Following a blockbuster report by The New York Times over the weekend, all eyes are focused on President Trump’s tax returns and what he did, and didn’t, pay. But the eyes that really matter are the federal and state tax authorities charged with reviewing whether or not Trump and the Trump Organization broke tax laws.
And whether the President could face significant legal consequences.
On Sunday, The New York Times unveiled an extensive investigative report based on a review of two decades of Trump’s personal and corporate tax records. The reporting covers Trump tax returns from his days as a high-profile real estate developer to the beginning of his tenure as President, and they were revelatory with respect to the President’s longtime strategy of avoiding paying taxes. Among the key findings of the Times reporting is the fact that the President paid no federal taxes in 11 of the 18 years reviewed by the newspaper, and only paid $750 of personal taxes in 2016 and 2017.
A large part of the reason why Trump and the Trump Organization were purportedly able to minimize tax payments was by claiming that substantial personal expenses, including Trump’s lavish use of multiple residences, personal aircraft, and even hairstyling for his television appearances, should offset income. The reporting also shows a longtime strategy of tax avoidance using purported losses from Trump Organization entities as a bulwark against paying taxes.
While raising serious questions about the propriety of the tax returns, the Times reporting doesn’t specifically allege any illegal conduct. Nonetheless, the Times report comes at a time when Trump’s finances are already under investigation by authorities. The federal Internal Revenue Service has an open audit of Trump’s federal tax filings, which is the same reason why Trump claims he is unwilling to release his tax returns. The Trump Organization is also being extensively investigated by the New York Attorney General’s Office, which is investigating a range of matters related to Trump’s real estate activities and tax returns. The investigation’s into Trump’s conduct in New York has also become a recent campaign issue with a New York judge ordering the President’s son, Eric Trump, to provide testimony related to the investigation, under oath, by October 7.
The federal audit and the New York State investigations, which Trump has referred to as witch hunts, are nothing new. But what makes the renewed focus on the legality Trump’s tax returns so perilous for him is that, should they be found to be fraudulent or evasive by investigators, they could put Trump and his associates in serious legal jeopardy, including potential prison time.
Tax fraud occurs when taxpayers intentionally and specifically take improper actions that either underreports or misreports income, or otherwise makes false statements related to their tax returns. When false statements are made, the auditors often see these statements as “badges of fraud” that are possible tell-tale signs of wrongdoing. Under federal law, if an auditor suspects a filer of fraud, they can refer the individual or organization for the IRS’s criminal investigation division (CID) for further review. Like the IRS, states have similar legal standards and processes, and New York state authorities have extensive investigative and prosecutorial authority with respect to tax evasion and fraud. Both federal and state tax laws include civil and criminal penalties for tax evaders, including up to several years of prison time.
Therein lies the biggest challenge for Trump. While many speculate that the President may try to preemptively pardon himself for any federal crimes he might be accused of, including potential tax evasion, his pardon authority doesn’t extend to state crimes. In other words, Trump has no way to avoid the legal ramifications of any potential tax fraud charges in New York or other states that may investigate his tax practices. For a President who is already facing suspicion for improprieties related to campaign finance laws in New York, potential tax fraud charges could pile onto the President’s legal woes.
With the President locked in a fierce election battle with former Vice President Biden, and most national and battleground state polls showing Trump trailing his challenger, the President faces the prospect that, come January, he may not have the benefit of being in the White House to shield him from potential legal challenges. If he once again becomes a private citizen, Trump would need to face the same truth, and consequences, faced by all Americans with respect to improper tax-related conduct, including potential jail time.
During 2016 election, Trump rallies were often engulfed by chants of “lock her up,” fueled on baseless attacks against his former rival, Hillary Clinton. The irony is that as the result of his own actions, and the spotlight that The New York Times has shown on them, it might be the President himself who is engulfed by calls for to be locked up…
And it might not even be fake news.