NEWS
ANALYSIS
In Case Against Trump’s Company, Echoes of His
Father’s Tactics on Taxes
The first criminal prosecution involving the former
president’s business hearkens back to Fred Trump’s $16,135 purchase of boilers
in the 1990s.
Mike
McIntireRuss Buettner
By Mike McIntire
and Russ Buettner
July 3,
2021
Long before
Donald J. Trump’s company was accused of plotting detours around the tax code
to compensate its chief financial officer with carpeting, televisions and car
leases, there were the $16,135 boilers.
The boilers
were bought for that amount by Mr. Trump’s father, Fred, in the 1990s for his
numerous apartment buildings. But in a bit of financial alchemy that embodied
the family ethos of paying as little tax as possible, the elder Mr. Trump used
inflated invoices to pay the bill and the extra money was skimmed off for his
children — all to avoid gift and inheritance taxes.
Echoes of
the earlier scheme could be found in the indictment on Thursday of the Trump
Organization and Allen H. Weisselberg, its chief financial officer, who first
went to work for Fred Trump in the 1970s. While the amount of tax-free benefits
that Mr. Weisselberg reportedly received is significant — $1.76 million over 15
years — the way the company went about doling them out is strikingly small-bore
and incremental.
In fact,
the first criminal case against the former president’s company features no
grand schemes to launder money through Russia, hide millions offshore or commit
other offenses commensurate with a self-described global business empire
headquartered in a Fifth Avenue skyscraper. Rather, the details of the charges
brought by a Manhattan grand jury have a rather low-rent feel that one might
associate with a scrappy real-estate operation born in Brooklyn and Queens.
Which, of
course, it is.
The Trump
Organization, for all the puffery of its leader, has always been essentially a
family business, tightly controlled by Mr. Trump and a small number of
relatives and trusted associates, including Mr. Weisselberg. Although the
company has about 3,500 employees worldwide, most are lower-tier workers at
golf resorts and hotels and only 122 made $100,000 or more in 2018, according
to tax records for Mr. Trump and his businesses obtained by The New York Times.
The tax
records, which The Times reported on last year, also reveal a deep commitment
to green-eyeshades maneuvering to winnow taxes to a minimum. Hundreds of
millions of dollars in deductions for business expenses ran the gamut, from $6
for food in Uruguay and $10 for using a telephone in Panama to $13.7 million
for “sales and marketing” in Las Vegas.
Of course,
efficient accountants would not be doing their job if they did not try to
maximize tax breaks. But in the indictment unsealed on Thursday, the Trump
Organization is accused of being too clever by half, to the point of
criminality, in playing the game.
The
Manhattan district attorney’s office and New York State’s attorney general are
also investigating whether the company intentionally overvalued a
50,000-square-foot mansion in Westchester County to claim a $21 million tax
write-off for a conservation easement. Both agencies are also examining the
Trump Organization’s practice of deducting millions of dollars in consulting
fees, some of which appear to have been paid to at least one of Mr. Trump’s
children who was a full-time company employee at the time she received them.
No charges
have been filed related to those inquiries, and Mr. Trump himself has not been
charged. Both Mr. Weisselberg and the Trump Organization denied the charges in
the indictment, and Mr. Trump has called the investigations, which were
initiated by elected Democrats, a politically motivated “witch hunt.”
The Trump
Organization’s relentless quest for tax avoidance has its roots in Fred Trump’s
determination to fend off the taxman at every possible turn. A self-made
workaholic who built and sold his first house before he was 20, the elder Mr.
Trump eventually passed more than $1 billion to his children while employing
legally dubious strategies to avoid nearly $500 million in taxes on the
transfers, a 2018 investigation by The Times found.
“My father
had always been very much opposed to paying taxes, so to the extent he could
pay less in taxes, that was a good thing,” Robert Trump, the former president’s
younger brother, said in a legal deposition related to Fred Trump’s estate.
(Robert Trump died last year at 71.)
Among the
Trump family’s machinations was the creation in 1992 of All County Building
Supply & Maintenance, a company that existed mainly on paper. It was
co-owned by Donald Trump, his three siblings and a cousin, John Walter.
Vendors who
sold goods and services to Trump properties were asked to send invoices to All
County, which would pad the actual cost by an additional 20 percent or more and
bill Fred Trump, who paid the inflated amount. The extra money was then split
among the former president, his siblings and Mr. Walter.
