To understand some of the issues contained in Trump’s tax returns, let’s assume the role of an IRS auditor and examine Trump’s tax returns based on the information available in news reports, principally the New York Time’s (NYT) massive investigation published on September 28, 2020.
1. Disguised Gifts:
Fred Trump (Donald’s father) apparently made numerous disguised gifts to his children, designed to avoid gift taxes and that Donald has been following in his footsteps (“like father, like son”) with suspicious payments in 2017 to Ivanka of $747,600 for “consultant” fees, when she received a salary of $2.0 million working for the Trust Organization. At first glance, if Ivanka pays income taxes on the consulting fee, what’s the big deal – the government collected the income tax, whether it was from Donald or Ivanka. We’d want proof that Ivanka actually paid taxes on the money and did not generate dubious deductions to offset the income, such as non-deductible personal expenses.
If the consulting fee was a disguised gift, Trump would owe gift taxes on the $750,000 at a rate of 40% ($300,000) in addition to the income taxes he’d owe on the non-deductible transaction, a combined federal tax approaching 80%, plus applicable state taxes. Under the tax law, if we assert a gift tax, the burden of proof is on Trump to show there was not a gift, our determination is presumed to be correct.
By doing this numerous times, Trump would be transferring wealth to his children, grandchildren or other family members without paying gift taxes, just like his father, a generational family tax dodge. Because the transaction was not reported as a gift, there is no statute of limitations, which means we could go back 20 years or more and audit each and every transfer from Trump to his children, grandchildren or other family members, searching for disguised gifts. The penalty for failure to report gifts is 20% if the actions were negligent and 75% if they were fraudulent. Depending on how consistent the pattern was, there could be sufficient evidence to assert a fraud penalty, which means if there were $1.0 million in gift taxes, the penalty would be an additional $750,000.
Conclusion: Trump has huge exposure to gift taxes, penalties and interest.