Trump Demands Tax Break For Losing Other Peoples’ Money, IRS Gives Him $100M Bill Instead

What a great weekend this is turning out to be for one criminal defendant who got publicly slapped around by a star witness this past week and is anticipating the same or worse on Monday. The New York Times just broke a story about Trump “employing a dubious accounting maneuver to claim improper tax breaks from his troubled Chicago tower,” which could result in a tax bill of $100 million. These big judgments, bonds, and now tax bill are starting to add up.

The 92-story, glass-sheathed skyscraper along the Chicago River is the tallest and, at least for now, the last major construction project by Mr. Trump. Through a combination of cost overruns and the bad luck of opening in the teeth of the Great Recession, it was also a vast money loser.

But when Mr. Trump sought to reap tax benefits from his losses, the I.R.S. has argued, he went too far and in effect wrote off the same losses twice.

The first write-off came on Mr. Trump’s tax return for 2008. With sales lagging far behind projections, he claimed that his investment in the condo-hotel tower met the tax code definition of “worthless,” because his debt on the project meant he would never see a profit. That move resulted in Mr. Trump reporting losses as high as $651 million for the year, The Times and ProPublica found.

There is no indication the I.R.S. challenged that initial claim, though that lack of scrutiny surprised tax experts consulted for this article. But in 2010, Mr. Trump and his tax advisers sought to extract further benefits from the Chicago project, executing a maneuver that would draw years of inquiry from the I.R.S. First, he shifted the company that owned the tower into a new partnership. Because he controlled both companies, it was like moving coins from one pocket to another. Then he used the shift as justification to declare $168 million in additional losses over the next decade.

The issues around Mr. Trump’s case were novel enough that, during his presidency, the I.R.S. undertook a high-level legal review before pursuing it. The Times and ProPublica, in consultation with tax experts, calculated that the revision sought by the I.R.S. would create a new tax bill of more than $100 million, plus interest and potential penalties.

That’s Uncle Sam’s case in a nutshell. The article goes on to describe that the I.R.S. was disputing a $72.9 million tax refund that Trump said he was owed starting in 2010. Intriguingly, the refund, which was based on the “That refund, which was based on vast losses from his long-failing casinos, equaled every dollar of federal income tax he had paid during his first flush of television riches, from 2005 through 2008, plus interest.”

The article also goes on to say that six tax experts were consulted for the article said that the accounting maneuver was “unlikely to withstand scrutiny.” Eric Trump has chimed in that this matter was all settled years ago but has only come up because Trump is running for president — just another Deep State plot, like all the rest, evidently.

And here’s a perfect characterization of how Trump put this all together so that it dovetailed with his television show, which of course set the stage for his image as genius businessman who would then one day be president.

Mr. Trump placed the project at the center of the first season of “The Apprentice” in 2004, offering the winner a top job there under his tutelage. “It’ll be a mind-boggling job to manage,” Mr. Trump said during the season finale. “When it’s finished in 2007, the Trump International Hotel and Tower, Chicago, could have a value of $1.2 billion and will raise the standards of architectural excellence throughout the world.”

So it all sounds good, pie in the sky, right? But then the pie on the table began to go to hell quickly.

As his cost estimates increased, Mr. Trump arranged to borrow as much as $770 million for the project — $640 million from Deutsche Bank and $130 million from Fortress Investment Group, a hedge fund and private equity company. He personally guaranteed $40 million of the Deutsche loan. Both Deutsche and Fortress then sold off pieces of the loans to other institutions, spreading the risk and potential gain.

Mr. Trump planned to sell enough of the 825 units to pay off his loans when they came due in May 2008. But when that date came, he had sold only 133. At that point, he projected that construction would not be completed until mid-2009, at a revised cost of $859 million.

He asked his lenders for a six-month extension. A briefing document prepared for the lenders, obtained by The Times and ProPublica, said Mr. Trump would contribute $89 million of his own money, $25 million more than his initial plan. The lenders agreed.

But sales did not pick up that summer, with the nation plunged into the financial crisis that would become the Great Recession. When Mr. Trump asked for another extension in September, his lenders refused.

Two months later, Mr. Trump defaulted on his loans and sued his lenders, characterizing the financial crisis as the kind of catastrophe, like a flood or hurricane, covered by the “force majeure” clause of his loan agreement with Deutsche Bank. That, he said, entitled him to an indefinite delay in repaying his loans. Mr. Trump went so far as to blame the bank and its peers for “creating the current financial crisis.” He demanded $3 billion in damages.

is that not vintage Trump? Is this not yet another textbook example of how he operates? Now here’s the irony: Trump started to make very good money playacting a successful businessman. That’s his true ability. He created a fantasy character, Donald Trump, who was a master of the financial universe and would take on worthy people to be his apprentice.

Initial income from “The Apprentice” and licensing and endorsement agreements poured in: $33.3 million in 2009, $44.6 million in 2010 and $51.3 million in 2011, the Times says, and this is money gained from the dream Trump was selling. Then he sold the dream of his ability to lead this country and we all saw how that worked out and how it’s still working out.

Mr. Trump’s advisers girded for a potential audit of the worthlessness deduction from the moment they claimed it, according to the filings from the New York attorney general’s lawsuit. Starting in 2009 Mr. Trump’s team excluded the Chicago tower from the frothy annual “statements of financial condition” that Mr. Trump used to boast of his wealth, out of concern that assigning value to the building would conflict with its declared worthlessness, according to the attorney general’s filing. (Those omissions came even as Mr. Trump fraudulently inflated his net worth to qualify for low-interest loans, according to the ruling in the attorney general’s lawsuit.)

Mr. Trump had good reason to fear an audit of the deduction, according to the tax experts consulted for this article. They believe that Mr. Trump’s tax advisers pushed beyond what was defensible.

The worthlessness deduction serves as a way for a taxpayer to benefit from an expected total loss on an investment long before the final results are known. It occupies a fuzzy and counterintuitive slice of tax law. Three decades ago, a federal appeals court ruled that the judgment of a company’s worthlessness could be based in part on the opinion of its owner. After taking the deduction, the owner can keep the “worthless” company and its assets. Subsequent court decisions have only partly clarified the rules. Absent prescribed parameters, tax lawyers have been left to handicap the chances that a worthlessness deduction will withstand an I.R.S. challenge.

Again, vintage Trump. His “opinion” determines the value or lack of same of an asset, just like his “opinion” of whether a document was classified or not ruled — he would have you believe. Simply incredible. Then it gets stranger. The Times reports that the “chance of surviving a challenge for a worthlessness deduction based on borrowed money for which the outcome was not clear is very low.” Do you love it? Trump borrowed the money to build the thing, decided it was worthless (to him) and so now he shouldn’t have to pay off the loans — or pay taxes to the government.  “It reflects a doubly irrational claim — that the taxpayer deserves a tax benefit for losing someone else’s money even before the money has been lost, and that those anticipated future losses can be used to offset real income from other sources. Most of the debt included in Mr. Trump’s worthlessness deduction was based on that risky position.”

And this is the kind of mind we had running this country for four years and who wants to do so again. Another day, another bombshell. What else is new?

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