What’s in Trump’s tax returns? Maybe nothing but ‘fool’s gold’

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Even if House Democrats get their hands on Donald Trump’s tax returns, many of their biggest questions about the president’s finances will probably go unanswered.

Those documents won’t provide a definitive picture of the president’s wealth, whether he’s played by the rules or whether he benefited personally from the tax overhaul he signed in 2017.

Instead, the six years of returns requested Wednesday would shed light on how much income the president has made in those years, how much he paid in taxes, whether he took large deductions that might be questionable, and if he donated to charity.

But they may not give a complete picture.

“Depending on the year or circumstance, the tax returns could be a road map of Trump’s financial dealings, or they could contain fool’s gold,” Steve Rossman, a shareholder at accounting firm Drucker & Scaccetti. “It’s a snapshot that could show a lot, but information could be masked.”

The request from House Ways and Means Committee Chairman Richard Neal has touched off a political battle among the Internal Revenue Service, House Democrats and the White House that could spill over into the 2020 campaign.

Meanwhile, federal and state investigators have breadcrumbs to find along the trail of Trump’s finances, including ties to foreign countries and possible mortgage or other fraud.

Tax returns are intended to report income — not total wealth — so the documents won’t reveal Trump’s net worth. Even business returns only report the purchase price for an asset, such as a building, not the valuation, so Democrats won’t be able to definitely say that Trump isn’t as rich as he says he is.

Trump told NBC’s “Meet the Press” in 2016 that he’s worth more than $10 billion by “any stretch of the imagination.” The Bloomberg Billionaire Index pegs his wealth at $2.8 billion.

These revelations, of course, are all predicated on whether the IRS ever hands over the documents Neal requested, and for people outside Congress, whether the Massachusetts Democrat makes them public.

Neal has asked for the information by April 10, but Trump has already said he’s "not inclined" to cooperate and the process is likely to morph into a legal fight that will extend far beyond next week, even possibly beyond the 2020 presidential election.

White House Press Secretary Sarah Sanders said on Thursday that the White House is “not interested in playing a bunch of political games.”

The decision is not entirely in Trump’s or the White House’s hands. The IRS and Treasury Department must decide whether to release the returns — or, if Democrats sue, the courts could order them to.

Even if they don’t become public, the House tax experts will scour the returns for a closer look at the president’s financial ties and square those with his public statements. That sort of scrutiny is what the president fears most about his returns going public, Trump’s former lawyer and fixer Michael Cohen told Congress last month.

“Tax returns are just one piece of a financial puzzle. In combination with financial disclosures, regulatory filings and financial reports, you can get different perspectives on an individual’s financial profile,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. “If the tax returns ever see the light of day, there is going to be crowd-sourcing to figure them out.”

The returns will clearly state how much money he and the business entities made each year and how much he paid the IRS. But they won’t necessarily disclose the source of that money. For example, if he reports a lot of income from interest that year, it could mean Trump has large financial accounts. It could also mean that a certificate of deposit matured.

Neal requested six years of tax returns, but Trump’s 2018 documents, the first year following the Republican tax cuts, likely won’t be among them. The filing deadline is April 15, but taxpayers with complex filing situations typically ask for a six-month extension to delay the due date to October.

That means Democrats won’t be able to discover how he saved from lower tax rates and a new 20 percent deduction for pass-through businesses, approximately 500 of which Trump has a stake in.

Trump’s business dealings, which are largely in real estate and licensing of his brand, are also eligible for large write-offs that can minimize a tax bill even if the company is making money. For example, real-estate owners can depreciate the value of their buildings and deduct the interest paid on the loans financing the property.

“There are many, many tax advantages to real estate. It wouldn’t be unusual to show losses from real estate deals” even if the building is gaining value, said Walter Deyhle, a partner at accounting firm Gelman, Rosenberg and Freedman. “It’s not necessarily showing something evil.”

The returns will show if his businesses are making money and whether his licensing deals have become more or less valuable since he became president.

International dealings will also be more apparent. The U.S. has relatively robust foreign financial disclosures, so Trump is required to report whether he owns an offshore company or has bank accounts outside the U.S., but the returns won’t necessarily show if a foreigner has lent him money, Deyhle said.

Trump’s taxes will also disclose what he considers his home to be for tax purposes. The law in the District of Columbia says that elected officials who work in Washington should claim their home state for tax purposes. Trump, who splits his time between residences in high-tax New York and Florida, which doesn’t have an income tax, could see a large tax break if chooses Florida as his official home.

If Trump’s returns show that he committed tax fraud — meaning he under-reported his income by at least 25 percent — the IRS could assess penalties for as much as 75 percent of any underpayment on all the returns, plus interest. Short of that, the statute of limitations is three years for the IRS to re-examine and potentially find fault in the returns.

The IRS has already been auditing the president, though it’s unlikely the audits have lasted as long as he says they have, Andrea Friedman, a partner at accounting firm at Katz, Sapper & Miller, said. It’s unlikely that they go back and challenge what they’ve already reviewed, she said.

“People might be disappointed,” she said.

Bloomberg News
Tax returns Tax audits Donald Trump Richard Neal IRS