Trump could be in a lot of legal hot water if he loses the election

Trump could be in a lot of legal hot water if he loses the election

President Donald Trump walks away after he delivers an update on the nation’s Covid-19 testing strategy in the Rose Garden of the White House on September 28, 2020, in Washington, DC. | Tasos Katopodis/Getty Images

The presidency shields him from charges of tax fraud, campaign finance violations, obstruction, and more.

A surprising revelation in the New York Times story about President Donald Trump’s taxes is that the “audit” he’s long claimed prevented him from releasing his tax returns to the public is real. It turns out the IRS perked up when Trump claimed business losses during the Great Recession of 2008 and 2009. The losses were so large that they could be retroactively applied to previous years and cancel out millions of dollars’ worth of tax liability from his days as host of The Apprentice.

It’s legal to use huge business losses to offset other income (though whether it should be is another question), but it’s not at all legal to cook the books in order to generate paper accounting losses to avoid taxes. It’s not clear whether Trump broke the law, but the existence of the years-long legal battle over the audit suggests the IRS has reason to believe he did. And some of the accounting practices documented on his tax returns are extremely fishy — characterizing aspects of his lifestyle and wealth transfers to his heirs as business expenses.

While nothing about being audited prevents you from releasing your taxes, it would seemingly make it unwise to do so. The IRS is limited in its investigative capabilities, while journalistic and scholarly interests are eager to put resources behind hunting through Trump’s tax returns. What the Times story, and the paper’s previous reporting on Fred Trump’s taxes, showed is a lot of dodgy tax avoidance going on.

But as long as Trump is president, he can shield himself from accountability for any tax-related crimes. He can also likely shield himself from debt collectors, who seem to have significant claims coming due over the next four years. From obstruction of justice to sexual assault allegations to campaign finance law violations, Trump is counting on the fact that he’s president to stop the law from coming after him.

As he prepares to take the stage to debate former Vice President Joe Biden Tuesday night, he’s making a case not only for continuing his governance approach, but also for maintaining his personal immunity to legal liability. The tax matter raises the stakes in the election and gives a president who’s rarely been law-abiding more reason to bend and break the rules in his quest to maintain power.

Tax-free gifts to kids

One of the most intriguing revelations in the Times’s reporting on Trump’s long-hidden tax returns is that money he gave his daughter Ivanka was treated as a tax write-off.

The full details are not available on Trump’s tax returns. They show instead that his company once paid $747,622 to an unnamed consultant for hotel projects in Hawaii and Vancouver. Payments to consultants can be legitimate business expenses, and there’s nothing unusual about deducting something like that. But in this case, the consultant appears to have been his daughter, whose own public financial disclosures show receipt of $747,622.

This is the kind of thing the IRS could easily overlook because it requires checking two different forms, realizing that the numbers match, and then seeing that the $747,622 payment was almost certainly to Ivanka. There’s nothing wrong with giving your daughter a six-figure gift if you are rich enough to do so. But when you receive gifts of this size, you need to pay a gift tax on them. If you structure your gift as a consulting fee, it passes to your heir untaxed. Taking what’s really a gift and pretending it’s a business expense is against the law.

Gifts as corporate payments are not without precedent in the Trump family. An earlier New York Times story about Trump’s father’s taxes showed that not only did the president inherit a vast fortune, he did so largely while avoiding paying estate taxes. Some of that involved aggressive use of avoidance strategists that experts say are legal. But one thing Fred Trump did was set his kids up as owners of a company called All County Building Supply.

All County gave building supplies — at inflated prices — to buildings owned by Fred Trump. This generated tax-free gifts for the Trump kids and deductible expenses for Fred, and was even used in applications to New York state housing regulators as a reason to raise rents on rent-stabilized units. By the time this story emerged, the statute of limitations had passed, so it was impossible to hold anyone criminally responsible. But Trump’s sister was a senior-status federal judge at the time, so a petition was filed to open an ethics inquiry into her potentially illegal conduct — conduct she would have shared with her brother. But the moment the ethics board agreed that an inquiry should move forward, she retired from her position.

It’s possible that a thorough investigation would show the payments to Ivanka were legit. But it’s also possible that it wouldn’t. Now that the returns are public, we know that an investigation is warranted. And that’s true of many of Trump’s claims.

Dubious deductions

The news that Trump deducted $70,000 worth of hairstyling expenses also raises a question of whether such a deduction is valid.

The law of personal appearance deductions is both vague and, at least in theory, fairly strict. Bench, a vendor of small-business accounting services, cautions that “hair care expenses only qualify as a tax deduction when they are specifically for work-related photo shoots or shows.”

“You can write off makeup used for stage or photo shoots, but not if you wear the same makeup during your normal day,” according to Chuck Sloan at Backpage, a trade publication for actors. “The same applies to your hair care costs.”

That doesn’t mean that abuse isn’t routine. Ryan Grim, DC bureau chief for the Intercept, reports that a particular tax accountant who is widely used by DC writers regularly recommends that clients who appear frequently on television claim these deductions.

That does not, however, mean it’s actually legitimate. The IRS rules for taking a home office tax deduction, for example, state that “you must regularly use part of your home exclusively for conducting business.” Plenty of people with home offices that sometimes serve as guest rooms or television-watching rooms or excess coat storage during a party nonetheless claim a deduction based on the fact that it’s hard to prove you’re lying about it.

