1 toward public financing of New Jersey’s elections for governor."

Understandably, the Trump campaign was troubled by the leak: as the NYT notes, a lawyer for Mr. Trump, Marc E. Kasowitz, emailed a letter to The Times arguing that publication of the records is illegal because Mr. Trump has not authorized the disclosure of any of his tax returns.

Mr. Kasowitz threatened “prompt initiation of appropriate legal action.” Incidentally, Kasowitz is also somewhat well known in the investing community for threatening to sue outspoken critics of problematic stock narratives, having threatened with lawsuits investors and journalists divulging negative information involving such Canadian firms as Fairfax, Valeant and Brookfield.

It remains to be seen if legal action against the NYT will indeed be taken. The Trump campaign promptly responded to what it alleges was "illegally obtained" information as follows:
"The only news here is that the more than 20-year-old alleged tax document was illegally obtained, a further demonstration that the New York Times, like establishment media in general, is an extension of the Clinton Campaign, the Democratic Party and their global special interests. What is happening now with the FBI and DOJ on Hillary Clinton's emails and illegal server, including her many lies and her lies to Congress are worse than what took place in the administration of Richard Nixon - and far more illegal.

"Mr. Trump is a highly-skilled businessman who has a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required. That being said, Mr. Trump has paid hundreds of millions of dollars in property taxes, sales and excise taxes, real estate taxes, city taxes, state taxes, employee taxes and federal taxes, along with very substantial charitable contributions. Mr. Trump knows the tax code far better than anyone who has ever run for President and he is the only one that knows how to fix it.

"The incredible skills Mr. Trump has shown in building his business are the skills we need to rebuild this country. Hillary Clinton is a corrupt public official who violated federal law, Donald Trump is an extraordinarily successful private businessman who followed the law and created tens of thousands of jobs for Americans."

However, while the story of Trump's use of NOLs may be overblown, the big news of the day is that a deeply-embedded, and well-connected mole appears to have emerged within Trump's organization, someone close enough to have access to Trump's tax filings, albeit at least for now, going back more than 20 years in time.

As such suddenly the odds that the "October Surprise" will be a leak not so much of additional Hillary hacked data, but of adverse infromation impacting the Trump campaign has surged. That said, we doubt if the media will blame the Kremlin for this particular leak, as it has done all along whenever Hillary's own dirty laundry was released into the open.
The three leaked state tax filing pages are shown below:

Trump may have avoided 18 years taxes

SUBHEAD: Trump may have 18 years of no federal taxes from 1995. Question is was it a "real" net operating loss.

By John Hempton on 2 October 2016 for Bronte Capital -

Decades ago - before I was a fund manager - I was the resident expert on tax avoidance working for the Australian Treasury. That was where I started to hone the accounting skills sometimes shown on this blog.

I very rarely do anything in tax - but now I think it is time.

The New York Times has published a story (including extracts) about Donald Trump's tax returns over two decades ago. The money-quote is this:
Donald J. Trump declared a $916 million loss on his 1995 income tax returns, a tax deduction so substantial it could have allowed him to legally avoid paying any federal income taxes for up to 18 years...
According to the New York Times the losses came
... through mismanagement of three Atlantic City casinos, his ill-fated foray into the airline business and his ill-timed purchase of the Plaza Hotel in Manhattan.
There is an issue here.

Donald Trump did not repay all the debt associated with those investments.

  • the loss is a real loss and the Donald was really was out of pocket by $916 million, in which case he has legitimate Net Operating Losses (NOLs)
  • or the loss was passed on to someone else by The Donald defaulting on debt - in which case Donald Trump should be assessed for income from debt forgiveness.
After all if the debt is forgiven it is not Donald Trump's loss. The loss is borne by the person who lent Donald money and did not get it back.

That - clearly stated by example - is why most income tax systems assess debt forgiveness as income.

Okay - I do not know whether Donald Trump had the wherewithal in 1995 to bear $916 million of losses personally. But I doubt it. (If he did his financial career is different from what is popularly accepted.)

So the alternative is the debt was forgiven in some way. But then the story the New York Times is running is wrong - because the $916 million of losses would not have survived the debt forgiveness and hence would have wiped out his NOLs and thus he would not be allowed to shelter his income for the next 18 years.

Unless that is there is an avoidance scheme the New York Times has not worked out. Those schemes go by the name of "debt parking".

Debt parking
Here is how debt parking works. Suppose the debtor (in this case The Donald) is going to get his debt cancelled for (say) 1c in the dollar. When he gets the debt wiped out the debtor (ie The Donald) will have to report assessable income equal to the debt wiped out (in this case 99 percent of $916 million).

The alternative though is for the debtor to set up a dummy party. The dummy party might be his wife or children or some company or trust set up by them or more likely some completely opaque offshore trust.

And that dummy party goes and buys the debt for say 1.1 cents in the dollar. Then they just sit there.

They don't force the debtor (ie The Donald) to repay. They don't make a profit or loss on the debt. And because the debtor never has his debt forgiven he never gets the assessment on debt forgiveness and he gets to keep his NOLs even though the losses did not come out of his pocket.

Every tax system worth its salt has some rules on "effective debt forgiveness" to prevent debt parking. And - from my experience which is now over twenty years old - none of them work entirely.

Now if Donald really has all those tax losses its pretty clear that the debt must be parked somewhere.

There is a vehicle out there (say an offshore trust or other undisclosed related party effectively controlled by Donald Trump) - which owns over $900 million in debt and is not bothering to collect it.

I do not have the time or energy to find that vehicle. But it is there. Now that this blog has gone public journalists are going to look for it.

There is a Pulitzer prize for whoever finds it. Just give me a nod at the acceptance ceremony.


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