Asked in a
deposition why the elder Mr. Trump went to such lengths, which tax experts
interviewed by The Times said were improper, if not illegal, Mr. Walter
suggested it was to avoid the so-called death tax that would incur if the money
were simply left to the Trump children in their father’s will.
“He loved
to save taxes,” Mr. Walter said.
It is a
lesson fully absorbed by his eager-to-please son Donald, who has bragged about
avoiding taxes. When his Democratic opponent in 2016, Hillary Clinton, accused
him during a debate of not paying federal income taxes, Mr. Trump replied:
“That makes me smart.”
The Times’s
2020 investigation of Mr. Trump’s tax records found that by using hundreds of
millions in losses from his businesses, as well as by deducting expenses and
taking advantage of tax credits, he was able to pay only $750 in federal income
taxes in both 2016 and 2017, and none at all in 10 of the previous 15 years.
His aggressive strategies led to an Internal Revenue Service audit, which is
believed to be continuing, of the legitimacy of a $72.9 million refund he
claimed.
The
indictment announced on Thursday accuses the Trump Organization of a new series
of off-the-books maneuvers that, in some respects, resemble an updated version
of Fred Trump’s model. In Mr. Weisselberg’s case, rather than simply receiving
a higher salary, his base pay was set at $540,000 and then augmented with a
series of benefits designed to avoid income and payroll taxes, according to the
indictment.
Some of the
extra benefits to Mr. Weisselberg and other Trump Organization employees came
from annual bonuses drawn from various corporate entities controlled by the
company and classified as “non-employee” pay, which allowed Mr. Weisselberg to
reduce his income taxes by putting the money into a type of retirement account
intended for people who are self-employed. The Trump Organization also paid the
rent for his apartment, Mercedes-Benz leases and private school tuition, none
of which was reported as taxable income.
The
indictment says Mr. Weisselberg also “received unreported cash that he could
use to pay personal holiday gratuities.”
“Specifically,”
it says, “Weisselberg caused the Trump Corporation to issue corporate checks
made payable to a Trump Organization employee who cashed the checks and
received cash. The cash was given to Weisselberg for his personal use. The
Trump Corporation booked this cash as ‘Holiday Entertainment,’ but maintained
internal spreadsheets showing the cash to be part of Weisselberg’s employee
compensation.”
The
indictment charges the Trump Organization with failing to report the cash
disbursements as income to the tax authorities, and says Mr. Weisselberg
“intentionally caused the receipt of cash payments to be omitted from his
personal tax returns.” In addition, the company is accused of writing checks to
cover “such items as new beds, flat-screen televisions, the installation of
carpeting, and furniture” for Mr. Weisselberg, expenses that were tracked
internally at the Trump Organization but not reported as income.
Beyond the
case against Mr. Weisselberg, the 25-page indictment hints at potential trouble
for others at Mr. Trump’s company, saying the attempts to avoid declaring
compensation and paying taxes extended to at least two other employees who are
not identified. Prosecutors also take aim at the Trump Organization’s practice
of reporting certain income as “non-employee compensation,” which is normally
not subject to payroll deductions.
Last year,
The Times reported that Mr. Trump’s company routinely declared, as a business
expense, millions of dollars in payments it classified as consulting fees, at
least some of which appear to have gone to his eldest daughter, Ivanka Trump.
At the time of the payments, Ms. Trump was also a full-time executive at her
father’s company and drawing a regular salary, raising the question of why she
would simultaneously be considered a consultant.
After The
Times article was published, the district attorney and state attorney general
were reported to have expanded their respective investigations of the Trump Organization
to include the consulting payments. The indictment on Thursday did not include
anything about them, and it is not clear where that aspect of the inquiries
stands.
Mike
McIntire is a reporter with the investigations unit. He won a Pulitzer Prize
for his reporting on Russian interference in the 2016 presidential election,
and has written in depth on campaign finance, gun violence and corruption in
college sports. @mmcintire
Russ
Buettner is a reporter on The New York Times investigations desk. Since 2016,
his reporting has focused on the personal finances of Donald. J. Trump,
including articles that revealed large business losses and tax avoidance
schemes evidenced on several decades of his tax returns. In 2019, he shared a
Pulitzer Prize for work that revealed the vast inheritance Mr. Trump had
received from his father. @russbuettner
A version
of this article appears in print on July 4, 2021, Section A, Page 1 of the New
York edition with the headline: In Details of Tax Case, Echoes Of a Trump
Business Tradition. Order Reprints | Today’s Paper | Subscribe
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