Tax Fraud By The Numbers

Tax Fraud By The NumbersIt’s no secret that tax law in the United States is extremely confusing. Even the length of the official tax code is subject to wild speculation; people estimate it to be somewhere between 2,500 pages and four times the length of the complete written works of Shakespeare.

As a result of this confusion, many people are intimidated by this substantial piece of American legislation. It’s because of this wariness around taxes and tax law that accounting has become such a lucrative profession, and it’s why the word “audit” strikes fear into the hearts of business owners and freelancers.

But what if we could make tax law less confusing? What if it’s possible to break down the thousands of pages and hundreds of sections into something easier for ordinary people to understand?


Tax Fraud By The Numbers

In order to better understand the intricacies of tax law, we should start by examining the concept of tax fraud. Dupa toate acestea, prin intelegerea a ceea ce constituie o încălcare a legii, putem obține o mai bună înțelegere a legii în sine.

Și ce loc mai bun pentru a începe decât cu președintele Statelor Unite ale Americii?

Donald Trump are o istorie lungă și fascinantă ca un mogul de afaceri înainte de a deveni președinte ales în 2016. In acel timp, el a făcut valuri mari în domeniul imobiliar și antreprenoriat și a fost acuzat de multiple activități frauduloase în procesul de. Multe dintre aceste acuzații au fost catalogate într-un massive exposé published by the New York Times.

Whether or not these accusations are legitimate is up to the courts to decide. This is in no way an indictment or direct attack on the president; all we are attempting to do with these events is construct an educational case study. By analyzing these scenarios, we should be able to establish a working knowledge of tax fraud and, by extension, tax law itself.

So read on to learn about Donald Trump’s tax fraud allegations over the course of 25 years and what they can teach us about the United States tax code!


Trump’s Tax Fraud Timeline

Trump Tax Fraud Timeline


Gift Tax Fraud

Although the accusations of fraud leveled at Donald Trump cover several different areas of tax law, one thing nearly all of them have in common is that they involve circumventing gift taxes.

But why is this the case?

For people who aren’t billionaires, gift tax isn’t a major issue. Any exchange of money or property from one individual to another without expecting anything of

equivalent value in return would qualify as a taxable gift in the eyes of the IRS. in orice caz, this tax doesn’t need to be paid if the value of these gifts are lower than the annual or lifetime exclusion. As of 2018, the annual exclusion is $15,000 and the lifetime exclusion is $11.8 million.

Here’s an example of how the gift tax works:

If you wanted to give someone in your family a used Toyota Corolla that was worth about $5,000, you wouldn’t have to pay gift taxes on it. But if you wanted to gift someone a brand-new Tesla Model 3 with a base price of $35,000, you would have to pay gift taxes since it’s worth more than the annual exclusion rate.

At least, you would have to pay taxes on that Tesla if you had already given them $11.8 million over the course of your lifetime. It’s not a perfect analogy, but it works to illustrate our point!

In the case of Donald Trump, the amounts of money and property being given far exceed these exclusions. And because of this, all gifts that he received would be taxed to the tune of 55%.

So how did he (allegedly) get around this steep tax? In a number of ways: many of them accomplished with the help of his father Fred Trump, according to the New York Times.

As the Times tells it, Donald took out several “loans” from his father Fred in order to support some of his struggling business ventures. A document cataloguing some of these loans place the total at nearly $5 million in 1979 alone. These loans were open-ended, meaning that there was no set payment schedule. The implication of this is that there was no real pressure or even expectation to pay back these loans.

And this is how Trump’s father gave him a gift of about $5 million dollars without having to give the IRS 55%.

Allegedly!


Securities Fraud

So how did Donald Trump get out of paying back the loans he made to his father? Even though these substantial cash injections into his businesses were essentially gifts from a father to his son, there needed to be some attempt at paying them back in order to avoid the 55% tax bill. And because Trump (allegedly) needed this money to simply keep many of his struggling businesses afloat, there was no way he could actually pay them back in full.

The solution in this case would be to work out a situation where the loans have been paid off without losing any actual money or equity: which is exactly what the New York Times claimed Trump did in the early 90’s by committing securities fraud.

But before we get into the specifics, let’s quickly go over what securities fraud is:

Securities fraud is any kind of fraudulent activity that involves stocks or investments. This form of tax fraud can be committed in a variety of forms, but mostly involves misrepresenting information investors use to make decisions. Some recent high-profile examples of securities fraud include the Enron scandal in 2001 și Bernie Madoff’s long-running Ponzi scheme that was thwarted in 2008.

