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Trump Org Case Hinges on Proving Deliberate Tax Dodges

July 2, 2021, 6:52 PM

Proving longtime Trump Organization CFO Allen Weisselberg intentionally evaded taxes on nearly $1.8 million in “off the books” perks will be critical for New York prosecutors to make criminal charges stick, legal experts said.

Unpaid taxes on luxury cars, an Upper West Side apartment, and payments for grandchildrens’ tuition by themselves aren’t necessarily evidence of criminal tax fraud. Instead, Manhattan District Attorney Cyrus Vance must prove Weisselberg and the Trump Organization deliberately covered up perks that should have been taxed.

As Donald Trump’s longtime aide, Weisselberg is a central figure in the prosecution’s case. Weisselberg has served the Trump family for more than 40 years. He’s negotiated Trump’s loans, is a co-signer on his accounts, has helped arrange his taxes, and—with Trump’s sons Don Jr. and Eric—oversaw the trust that held all of Trump’s assets while he was in office. Attorneys noted these are just the first charges in a broader investigation that could eventually reach the former president.

“Willfulness requires the government to prove that people knew the rules and intentionally violated them,” said Larry Campagna, a managing shareholder at Chamberlain Hrdlicka, who has represented white collar defense cases. “If you are doing lots of things wrong, it’s easier to think that somebody is intentionally doing it.”

Weisselberg and the Trump Organization pleaded not guilty on Thursday to 15 felony counts, including charges of criminal tax fraud, scheme to defraud, conspiracy, and falsifying business records. The 73-year-old was individually charged with a number of counts, including grand larceny in the second degree, which carries a maximum sentence of 15 years.

Long Term Scheme

Prosecutors laid out a 15-year scheme to provide “off the books” compensation to Weisselberg and other Trump Organization executives through indirect or disguised means. They allege the scheme allowed Weisselberg to dodge more than $900,000 in federal, state, and local taxes. At the same time, the Trump Organization evaded the payment of payroll taxes it owed, according to prosecutors.

Prosecutors don’t typically bring criminal tax charges tied solely on fringe benefits, which are special perks that employers give to their workers that are usually taxable with some exceptions. Companies are responsible for withholding such taxes from an employer’s paycheck.

“The mere fact that someone receives some form of a fringe benefit doesn’t mean that it’s taxable,” said Richard Zuckerman, a partner at Honigman and former member of the tax division of the Justice Department. “There could be a heck of a fight over whether or not the items themselves are taxable or not.”

Prosecutors allege Weisselberg evaded approximately $556,385 in federal taxes, $106,568 in state taxes, and $238,159 in New York City taxes. He also falsely claimed and received about $94,902 in federal tax refunds and about $38,222 in states tax refunds, they said.

Weisselberg allegedly hid the compensation from his tax preparer—intentionally omitting it from his tax return—and for years concealed that he was a New York City resident who was required to pay income taxes.

“This is not a small or a petty pea shooter that they’ve aimed at Weisselberg,” said Norman Eisen, a senior fellow in governance studies at the Brookings Institution and expert on law, ethics, and anti-corruption. “This is a howitzer.”

In recent years, there have been several high-profile cases that included evasion on taxable benefits, including Trump’s former campaign chairman Paul Manafort’s $15,000 ostrich jacket and former Tyco International CEO L. Dennis Kozlowski’s $6,000 gold-and-burgundy floral shower curtain.

Perks or Gifts?

However, New York prosecutors still must prove that some of Weisselberg’s perks were more than gifts from a boss to a longtime employee.

“There’s a lot of issues here that are standard run of the mill civil tax issues,” Campagna said. “When you have a close relationship with the owner of the company, things like paying your kids’ tuition could be a gift rather than compensation.”

The prosecutors noted that the tuition expenses were originally paid with personal checks signed by Trump and later drawn from the Donald J. Trump Revocable Trust. But if they were gifts those should have appeared on the former president’s federal tax-filings if they exceeded the annual gift tax exclusion. New York doesn’t have a gift tax.

“If it was paid personally by Donald Trump or the Donald Trump trust, then how did Donald Trump account for it? As a gift? That’s really important,” Steven Toscher, a partner at Hochman Salkin Toscher Perez P.C., said.

Prosecutors claim the Trump Organization furthered the tax fraud scheme by creating and issuing forms underreporting the compensation Weisselberg and other employees received. The company didn’t withhold income taxes on those benefits, even though it internally often tracked and treated them as part of his annual compensation, the prosecutors alleged.

Targeting Trump

Initial charges brought against the firm and Weisselberg are seen as a bid by prosecutors to exert pressure on a key witness in a more sweeping investigation over whether Trump and his organization manipulated property values to obtain loans and tax benefits and other potential financial crimes. Prosecutors have put pressure on Weisselberg for months to aid their investigation, including subpoenaing his personal tax returns and bank records.

“They don’t have a lot of people that are close to Trump,” Frank Agostino, a president and founder of Agostino & Associates P.C. and a former Special Assistant U.S. Attorney who has prosecuted criminal tax cases. “If you’re Weisselberg, your entire family works there. If you’re going to testify against Trump, you’re putting both of your kids out of a job and maybe you’ve got to take a felony yourself. And then, once you testify, they’re going to ask you about all the other things that they did. The decision to jump off and cooperate versus what the potential jail sentence is a really difficult decision.”

Proving Intent

Proving cases of intentional tax evasion and fraud is difficult because establishing the state of mind of the individuals involved becomes so critical, forcing prosecutors to seek out people with direct knowledge of the inner workings of the executive suite.

“You’ve got to build the narrative that money doesn’t leave the organization without Trump knowing,” said Agostino. “Then you need the underling or somebody around him to make it real to tell that story to the jury. You need enough for the jury to infer that this could not have gone on without Trump knowing it.”

And while it can often be a high bar to prove that the individual or company knowingly violated the rule, most of the time companies that engage in tax evasion are cheating in other ways.

“Most people who cheat don’t pick one little thing and hide it beautifully,” said Campagna. “They cheat in all kinds of ways, and those patterns of behavior become obvious to a judge and jury, proving willful and intentional conduct.”

To contact the reporters on this story: Donna Borak in New York at dborak@bloombergindustry.com; Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Jeff Harrington at jharrington@bloombergindustry.com; Andrew Childers at achilders@bloomberglaw.com

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