The Form 1040 that leaked out this week revealing the first two pages of Donald Trump’s 2005 tax return contained a few revelations, with some tantalizing hints of what might be found in the rest of the president-to-be’s tax filings. Tax expert Bill Smith of CBIZ MHM provided an in-depth analysis to Accounting Today.

On Tuesday night, Pulitzer Prize-winning tax journalist David Cay Johnston revealed a fragment of Trump’s long sought after returns on MSNBC’s Rachel Maddow Show (see Trump paid $38M tax on $150M income, according to newly unearthed 2005 return). Johnston said the tax return had arrived in the mail from an anonymous source “over the transom.” The return demonstrated that Trump had in fact paid federal income taxes, at least in 2005 for his 2004 taxes.

Donald Trump during a speech at CIA headquarters
Donald Trump during a speech at CIA headquarters Photo: Olivier Douliery/Pool via Bloomberg

“The only thing you can tell for sure is it looks like he paid about $13.8 million in tax in 2004, because with his estimated and his withholding that was in the neighborhood of $13.7 or $13.8 million,” said Bill Smith, managing director of CBIZ MHM’s National Tax Office. “He’s going to be covered for not having to pay the penalty for underpayment of estimated taxes by paying 100 percent of last year’s tax bill. Nothing’s for certain, but I would say that’s a probability.”

Trump may have used a $916 million net operating loss that was uncovered last October during the presidential campaign when The New York Times found copies of his New York State tax returns from 1995. At the time, tax experts speculated Trump could have used the net operating loss to avoid paying taxes for up to 18 years.

Smith believes some of the net operating loss was still being used on Trump’s 2005 return.

“With the $103 million loss, I think most of that probably has to be the remnants of that net operating loss carryforward that we saw in the past, which would mean the $31.2 million of alternative minimum tax probably comes from the net operating loss,” he said. “You only get to take 90 percent of a net operating loss for AMT purposes, as well as having high New York City and New York State income taxes.”

The White House defended Trump’s tax payments in a statement Tuesday night as Maddow was getting set to reveal the tax returns. “Before being elected President, Mr. Trump was one of the most successful businessmen in the world with a responsibility to his company, his family and his employees to pay no more tax than legally required,” said the White House. “That being said, Mr. Trump paid $38 million dollars even after taking into account large scale depreciation for construction, on an income of more than $150 million dollars, as well as paying tens of millions of dollars in other taxes such as sales and excise taxes and employment taxes and this illegally published return proves just that. Despite this substantial income figure and tax paid, it is totally illegal to steal and publish tax returns.”

Trump had also claimed depreciation as a source of his tax breaks during his debates last year with Hillary Clinton. Smith acknowledged that depreciation could be a factor in the 2005 tax filing, but it wouldn’t show up directly on the two-page 1040.

“I would think that depreciation is going to be netted out on his Schedule E, where he’s got $67.3 million of income,” he said. “Most of the depreciation is probably going to be already taken there, and you have a net number rolling forward to the front page, so to speak.”

The tax forms leaked to Johnston did not include the Schedule E or any of the other supporting documents, however, so it’s difficult to be sure where the depreciation is showing up. But Smith believes the depreciation amounts aren’t part of the $103 million loss shown on the 1040.

“They’re either going to be already on K-1, so if you’ve got K-1 income and he’s bringing that through, that’s going to be showing up, tracking right off his K-1’s, but it’s going to be a net number, again coming through alike on Schedule E or whatever the K-1 pertains to,” said Smith. “That shouldn’t, as far as I know, go into that $103 million loss. And that is the line that a net operating loss would carry through to on the front page of the 1040.”

As a major real estate developer, Trump would be able to claim a large depreciation deduction.

“Absolutely, he would,” said Smith. “There’s nothing wrong with that. But I just don’t think that shows in the $103 million loss. To me, that’s more likely to show up in the $67 million of income on rental estate, etc. So if he has $167 million of income and $100 million of depreciation, that nets out to $67 million, and that’s the number that rolls forward to the first page, because we don’t have Schedule E. The income number could be $567 million of income and $500 million of depreciation. There’s no way for us to know by looking at page 1.”

Smith also finds the dividend figures to be intriguing. “The ordinary dividends and the amount that were qualified was interesting,” he said. “Nothing wrong with it, but it was a pretty low percentage of qualified dividends for the total amount of dividends.”

The main mystery revolves around the $103 million loss, however. “It’s certainly nice to have a $103 million loss if you’ve got $150 million of income,” said Smith. “I mean, the loss jumps out. We’d love to see what that is and how that’s explained. Otherwise when they talk about all the other taxes he paid in their statement, with the Social Security and Medicare tax of a million eight, it’s a little disingenuous because you get to deduct half of that on line 27. There’s a $943,000 deduction there, so they kind of glossed over the fact that it’s only half that amount.”

However, he acknowledged it’s all legal. “There’s nothing wrong with that,” said Smith. “That’s the way it works, nothing nefarious about it in any way.”

As for who leaked the tax return, Johnston suggested on Maddow’s show it could have come from Trump himself. The tax return is stamped “Client Copy,” so it probably did not come from Trump’s accountants. Others have suggested it may have come from a bank where Trump was seeking a loan or from a 2006 lawsuit in which Trump sued New York Times reporter Timothy L. O’Brien, who claimed in his book “TrumpNation: The Art of Being the Donald,” that Trump had exaggerated his net worth. As part of the discovery for the lawsuit, Trump had to provide his 2005 tax return to O’Brien’s attorneys (see I Saw Trump's Tax Returns. You Should, Too).

Smith believes it may have come from a bank. “I’ve seen other speculation that makes more sense to me, that it could have been part of an application to a bank, so if you’ve got a foreign bank that he’s dealing with, they would only have requested the first two pages of the return so they could see the big numbers,” he said. “That might be the reason why it’s only two pages. Why would anybody at a bank leak it? That also would set you up for criminal prosecution, I’m sure. I don’t really have an opinion on it.”

Or perhaps it came from a member of Trump’s own family?

“Harkening back to the Hillary Rodham ‘I don’t bake cookies’ dustup, I did notice that Melania’s name is not Trump on this return,” Smith observed.

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