But the rules are the rules. Much of Trump’s lavish lifestyle seems to deliberately blur the lines between personal and business expenses. If you own a luxury golf resort in Scotland, then flying on your private plane to Scotland and taking a week-long vacation could arguably be business as long as you discussed things with the property manager and had some meetings with local officials.

When someone says that Trump is rich, they likely mean he has lavish consumption habits. When Trump tells the IRS he’s “poor,” that doesn’t mean he’s “a bad businessman” who’s pretending to be rich. It means he’s managed to classify a large amount of lavish personal consumption — from haircuts to flights on his giant private jet — as business expenses.

Getting away with it

According to the FBI’s uniform crime reports, fewer than 14 percent of car thefts or burglaries are actually solved by the police. But in elite circles, the fact that it’s relatively easy to get away with these crimes does not imply that they’re not really crimes, that there’s no ethical problem with committing them, or that the difficulty of enforcing the law against stealing cars implies that the whole charade is pointless and car theft should be legalized.

Unfortunately, the kind of people who’d never countenance burglary often do not take this approach to tax cheating, where they tend to apply a “whatever you can get away with is fine” mentality. As Trump said four years ago of his tax avoidance, “that makes me smart.”

But there has also been a concerted effort to make it easier to get away with cheating on your taxes. Back in the day, the IRS routinely conducted so-called “lifestyle audits” when a person seemed to be living too high on the hog, but Congress banned the practice in the 1990s. Natasha Sarin and Lawrence Summers estimate that there’s about $1 trillion in uncollected taxes of rich people that the IRS could get its hands on with a larger enforcement budget. Instead, as Paul Kiel and Jesse Eisinger have reported for ProPublica, the agency’s budget was cut 20 percent after Republicans took control of Congress in 2010 — meaning there are plenty of people getting away with various kinds of abuses.

In other words, while it’s possible Trump’s meager tax payments are a situation where the real scandal is what’s legal, it’s also possible that he is simply one of the large number of wealthy Americans who’ve been cheating on taxes and getting away with it. Trump has appointed an IRS head and an IRS chief counsel with business ties to him, and a whistleblower within the IRS has told Congress that political appointees have interfered with the audit of Trump’s taxes. If true, this would be just one of several instances where Trump’s status as president is shielding him from the law.

If Trump had lost, he’d have dealt with the law

Trump’s personal attorney Michael Cohen is currently serving a prison sentence for three separate crimes, one of which — as my colleague Andrew Prokop has written — is “arranging six-figure hush money payments for two women alleging sexual encounters with Trump — well above the federal limit for a campaign contribution. The first of these was a payment to Karen McDougal from the National Enquirer’s parent company, and the second was a payment to Stormy Daniels from Cohen himself.”

These payments, according to sworn statements by Cohen accepted by prosecutors and the court, were made at the direction of Trump.

In a normal prosecutorial situation, that would mean the next investigative target would be the candidate himself. But it’s Justice Department policy that a sitting president cannot be indicted for a crime, so the Southern District of New York prosecutors who made the case against Cohen simply dropped it. Similarly, in his report to Congress, then-special counsel Robert Mueller describes Trump as being guilty of the factual elements of obstruction of justice. But Mueller took the view that he should simply describe the facts and leave it up to Congress what to do with them.

In either case, the House could have impeached Trump, but Democrats decided that doing so would be politically unwise. The fact remains, however, that it’s not unusual for a person to be charged with obstruction of justice or campaign finance crimes even in the absence of a larger conspiracy. Trump is skating by because it’s DOJ policy not to indict the president, not because the material isn’t there for an indictment.

Somewhat similarly, E. Jean Carroll has an ongoing defamation suit against Trump stemming from his response to her allegation that he raped her in the 1990s. This is not, on its face, a matter of concern to the American government. But Attorney General Bill Barr’s Justice Department has taken over the case from Trump’s private attorneys, and arguments related to his status as president are being used in court to explain why he doesn’t need to provide DNA samples and otherwise cooperate with the litigation. The president is also facing investigation by the New York state attorney general for alleged bank fraud and by the district attorney for Manhattan for allegations of related financial crimes. In both cases, Trump is fighting subpoenas with arguments that draw on his status as president.

Trump also has hundreds of millions in debts that are coming due over the next four years — debts that banks are much more likely to take a lenient view on if the debtor is also the president.

Trump, in other words, may not be able to afford defeat.

Trump is in a very dangerous place

Jimmy Carter and George H.W. Bush both left office defeated and unpopular. But they departed without complaint and swiftly rebuilt their reputations, becoming widely admired figures as former presidents whose children went on to have careers in public life.

Trump’s prospects as a former president are not nearly so bright.

He is the target of investigations into multiple financial crimes, and the potential target of campaign finance and obstruction of justice charges. Separately, he is facing civil litigation and the bill is coming due for his substantial debts. As president, he wields significant powers that can be used to block accountability on all these fronts. And as president, he commands the loyalty of the Republican Party, which has taken the view that holding Trump accountable would undermine their larger partisan and ideological projects. Even if a Biden administration chose to look forward rather than back on the loose threads from the Mueller and Cohen cases, the rest of these charges are unlikely to magically vanish.

This is all relevant context to the president’s various musings about how a “ballot scam” may give him reason to refuse to concede defeat in November. Nobody likes to lose. But Trump has reasons that go far beyond pride, bad manners, or even lust for power.


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Author: Matthew Yglesias

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