The explosive New York Times report on Donald Trump’s tax returns confirms a great number of things about the president’s finances we’ve only been able to speculate about for years. We now know that Trump really was telling the truth when he claimed, beginning in the 2016 presidential campaign, that he was being audited by the Internal Revenue Service (though such an audit would not prevent him from releasing his returns—that part he really did make up). We also now know—though we basically already did—that while Trump made a lot of money from The Apprentice, he really does love debt, and most of the businesses he’s actually run have lost a lot of money. All told, Trump has personally guaranteed about $421 million in debt, most of which will come due within the next four years.
The returns that the Times describes, stretching from 2000 to 2017, raise a host of issues you would generally not want a president to have: There are foreign payments to Trump businesses (a possible influence on foreign policy), apparent fibbing about property valuations (Trump allegedly inflated the value of property he owned so that he could overstate the value of an environmental easement he claimed as a charitable deduction), and payments to his daughter as a consultant (even though he also employed her as a senior executive at his real estate company). One of the most stunning revelations—beyond the headline figure that Trump paid only $750 in taxes in 2016 and again in 2017—is of Trump’s attempt to get a refund from the IRS for $72 million in 2010, by claiming $1.4 billion in losses in 2008 and 2009, which would not only justify the refund, but also wipe out any income tax he would owe for years to come. This request apparently triggered the audit we’ve heard so much about.
This wasn’t the first time Trump pulled such a move. We learned from tax returns leaked in the run-up to the 2016 election that Donald Trump claimed a $915.7 million loss in 1995, which he used to avoid paying taxes for around 10 years. Add the $1.4 billion from the Times’ new reporting and you’ve got well over $2 billion in losses, quite impressive for a man who bills himself as a savvy businessman with an almost preternatural ability to spot and make deals.
The earlier loss was related to his failed casino business: Trump borrowed about $1 billion and lost it. If Trump had defaulted on the debt and it had been forgiven, he would have had to pay tax on the canceled debt. Otherwise, both Trump and the bank could claim a loss on the loans. However, the banks swapped this debt for equity in the failing business. By all rights, this swap should have resulted in canceled debt income to Trump—and a tax bill—because the equity was worth significantly less than the debt owed. Somehow that got lost in shuffle. The result was that Trump got to earn about $1 billion of income going forward and pay no tax on it until 2005.
Back to the new documents: Around $700 million of the most recent loss also appears to be casino-related (the rest appear to be from operating losses suffered by Trump’s businesses). According to the Times, Trump claimed to have abandoned a partnership interest in that same floundering casino business, generating the loss. However, he may have received an equity interest in the reorganized casino entity, which undermines his claim of “abandonment” and should have prevented him from taking the loss.
We have no way of knowing whether the IRS audited Trump back in the 1990s, when he claimed the first loss. Given the IRS’s limited resources, things do slip by. This time, however, he couldn’t escape IRS scrutiny. It’s one thing to avoid taxes you should pay by understating your income or claiming a loss that can be carried forward. It is quite another to ask the government to send you a check for $72 million.
Given the possibility of fraud (indeed, there is a cottage industry among some inmates of filing false refund claims so that they can bilk the government), Congress wisely requires that all large tax refund requests be reviewed and approved by the Joint Committee on Taxation, a technocratic, nonpartisan organization that supports both the House and Senate when it comes to tax matters. And that is where this story gets interesting.
If Trump prevails in claiming this second massive loss, he will have succeeded in paying almost nothing in income taxes on more than $2 billion of income.
Trump’s refund claim well exceeded the $2 million threshold for JCT review, and the fact that we’re talking about it now suggests officials had some questions. The New York Times reports that there was a possible settlement in 2014 but that it never happened, and that the committee’s review expanded to include subsequent years, where any unused losses would apply to reduce future income taxes.
There’s a lot we don’t know, including what caused the JCT to reject the refund claim, the amount of any proposed settlement in 2014, why the settlement faltered, and why the dispute has not yet been resolved. We also don’t know whether the more recent loss was a real loss of Trump’s money, or again reflected money that he had borrowed and lost. The one thing we do know is that, while Trump may have made a lot of money selling his name and as a reality television star, he has lost money in just about every business venture he has been actively involved with.
The national average for tax refunds is about $3,000, typically due because employers over-withheld federal income taxes. Trump’s request for $72 million is a few standard deviations above the mean. Contrary to some speculation, Trump’s returns and the refund request makes clear that he has actually made a significant amount of money over the years and that he has actually paid some tax on that income (though not a lot relative to the income he’s earned). If he prevails in claiming this second massive loss, he will have succeeded in paying almost nothing in income taxes on more than $2 billion of income.
No one is obligated to pay more in taxes than is actually owed. However, there is a difference between good tax planning and tax evasion. It looks like we will need to wait for the resolution of Trump’s refund request and accompanying audit to see what the government ultimately concludes about the merits. Either way, Trump reportedly paid $750 in income taxes over the last two years for which we have data—and tried to pay nothing for many years before that. I wonder how that will play with his base, who earn far less yet pay so much more. With an election he’s losing entering its final stretch, the audit still outstanding, and more $400 million in personally guaranteed debt coming due, it may finally be time for Trump to pay up.
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