Here’s what tax pros are looking for in Donald Trump’s returns

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Donald Trump’s tax returns – long the subject of speculation and a bitter legal battle – are set to be made public. After releasing last week a summary of the IRS’s efforts to audit the former president, along with some details of his income over the years, the House Ways and Means Committee plans to release the documents on Friday.

Whether Americans can learn much from the returns is another question. Trump’s finances are notoriously complex, with the IRS itself complaining about the difficulty of scrutinizing every entity from which he may have earned income.

Here are the areas tax professionals say they plan to focus on once the returns are released.

What do the returns really show about his finances?

That may be difficult to assess given Trump’s vast business empire. The former president is financially linked to more than 400 separate entities, including trusts, limited liability corporations and partnerships, according to House researchers.

However, of these, only seven were examined in the report of the Ways and Means Committee earlier this month. Although the returns disclosed Friday are likely to name these entities and list a profit or loss for each, further details are likely to be limited, experts said.

“When he comes back, there’s going to be a white paper schedule in the back — maybe five or 10 pages long — it’s going to list all these entities,” said Bruce Dubinsky, a forensic accountant and founder of Dubinsky Consulting.

“We will never know what they are [entities] doing. You’ll see just one line, and one amount — maybe a profit, maybe a loss — for that year. We’ll need the LLC or S corporation returns to see, OK, what’s going on?”

Such a large number of entities makes it more likely that some sources of Trump’s income, losses or wealth may be omitted, offering a misleading picture of his tax status. The IRS highlighted the complexity of conducting a comprehensive review of Trump’s income and tax liability.

“With more than 400 flow-thru returns reported on Form 1040, it was not possible to have the resources available to review all potential issues,” states an IRS memo cited in the Ways and Means report.

Like all the tax pros interviewed for this story, Dubinsky said he had no specific knowledge of Trump’s returns and made his assessment based strictly on his knowledge of the tax code and published excerpts. of Trump’s finances.

The House Ways and Means Committee voted to release part of Trump’s tax returns 05:27 How much did Trump earn from being famous?

Although Trump early in his career made his money primarily from his family’s real-estate empire, he later used his celebrity to make money, making hundreds of millions from the best-selling “Art of the Deal” and other books, as well as the NBC television hit “The Apprentice.”

“I’m going to look at the schedule Cs, I want to see if there’s anything from publishing, book deals, that kind of thing,” Dubinsky said. “Does he get royalties on ‘The Apprentice?’ If so, there may be royalties entered and reported on the return.”

According to the New York Times, “The Apprentice” alone earned Trump $200 million between 2005 and 2018. If he continues to earn royalties while in office, he won’t be the first. Former President Barack Obama also benefited from the publication, although on a smaller scale. While he was in office, Obama earned twice as much from book royalties as his presidential salary, according to Forbes.

How charitable is Trump?

The businessman-turned-president’s philanthropic efforts are sure to garner a lot of 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 that could be a very big deduction.”

Davidoff expects to see some limited information on the types of charitable contributions.

“You’ll know if it’s cash or property because there are two separate forms to do that and two separate line items for schedule E,” he said. “If he gave appreciated stock, if he gave real estate, that would be listed – that would require detail.”

Exactly where Trump directed his charitable contributions may not be clear, tax experts said. Although many people list charitable recipients on their returns, this is not required. Meanwhile, many very wealthy individuals form a charitable trust or a private foundation to keep the details of their giving secret.

Another question likely to remain unanswered for now is whether Trump has accurately claimed the value of all his donations, tax pros said. One issue brought up by the Ways and Means committee was whether a type of abatement known as a conservation easement that Trump reported was worth $21 million was actually worth that much.

“The IRS allowed that deduction, but the IRS may have questioned its value. And we won’t know the outcome until the audits are completed,” Dubinsky said.

How lucrative is being a real estate developer?

Previously published excerpts of Trump’s returns focused on years in which he reported large financial losses. In the 1980s and 90s, the Times concluded, Trump “appears to have lost more money than almost any other individual American taxpayer.”

Many have questioned the fairness of a self-proclaimed billionaire being allowed to avoid income tax liability, with one columnist calling it a “national disgrace.” But tax pros stress that it reflects questions about the tax code, which offers a range of ways for wealthy Americans, including real estate moguls, to legally hide their income .

“The obvious question is, how does someone pay such a small amount in taxes when they are so wealthy? By design, real estate shelters income,” Davidoff said.

“If I have real estate and there’s positive cash flow, the depreciation in that real estate hides some of that income,” he added. “The obvious question people will have is, why is he paying so little? That’s 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 illustrated this with an example of a developer who built a project worth $50 million, and — as usual — put $1 million of his own money into the project, while borrowing the rest.

“One-thirtieth of that building gets wiped out every year,” Dubinsky said. “If I don’t have income from that building in the first year and I have operating costs, I’m losing money now. [And] I already have all the interest I’m paying on it.”

These tax breaks — specifically designed to incentivize real estate projects — may seem foreign to most people whose main source of income is their job.

“The average person doesn’t do that,” Dubinsky said. “They get a W-2 for $85,000. And they’re like, ‘Well, I’m paying taxes 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 come back to it. But unfortunately that’s the way the tax code was crafted.”

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