Trump Tax Records Obtained by The Times Reveal He Could Have Avoided Paying Taxes for Nearly Two Decades
Trump’s Tax Records
The New York Times obtained records
from 1995 showing that Donald J. Trump declared a $916 million loss. The
figure is so substantial that it could have allowed him to legally
avoid paying federal income tax for 18 years.
By AINARA TIEFENTHÄLER and GABRIEL DANCE on Publish Date October 1, 2016.
Photo by Kathy Willens/Associated Press.
Watch in Times Video »
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, records obtained by
The New York Times show.
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.
Tax
experts hired by The Times to analyze Mr. Trump’s 1995 records said
that tax rules especially advantageous to wealthy filers would have
allowed Mr. Trump to use his $916 million loss to cancel out an
equivalent amount of taxable income over an 18-year period.
Although
Mr. Trump’s taxable income in subsequent years is as yet unknown, a
$916 million loss in 1995 would have been large enough to wipe out more
than $50 million a year in taxable income over 18 years.
The $916 million loss certainly could have eliminated any federal income taxes Mr. Trump otherwise would have owed on the $50,000 to $100,000 he was paid for each episode of “The Apprentice,”
or the roughly $45 million he was paid between 1995 and 2009 when he
was chairman or chief executive of the publicly traded company he
created to assume ownership of his troubled Atlantic City casinos.
Ordinary investors in the new company, meanwhile, saw the value of their
shares plunge to 17 cents from $35.50, while scores of contractors went
unpaid for work on Mr. Trump’s casinos and casino bondholders received
pennies on the dollar.
“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?”
Mr.
Trump declined to comment on the documents. Instead, the campaign
released a statement that neither challenged nor confirmed the $916
million loss.
“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,” the statement said. “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.”
The
statement continued, “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.”
Document
Donald Trump’s Letter
In response to a Times article revealing pages of his
1995 income tax records, Mr. Trump said, “The only news here is that the
more than 20 year-old alleged tax document was illegally obtained.”
Separately,
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.”
Mr.
Trump’s refusal to make his tax returns public — breaking with decades
of tradition in presidential contests — has emerged as a central issue
in the campaign, with a majority of voters saying he should release
them. Mr. Trump has declined to do so, and has said he is being audited
by the Internal Revenue Service.
At
last Monday’s presidential debate, when Hillary Clinton suggested Mr.
Trump was refusing to release his tax returns so voters would not know
“he’s paid nothing in federal taxes,” and when she also pointed out that
Mr. Trump had once revealed to casino regulators that he paid no
federal income taxes in the late 1970s, Mr. Trump retorted, “That makes
me smart.”
Donald Trump’s Taxes
Donald Trump has continued to decline
to release his tax returns despite mounting pressure from both
Democrats and Republicans. A look at some of the explanations for
keeping his taxes private.
By SHANE O’NEILL and AINARA TIEFENTHÄLER on Publish Date October 1, 2016.
Photo by Damon Winter/The New York Times.
Watch in Times Video »
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.
The documents examined by The Times represent a small fraction of the voluminous tax returns Mr. Trump would have filed in 1995.
Document
Pages From Donald Trump’s 1995 Income Tax Records
The tax records obtained by The Times show that Donald
J. Trump claimed a $916 million loss that could have allowed him to
legally avoid paying federal income taxes for up to 18 years.
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.
On
Wednesday, The Times presented the tax documents to Jack Mitnick, a
lawyer and certified public accountant who handled Mr. Trump’s tax
matters for more than 30 years, until 1996. Mr. Mitnick was listed as
the preparer on the New Jersey tax form.
Mr.
Mitnick, 80, now semiretired and living in Florida, said that while he
no longer had access to Mr. Trump’s original returns, the documents
appeared to be authentic copies of portions of Mr. Trump’s 1995 tax
returns. Mr. Mitnick said the signature on the tax preparer line of the
New Jersey tax form was his, and he readily explained an obvious anomaly
in the way especially large numbers appeared on the New York tax
document.
A
flaw in the tax software program he used at the time prevented him from
being able to print a nine-figure loss on Mr. Trump’s New York return,
he said. So, for example, the loss of “-915,729,293” on Line 18 of the
return printed out as “5,729,293.” As a result, Mr. Mitnick recalled, he
had to use his typewriter to manually add the “-91,” thus explaining
why the first two digits appeared to be in a different font and were
slightly misaligned from the following seven digits.
“This is legit,” he said, stabbing a finger into the document.
Donald Trump’s Taxes: What We Know and Don’t Know
In the absence of any disclosures from Mr. Trump, The
New York Times and other news outlets have attempted to fill in the
gaps.
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.
The
tax documents also do not shed any light on Mr. Trump’s claimed net
worth of about $2 billion at that time. This is because the complex
calculations of business deductions that produced a tax loss of $916
million are a separate matter from how Mr. Trump valued his assets, the
tax experts said.
Nor
does the $916 million loss suggest that Mr. Trump was insolvent or
effectively bankrupt in 1995. The cash flow generated by his various
businesses that year was more than enough to service his various debts.
