Donald Trump’s tax returns, long the subject of speculation and a bitter legal battle, are set to be released. After releasing last week a summary of the IRS’s efforts to audit the former president, along with some details of his earnings over the past few years, the House Ways and Means Committee plans to do so release the documents on Friday.
Whether Americans will learn much from the returns is another question. Trump’s finances are notoriously complex, and the IRS itself complains about the difficulty of investigating every company from which he may have derived income.
Here are the areas tax professionals plan to focus on once the six-year tax returns from 2015-2020 are released.
What do the returns actually show about his finances?
That could be hard to gauge given Trump’s sprawling business empire. According to House researchers, the former president is financially affiliated with more than 400 different companies, including trusts, limited liability companies, and partnerships.
But only seven of those were examined in the Ways and Means Committee report earlier this month. Although yields released Friday are likely to name these companies and list an income or loss for each, additional detail will likely be limited, experts said.
“When he comes back, there’s going to be a white paper schedule on the back — it can be five or 10 pages — it’s going to list all of these entities,” said Bruce Dubinsky, a forensic accountant and founder of Dubinsky Consulting.
“We won’t know what that is [entities] are in. You only see a line and an amount – could be an income, could be a loss – for that year. We’d need those LLC or S corporation earnings then to see, OK, what’s going on?”
Such a large number of companies makes it more likely that some sources of Trump’s income, losses or wealth could be left out, giving a misleading picture of his tax status. The IRS has highlighted the complexity of a comprehensive audit of Trump’s income and tax liability.
“With over 400 flow-thru returns being reported on Form 1040, it is not possible to obtain the resources available to investigate all potential issues,” said an IRS memo published in Ways and Means -Report is quoted.
Like all tax experts interviewed for this story, Dubinsky stated that he had no specific knowledge of Trump’s returns and based his assessment solely on his knowledge of the tax code and published excerpts from Trump’s finances.
How much money has Trump made from being famous?
Although Trump made money primarily from his family’s real estate empire early in his career, over time he used his celebrity to generate revenue, earning hundreds of millions from the best-selling ‘Art of the Deal’ and other books, as well as the hit NBC television show ‘ The Apprentice.
“I’ll look at the Schedule Cs, I want to see if there’s anything from publishers, bookstores and things like that,” Dubinsky said. “Did he get royalties on ‘The Apprentice’? If this is the case, royalties could apply and will be reported upon return.”
According to the New York Times, “The Apprentice” Trump alone earned $200 million between 2005 and 2018. If he continued to earn royalties in office, he wouldn’t be the first. Former President Barack Obama also benefited from the release, albeit to a much lesser extent. During his tenure, Obama earned twice as much from book licenses as from his presidential salary, Forbes has calculated.
How charitable is Trump?
The charitable activities of the businessman-turned-president are sure to attract considerable interest, said E. Martin Davidoff, founder and managing partner of Davidoff Tax Law.
“I might look at his personal returns just out of curiosity — I’ve never seen a billionaire’s tax returns,” Davidoff said. “What is he pulling? How much does he give to charity? That would be an interesting thing because that could be a very big deduction.”
Davidoff expects some limited information on the types of charitable donations.
“You’ll know if it’s cash or property because there are two separate forms for that and two separate Schedule E items,” he said. “If he’s given away valued shares, if he’s given away real estate, that’s listed – that’s what detail is required.”
Exactly where Trump is directing his charitable donations may not be clear, tax experts said. Although many people list charitable recipients on their returns, it is not required. Meanwhile, many ultra-wealthy individuals set up a charitable foundation or private foundation to keep the details of their donations secret.
Another question likely to remain unanswered for now is whether Trump correctly claimed the value of all his donations, tax experts said. One question the Ways and Means Committee raised was whether a type of deduction known as conservation easement, which Trump reported was worth $21 million, was really worth that much.
“The IRS allows this deduction, but the IRS may question the value of it. And we won’t know the outcome until the trials are complete,” Dubinsky said.
How lucrative is it to be a real estate developer?
Excerpts from Trump’s return published so far have focused on years in which he reported big financial losses. In the 1980s and 1990s, the Times concludes, “Trump appears to have lost more money than almost any other single American taxpayer.”
Trump’s longtime accountant also recently testified at the Trump Organization recent criminal case that the real estate developer reported losses on its tax returns every year for a decade, including nearly $700 million in 2009 and $200 million in 2010.
Many have questioned the fairness of a self-proclaimed billionaire being allowed to avoid income tax liability, with one columnist calling it a “national disgrace”. But tax professionals stress that this reflects questions about the tax law, which offers wealthy Americans, including real estate moguls, a number of ways to legally protect their income.
“The obvious question is how does a man pay so little tax when he’s so rich? Real estate is inherently income protective,” said Davidoff.
“If I own real estate and there’s positive cash flow, depreciating that real estate protects some of that income,” he added. “The obvious question people are going to have is why is the amount he’s paying so low? Those are the tax laws.”
For example, depreciation is an artificial calculation aimed at accounting for the fact that assets such as buildings decrease in value over time. Dubinsky illustrated it with an example of a developer building a $50 million project and – as usual – raising $1 million of his own money on the project while borrowing the rest.
“A thirtieth of this building is depreciated every year,” Dubinsky said. “If I don’t have any income from this building for the first year and I have running costs, now I’m at a loss. [And] I have all the interest I pay on it.”
These tax breaks — deliberately designed to incentivize real estate projects — may seem alien to most people whose main source of income is their job.
“The average person doesn’t do that,” Dubinsky said. “They get a W-2 for $85,000. And they say, ‘Well, I pay taxes on $85,000. Why doesn’t this guy who makes billions or is said to be worth billions not pay his fair share?’ I mean, I hate going back to that. Unfortunately, that’s how tax legislation was designed.”
– The Associated Press contributed to this story
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