Wednesday, September 30, 2020

CNN's iceberg is just the tip of the iceberg

(Apologies here for using icebergs only as a metaphor in a climate blog. Real iceberg content can be found elsewhere at RR.)

CNN points to Ivanka Trump's little scheme:

Trump wrote off $26 million in unexplained "consulting fees" between 2010 and 2018, with almost $750,000 apparently going to his daughter, Ivanka, in one disclosure....

"Ms. Trump had been an executive officer of the Trump companies that received profits from and paid the consulting fees for both projects — meaning she appears to have been treated as a consultant on the same hotel deals that she helped manage as part of her job at her father's business."

....1) In at least two deals -- hotels in Hawaii and Vancouver, Ivanka Trump appears to have double-dipped -- serving as both a project manager in her official capacity as a senior staffer for her father's company and as a "consultant" to those same projects.

2) In those deals, Ivanka Trump's apparent categorization as a "consultant" allowed her father to write off three-quarters of a million dollars. (The IRS allows "consulting fees" to be written off as business expenses.)

...But it appears as though the Times may only have found the tip of the iceberg here. 

Why? Because of the $26 million that Trump wrote off as "consulting fees" between 2010 and 2018, none is allocated to any specific person or entity....So we don't know who received the other $25-ish million that Trump wrote off to "consulting fees" during that time.

But it appears to me as though CNN only found the tip of the iceberg here.

Why? Because of the next parenthetical sentence in the article, "(Worth noting: The Times reports that Trump wrote off roughly 20% of all income he made on projects over that time to 'consulting fees.')" 

What may be happening is a net profit distribution, something that should be taxed as corporate profit, is being disguised as consulting expenses. That makes it tax evasion and a way for the Trump family to make money while claiming a loss. And it's not just Ivanka's $750,000, and not "just" the $26 million, it's the 20% of all gross income made on projects over that time.

CNN and others speculate that this is a gift of funds from Donald to kids that illegally evades gift taxes, much like how Donald (and to a lesser extent his siblings) evaded gift taxes in the 1990s through one-sided business deals with their father. Not impossible, but I'm not sure. Fred Sr. did help Donald financially when Fred was mentally competent but only to the tunes of millions of dollars. The hundreds of millions transferred when Fred was senile, so his consent is questionable.

I question whether Trump is that generous to his children while Trump is still living. I don't doubt that lacking any spiritual or philanthropic legacy, Trump wants to vicariously live forever through wealthy children and would want to cheat estate and gift taxes, but that's in the future. So not impossible, but I'd tend to choose the most selfish option as the most likely one for Trump.

I'll just throw in a third possibility here for fun. Maybe it's really not an untaxed profit or untaxed gift but something that could legitimately be paid as income to Trump family members - except they asked to be paid as consultants instead, so they could do the exact same tax evasion as Trump does by making up deductible expenses. Employee income is income after all, but only the profit from business revenue is taxable, and you can do a lot to reduce the apparent profit. We need to see the Trump family taxes.

A disclaimer - I don't have a great handle on taxation of privately-held corporations, so I'm not certain my first possibility will hold up if researched (but it might). Regardless, the gift-tax evasion and the expanse-padding possibilities seem really strong.

1 comment:

David B. Benson said...

Clever, clever tax accountants...