Securities fraud isn’t always tax fraud, but it becomes tax fraud when it is committed in order to circumvent paying taxes. And this is the context of the allegations leveled against Trump.

Here’s what happened according to the Times:

De 1989, Donald Trump datora tatălui său despre $11 milioane și a fost vine la timp pentru a colecta. În cazul în care împrumutul a fost pur și simplu iertat, ar transforma într-un venit impozabil; in schimb, Donald a plătit înapoi printr-un 7.5% miza intr-unul din condominii sale din Manhattan. Acest lucru înseamnă că atât Donald și tatăl său Fred a fost de acord că 7.5% proprietății sale, obținute prin stocuri, a avut o valoare de $11 million.

in orice caz, Fred Trump a vândut acest 7.5% stoc înapoi la fiul său la doar doi ani mai târziu numai $10,000, dispersate pe mai multe tranzacții. Un exemplu documentat din 1991 furnizate de Times enumerate o pierdere netă de aproape $1 milioane de euro pentru doar una dintre aceste tranzacții! Nothing drastic happened to New York City real estate prices in order to justify this price difference, astfel încât să apară ca și cum stabilit de comun acord 7.5% era acum în valoare de doar o fracțiune din valoarea sa inițială.

În acest fel, Donald Trump și tatăl său au reușit să transforme o datorie de $11,000,000 în numai $10,000, duty-free plătit, toate de supraevaluarea grosolan și apoi subevaluarea valoarea stocului proprietății sale.

Allegedly!


Credite Frauda

Pe baza dovezilor, it seems that Trump has been receiving quite a bit of help from his father in a way that isn’t supposed to attract a lot of attention from the IRS. in orice caz, an incident of loan fraud in 1990 seems to be an exception to father and son’s standard operating procedure, at least according to documented evidence provided by the Washington Post.

As the story goes, a man named Howard Snyder acting as Fred Trump’s attorney visited Trump Castle, one of Donald Trump’s casinos in Atlantic City. He then purchased $3.5 million worth of casino chips. Apoi, el lasă fără a juca un singur joc.

S-ar putea fi întrebați: în cazul în care Donald Trump este deja a primit cadouri de la tatăl său deghizat în credite, de ce ar lua apoi împrumuturi de la tatăl său slab deghizat în tranzacții de afaceri legitime?

O parte din motivul pentru care acest strat suplimentar de înșelăciune părea să fie făcută astfel încât Trump ar putea primi acești bani mai repede decât dacă sa realizat prin canalele obișnuite de împrumut. Motivul pentru care acest împrumut special, a fost atât de sensibile la timp, according to the New York Times, is that he needed it in order to make a bond payment of about $18.4 million. And because of that loan, even in spite of the fact that this obvious act of fraud was caught and punished by the New Jersey Casino Control Commission, Trump was able to make that payment.

Another reason for this fraudulent act could easily be explained by the way it reduced the fees he had to pay the government in exchange for such a substantial wealth transfer. As we’ve learned, receiving $3.5 milioane ca un cadou ar necesita plata unui procent extrem de mare în taxe cadou. in orice caz, un împrumut necesită, de asemenea, taxele mari din cauza nevoii de o rată a dobânzii.

Unul dintre modurile în care IRS diferențiază un împrumut de la un cadou sau venitul impozabil este prin adăugarea unui Rata federală aplicabilă (AFR). Aceste rate sunt actualizate în fiecare an, deoarece acestea reflectă procentajul mediu de dobânda aplicată la toate creditele acordate de bănci și alte instituții financiare din țară. prin urmare, a loan is only considered a loan in the eyes of the IRS when it applies interest in line with the AFR. And in December of 1991, the AFR for a short-term monthly loan was 5.49%.

Here’s a quick multiple-choice question. If you are required to give up a portion of $3.5 million dollars, which amount would you rather pay:

    1. 55%, sau $1.9 million
    1. 5.5%, sau $175,000
  1. 1.8%, sau $65,000

Donald Trump picked option C. When the New Jersey Casino Control Commission charged him with fraud, they fined him $65,000, which is slightly less than 2% of the money he received. And that’s how he was able to receive a loan, tax and interest-free, in time to save his casino from foreclosure.

Allegedly!


Appraisal and Estate Tax Fraud

Before we go any further, it’s important to define some terms:

Let’s start with estate tax. This is more or less the same thing as gift tax and is closely tied with inheritance tax. All three of these concepts are closely interlinked to the point where many individuals mistake them for each other; they will refer to inheritance tax as estate tax and vice versa.

