Donald Trump’s tax returns, long the subject of speculation and a bitter legal battle, will be released. After last week releasing a summary of the IRS’ efforts to audit the former president, along with some details about his income in recent years, the House Ways and Means Committee plans to release the documents in Friday.
Whether Americans will learn much from the return is another question. Trump’s finances are known to be complex, with the IRS itself complaining about the difficulty of auditing every entity from which he may have drawn income.
Here are the areas tax experts said they plan to focus on after the six-year returns, dating from 2015 to 2020, are released.
What do the earnings really show about his finances?
That may be hard to gauge given Trump’s growing business empire. The former president is financially connected to more than 400 separate legal entities, including trusts, limited liability corporations and partnerships, according to House investigators.
Of those, however, only seven were addressed in the Ways and Means Committee report earlier this month. Although the reports to be released on Friday are likely to name those entities and list the income or losses for each, further details are likely to be limited, experts said.
“On his return in the back, there’s going to be a white paper schedule — it could be five or 10 pages long — it’s going to list all of these individuals,” said Bruce Dubinsky, a forensic accountant and founder of Dubinsky Consulting.
“We won’t know what those are [entities] they do. You’ll just see a line item and an amount — it could be income, it could be loss — for that year. Then we’ll need those LLC or S corporation returns to see, well, what’s going on?”
Such a large number of entities makes it more likely that some sources of Trump’s income, losses or wealth will be missed, offering a misleading picture of his tax status. The IRS highlighted the complexity of conducting a comprehensive audit of Trump’s income and tax obligations.
“With over 400 flow returns reported on Form 1040, it is not possible to obtain the resources available to investigate all potential issues,” states an IRS memo cited in the Ways and Means report.
Like all tax professionals interviewed for this story, Dubinsky noted that he had no specific knowledge of Trump’s returns and based his assessment strictly on his knowledge of the tax code and published excerpts of Trump’s finances.
How much money did Trump make from being famous?
Although Trump made his money early in his career primarily from his family’s real estate empire, over time he used his celebrity to generate income, making hundreds of millions from his bestselling book The Art of the Deal and other books, as well as from The NBC hit TV show The Apprentice.
“I’m going to look at the Cs schedule, I want to see if there’s anything from publishing, book deals, things like that,” Dubinsky said. “Did you get royalties for The Apprentice? If so, there may be royalties coming in and accounted for on the return.”
According to the New York Times, “The Apprentice” alone won Trump $200 million between 2005 and 2018. If he had continued to earn royalties while in office, he wouldn’t have been the first. Former President Barack Obama also benefited from publishing, albeit on a much smaller scale. While in office, Obama earned twice as much from book royalties as his presidential salary, Forbes estimated.
How charitable is Trump?
The businessman-turned-president’s philanthropic activities are sure to generate significant interest, said E. Martin Davidoff, founder and managing partner of Davidoff Tax Law.
“I might look at his personal returns just out of curiosity — I’ve never seen a billionaire’s tax returns,” Davidoff said. “What does he deduct? How much does he give to charity? That would be an interesting thing because it could be a very large deduction.”
Davidoff expects to see limited information on the types of charitable contributions.
“You’ll know if it’s money or property because there are two separate forms for that and two separate items for Schedule E,” he said. “If he’s given away appreciated stock, if he’s given away real estate, that will be stated — that’s required in the particulars.”
As for exactly where Trump directed his charitable contributions, that may not be clear, tax experts said. Although many people list charitable recipients on their returns, this is not required. Meanwhile, many ultra-wealthy people set up a charitable trust or private foundation to keep the details of their donations secret.
Another question likely to remain unanswered for now is whether Trump has accurately reported the value of all his donations, tax experts said. One question raised by the Ways and Means Committee is whether a type of deduction known as a conservation easement, which Trump says is worth $21 million, is really worth that much.
“The IRS allows this deduction, but the IRS may question its value. And we won’t know the outcome until the audits are done,” Dubinsky said.
How profitable is it to be a real estate developer?
Previously released excerpts from Trump’s returns focused on the years he reported large financial losses. In the 1980s and 1990s, times In conclusion, Trump “appears to have lost more money than almost any other individual American taxpayer.”
Trump’s longtime accountant, too, recently testifies in the Trump Organization recent criminal trial that the real estate developer reported losses on its tax returns every year for a decade, including nearly $700 million in 2009 and $200 million in 2010.
Many have questioned the fairness of allowing a self-proclaimed billionaire to avoid paying income tax, with one columnist calling him “a national disgrace.” But tax professionals stress that it reflects questions about the tax code, which offers a range of ways for wealthy Americans, including real estate tycoons, to legally hide their income.
“The obvious question is, how does a person pay such a small amount of tax when they are so rich? Basically, real estate provides income,” Davidoff said.
“If I have real estate and there’s positive cash flow, the depreciation on that real estate provides some of that income,” he added. “The obvious question people will have is why is the amount he pays so low? Such are the tax laws.”
For example, depreciation is an artificial calculation designed to account for the fact that assets such as buildings lose value over time. Dubinsky illustrates this with the example of a developer building a $50 million project and — as is customary — putting $1 million of his own money into the project while borrowing the rest.
“One-thirtieth of that building is written off every year,” Dubinsky said. “If I have no income from this building in the first year and I have operating expenses, now I have a loss. [And] I have all the interest I pay on it.”
These tax breaks – deliberately designed to stimulate 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 say, “Well, I’m paying tax on $85,000. Why isn’t this guy who’s making billions or supposedly worth billions paying his fair share?” I mean, I hate to go back to it. But unfortunately that’s the way the tax code is set up.”
— The Associated Press contributed to this story
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