Here’s what tax experts are looking for in Donald Trump’s statements

Donald Trump’s tax returns – long the subject of speculation and a bitter legal battle – should be made public. After releasing a summary of the IRS’ efforts to audit the former president last week, as well as some details about his earnings in recent years, the House Ways and Means Committee plans to release the documents Friday.

Whether Americans learn much from feedback is another matter. Trump’s finances are known to be complex, with the IRS itself complaining about the difficulty of reviewing every entity from which he may have derived income.

Here are the areas tax professionals said they plan to focus on once the returns are released.

What do the returns really show about his finances?

That might be hard to gauge given Trump’s sprawling business empire. The former president is financially tied to more than 400 separate entities, including trusts, limited liability companies and partnerships, according to House researchers.

Of these, however, only seven were considered in the Ways and Means Committee report earlier this month. While statements released Friday will likely name those entities and show income or loss for each, additional details are likely to be limited, experts said.

“When it comes back, there will be a white paper schedule on the back — it can be five or 10 pages — it will list all of these entities,” said Bruce Dubinsky, forensic accountant and founder of Dubinsky Consulting.

“We are not going to know what these [entities] done. You’ll just see a line, and an amount—which could be income, could be loss—for that year. We would then need those LLC or S corporation returns to see, OK, what’s going on?”

Such a large number of entities makes it more likely that some sources of Trump’s income, loss or wealth could be omitted, providing a misleading picture of his tax status. The IRS pointed to the complexity of performing a comprehensive review of Trump’s income and tax liability.

“With over 400 flow declarations reported on Form 1040, it is not possible to obtain the resources available to review all potential issues,” says an IRS memo cited in the Ways and Means report. .

Like all of the tax experts interviewed for this story, Dubinsky noted that he had no specific knowledge of Trump’s statements and made his assessment strictly based on his knowledge of the tax code and published excerpts from Trump’s finances.


House Ways and Means Committee votes to release part of Trump’s tax returns

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How much money has Trump made being famous?

Although Trump early in his career made money primarily from his family’s real estate empire, over time he capitalized on his stardom to generate income, earning hundreds of millions from the best-selling book. “Art of the Deal” and other books, as well as NBC. TV hit “The Apprentice”.

“I’m going to look at Appendix C, I want to see if there’s anything in publishing, book deals, that sort of thing,” Dubinsky said. “Did he receive royalties on ‘The Apprentice’? If so, there could be royalties coming in and being reported on the return.”

According to the New York Times, “The Apprentice” alone earned Trump $200 million between 2005 and 2018. If he continued to collect royalties while in office, he wouldn’t be the first. Former President Barack Obama also benefited from publishing, although on a much smaller scale. While in office, Obama earned twice as much from book royalties as from his presidential salary, Forbes calculated.

How charitable is Trump?

The businessman-turned-president’s charitable activities are sure to generate considerable interest, said E. Martin Davidoff, founder and managing partner of Davidoff Tax Law.

“I might look at his personal statements just out of curiosity — I’ve never seen a billionaire’s tax returns,” Davidoff said. “What is he deducting? How much is he giving to charity? That would be an interesting thing because it could be a really big deduction.”

Davidoff expects to see limited information about types of charitable contributions.

“You’ll know if it’s cash or property because there are two separate forms to do that and two separate line items for Schedule E,” he said. “If he’s disposed of appreciated stocks, if he’s disposed of real estate, that will be listed – that’s required in the details.”

As to exactly where Trump directed his charitable contributions, that may not be clear, tax experts said. Although many people list recipients of charitable donations on their returns, it is not required. Meanwhile, many ultra-wealthy people form a charitable trust or private foundation to keep the details of their donations secret.

Another question likely to remain unanswered at this time is whether Trump has accurately claimed the value of all of his donations, tax experts said. One question the ways and means committee has raised is whether a type of deduction known as a conservation easement that Trump said 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 audits are complete,” Dubinsky said.


How lucrative is it to be a real estate developer?

Previously released excerpts from Trump’s returns focused on the 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 American taxpayer.”

Many have questioned the fairness of a self-proclaimed billionaire allowed to avoid income tax, with one columnist calling him a “national disgrace”. But tax experts point out that this reflects questions about the tax code, which offers a range of ways for wealthy Americans, including real estate moguls, to legally protect their income.

“The obvious question is, how can a guy pay such a small amount of tax when he’s so rich? By design, real estate harbors income,” Davidoff said.

“If I have real estate and there is positive cash flow, the depreciation of that real estate houses some of that income,” he added. “The obvious question people will ask is, why is the amount he pays so low? It’s the tax law.”

For example, depreciation is an artificial calculation designed to account for the fact that assets like buildings lose value over time. Dubinsky illustrated this with the example of a developer who builds a project worth $50 million and, as is common, invests $1 million of his own money for the project, while borrowing the rest.

“A thirtieth of this building gets written off every year,” Dubinsky said. “If I have no income from this building in the first year and I have operating expenses, I now have a loss. [And] I have all the interest I pay on it.”

These tax breaks – deliberately designed to encourage real estate projects – may seem foreign to most people whose main source of income is their work.

“The average person doesn’t do that,” Dubinsky said. “They get a W-2 for $85,000. And they’re like, ‘Well, I pay taxes on $85,000. Why doesn’t this guy who makes billions, or is supposed to be worth billions, pay he not his fair share?’ I mean, I hate to go back to it, but unfortunately, that’s how the tax code was designed.

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