But
fragmentary as they are, the documents nonetheless provide new insight
into Mr. Trump’s finances, a subject of intense scrutiny given Mr.
Trump’s emphasis on his business record during the presidential
campaign.
The
documents show, for example, that while Mr. Trump reported $7.4 million
in interest income in 1995, he made only $6,108 in wages, salaries and
tips. They also suggest Mr. Trump took full advantage of generous tax
loopholes specifically available to commercial real estate developers to
claim a $15.8 million loss in 1995 on his real estate holdings and
partnerships.
But
the most important revelation from the 1995 tax documents is just how
much Mr. Trump may have benefited from a tax provision that is
particularly prized by America’s dynastic families, which, like the
Trumps, hold their wealth inside byzantine networks of partnerships,
limited liability companies and S corporations.
The
provision, known as net operating loss, or N.O.L., allows a dizzying
array of deductions, business expenses, real estate depreciation, losses
from the sale of business assets and even operating losses to flow from
the balance sheets of those partnerships, limited liability companies
and S corporations onto the personal tax returns of men like Mr. Trump.
In turn, those losses can be used to cancel out an equivalent amount of
taxable income from, say, book royalties or branding deals.
Better
still, if the losses are big enough, they can cancel out taxable income
earned in other years. Under I.R.S. rules in 1995, net operating losses
could be used to wipe out taxable income earned in the three years
before and the 15 years after the loss. (The effect of net operating
losses on state income taxes varies, depending on each state’s tax
regime.)
The
tax experts consulted by The Times said the $916 million net operating
loss declared by Mr. Trump in 1995 almost certainly included large net
operating losses carried forward from the early 1990s, when most of Mr.
Trump’s key holdings were hemorrhaging money. Indeed, by 1990, his
entire business empire was on the verge of collapse. In a few short
years, he had amassed $3.4 billion in debt — personally guaranteeing
$832 million of it — to assemble a portfolio that included three casinos
and a hotel in Atlantic City, the Plaza Hotel in Manhattan, an airline
and a huge yacht.
Reports
that year by New Jersey casino regulators gave glimpses of the balance
sheet carnage. The Trump Taj Mahal casino reported a $25.5 million net
loss during its first six months of 1990; the Trump’s Castle casino lost
$43.5 million for the year. His airline, Trump Shuttle, lost $34.5
million during just the first six months of that year.
“Simply put, the organization is in dire financial straits,” the casino regulators concluded.
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.)
But
crucially, the casino regulators redacted the precise size of the net
operating losses in the public versions of their reports. Two former New
Jersey officials, who were privy to the unredacted documents, could not
recall the precise size of the numbers, but said they were substantial.
Politico, which previously reported
that Mr. Trump most likely paid no income taxes in 1991 and 1993 based
on the casino commission’s description of his net operating losses,
asked Mr. Trump to comment. “Welcome to the real estate business,” he
replied in an email.
Now,
thanks to Mr. Trump’s 1995 tax records, the degree to which he spun all
those years of red ink into tax write-off gold may finally be apparent.
Mr.
Mitnick, the lawyer and accountant, was the person Mr. Trump leaned on
most to do the spinning. Mr. Mitnick worked for a small Long Island
accounting firm that specialized in handling tax issues for wealthy New
York real estate families. He had long handled tax matters for Mr.
Trump’s father, Fred C. Trump, and he said he began doing Donald Trump’s
taxes after Mr. Trump turned 18.
In
an interview on Wednesday, Mr. Mitnick said he could not divulge
details of Mr. Trump’s finances without Mr. Trump’s consent. But he did
talk about Mr. Trump’s approaches to taxes, and he contrasted Fred
Trump’s attention to detail with what he described as Mr. Trump’s brash
and undisciplined style. He recalled, for example, that when Donald and
Ivana Trump came in each year to sign their tax forms, it was almost
always Ivana who asked more questions.
But
if Mr. Trump lacked a sophisticated understanding of the tax code, and
if he rarely showed any interest in the details behind various tax
strategies, Mr. Mitnick said he clearly grasped the critical role taxes
would play in helping him build wealth. “He knew we could use the tax
code to protect him,” Mr. Mitnick said.
According
to Mr. Mitnick, Mr. Trump’s use of net operating losses was no
different from that of his other wealthy clients. “This may have had a
couple extra digits compared to someone else’s operation, but they all
benefited in the same way,” he said, pointing to the $916 million loss
on Mr. Trump’s tax returns.
In
“The Art of the Deal,” his 1987 best-selling book, Mr. Trump referred
to Mr. Mitnick as “my accountant” — although he misspelled his name. Mr.
Trump described consulting with Mr. Mitnick on the tax implications of
deals he was contemplating and seeking his advice on how new federal tax
regulations might affect real estate write-offs.
Mr.
Mitnick, though, said there were times when even he, for all his years
helping wealthy New Yorkers navigate the tax code, found it difficult to
face the incongruity of his work for Mr. Trump. He felt keenly aware
that Mr. Trump was living a life of unimaginable luxury thanks in part
to Mr. Mitnick’s ability to relieve him of the burden of paying taxes
like everyone else.
“Here the guy was building incredible net worth and not paying tax on it,” he said.
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