After bankruptcy, two impeachments, innumerable civil lawsuits, and a corporate fraud conviction, will Donald Trump finally get tripped up on tax fraud like a modern-day Al Capone?
In explaining why Trump was charged with 34 felony counts of falsifying business records, rather than misdemeanor counts, Manhattan District Attorney Alvin Bragg said the falsification in each case was made “with intent to defraud and intent to commit another crime.” The indictment doesn’t specify those other crimes, but the accompanying statement of facts implies they include violations of New York state tax law as well as federal and state election laws.
Bragg apparently is pursuing tax charges against Trump based on a fragile, interlocking triad of criminal statutes. To be successful, he’ll have to prove each element of each alleged crime, including Trump’s personal involvement and intent at every synapse of a complicated scheme, where the underlying alleged tax fraud is itself subject to at least some debate.
An April 5 analysis asserts that the “unexpected” tax accusation “bolstered what many legal experts have described as an otherwise risky and novel case.” It’s premature to say whether that’s true until prosecutors provide additional details. The statement of facts mentions taxes twice.
- “2. From August 2015 to December 2017, the Defendant orchestrated a scheme with others to influence the 2016 presidential election by identifying and purchasing negative information about him to suppress its publication and benefit the Defendant’s electoral prospects. In order to execute the unlawful scheme, the participants violated election laws and made and caused false entries in the business records of various entities in New York. The participants also took steps that mischaracterized, for tax purposes, the true nature of the payments made in furtherance of the scheme.”
- “25. The TO CFO then doubled [the amount of reimbursement requested] so that Lawyer A could characterize the payment as income on his tax returns, instead of a reimbursement, and Lawyer A would be left with $180,000 after paying approximately 50% in income taxes.”
Lawyer A is Michael Cohen, Trump’s personal lawyer at the time, and TO CFO refers to Allen Weisselberg, the longtime chief financial officer whose testimony led to the Trump Organization’s December 2022 conviction for criminal tax fraud and falsifying business records.
Paragraph 2 of the statement implicates at least three possible violations of New York law, but only one is specifically tax related. First, falsifying business records with intent to commit another crime is a Class E felony. Second, presenting a false instrument to a public office with intent to defraud the state is also a Class E felony. Finally, because “for tax purposes” usually means “having the objective of reducing a tax liability,” the clear suggestion is that Bragg is alleging that someone took an illegal state income tax deduction for the hush payments, a potential “tax fraud act” that can rise to a serious felony under New York’s tax law.
Paragraph 25 doesn’t add much of legal consequence other than reminding us that one party’s income is generally another party’s deduction.
Were the reimbursements to Trump’s lawyer deductible? We first need to know who actually took the deduction, because companies, but not individuals, generally can deduct hush payments and related legal expenses under Section 162 as ordinary and necessary trade or business expenses.
Confusingly, the statement of facts declares that Trump paid the reimbursements personally while the Trump Organization recorded them as legal expenses on its accounting system. This reference to expensing, combined with the lack of any public assertion that Trump took a deduction on his personal returns, suggests that the district attorney will contend that Trump Organization included the reimbursements in a larger un-itemized deduction for legal expenses.
Bragg appears to be alleging that Trump schemed with the Trump Organization to falsify its business records and file false instruments with New York’s tax authorities so that he might secure, indirectly, an otherwise impermissible personal tax deduction.
Trump could argue in response that he was entitled to take the deduction. Although it’s difficult for most individual taxpayers to argue that they’re engaged in a trade or business, he presents an unusual case: Much of his income reportedly relates to licensing his name.
Query whether the Trump brand is a trade or business, in which case a payment to avoid brand-tarnishing publicity could arguably be a legitimate business expense. Although the government could respond that he was really acting to protect his candidacy rather than his personal brand, parsing the distinction could get awkward.
By themselves, the presumed tax-related charges seem like a tall order, given that federal prosecutors declined to pursue a similar case, questions regarding Cohen’s credibility as a witness, and the fact that Weisselberg hasn’t publicly implicated the former president—at least not yet.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Andrew Sidamon-Eristoff, J.D., LL.M., is the owner of ASE Tax Policy & Administration. He was New Jersey’s state treasurer under Gov. Chris Christie, New York’s state tax commissioner under Gov. George Pataki, and New York City’s finance commissioner under Mayor Rudolph Giuliani.
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