So what’s the difference between these three concepts? Here’s a brief rundown of their definitions:

    • Gift tax is applied when explicitly giving a gift to another person or party. It is paid by the giver, but it can be collected from the receiver if the giver fails to pay. It is a federal tax, which means that gifts given anywhere in the country can be subject to them.
    • Estate tax is applied when determining the value of a deceased person’s property. It is paid by the estate before bequeathment, meaning that the taxes are taken out of this value before it is passed on to the receiver. There is a federal estate tax with its own exclusion rate and a state estate tax that varies depending on the state.
  • Inheritance tax is applied when passing a deceased person’s property onto their beneficiaries as outlined in their will. It is paid by the receiver, meaning that the taxes are charged to the person receiving the money or property. This is a state tax that only applies to Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Still confused? Here’s a table that sums up the differences:

Tax Name Gift Tax Estate Tax Inheritance Tax
Who Pays? Giver Giver Receiver
Federal or State? Both Both State

Now that we’ve defined those terms, we can talk about appraisal fraud. This is when an individual or organization either inflates or deflates the value of a property dishonestly. The reasons for doing so can vary; in orice caz, the most often reason for committing this form of fraud is to manipulate mortgage rates, which is why it is also sometimes referred to as mortgage fraud. The FBI has stated that this particular form of fraud was a major contributing factor to the 2008 housing crisis.

So what does estate tax and appraisal fraud have to do with Donald Trump?

It’s important to note at this point that Donald Trump is not an only child. Although it sounds like he received quite a bit of special treatment from his father Fred, the truth is that his siblings also allegedly received substantial gifts and properties as well.

And in 1981, one of Donald’s siblings, Fred Trump Jr., passed away due to complications from alcoholism. Acest lucru înseamnă că toate activele sale vor fi transmise membrilor familiei sale care au supraviețuit, conform voinței sale, care ar fi manipulate de proprietatea sa.

Persoanele care au fost responsabili succesorala, Apropo, au fost Donald si Fred Sr.

Aceasta este prima instanță raportate de către New York Times, în care Donald Trump a participat la o fraudă de evaluare, în scopul de a evita plata taxelor imobiliare. Deși Times afirmă că proprietățile moștenite ar fi fost în valoare de peste $90 million, un document care au obținut arată că proprietatea (Donald and Fred Sr.) claimed they were only worth slightly over $13 million.

As a result of this, Fred Trump Jr.’s estate only had to pay $700,000 in estate taxes. If they had declared these properties on their estate tax return at their full value, they would have had to pay nearly $60 million according to estate tax rates and exclusions in that year.

The next instance in which the Times claims that Donald Trump committed appraisal fraud to pay less in estate taxes occurred in 1997 when his father passed away. According to another document provided by the publication, Fred Trump’s estate was said to have a total value of around $41 million. in orice caz, they then state that Donald was able to sell his share of the estate for $177.3 million in 2004.

Think about those numbers for a minute. How was Donald Trump able to turn a portion of $41 million into $177.3 million in just 7 ani? As the Times tells it, he was able to do this by handling his late father’s estate the same was as he did his late brother’s: fraudulently.

Allegedly!


Expense Reports Fraud

As the story goes, Fred Trump Jr.’s passing was a tragic surprise that couldn’t have been planned for in any way. in orice caz, trecerea lui Fred Trump Sr. a fost din cauze naturale, ceea ce înseamnă că a fost suficient timp să se pregătească pentru manipularea bunurilor sale. Din cauza asta, New York Times susține că măsurile au fost luate înainte de timp pentru a sifonul la fel de mult bogăție de la Fred Sr. pentru copiii săi înainte de moartea sa, în scopul de a reduce și mai mult mărimea taxelor sale imobiliare.

Unul dintre modurile în care acest lucru a fost realizat a fost printr-o companie pe nume Toate County Building Supply și întreținere, potrivit Times. Aceasta companie a fost angajat de Fred Trump, owned by his children, and used to give them money through expense reports fraud.

But what is expense reports fraud?

This is a form of financial fraud that is well-known and fiercely opposed by many forensics accountants and anti-fraud organizations. Also known as expense schemes, this is when a business or one of its employees lies about their expenses.

Let’s go over the difference between an honest business expense and a fraudulent one. In the first scenario, an employee takes a client out to dinner in order to discuss business. In this case, the employee can claim the cost of dinner as a legitimate business expense. But if the employee takes someone who isn’t a client out to dinner as a date and then claims it as a business expense, they are committing expense report fraud.

Expense reports fraud can take many forms, according to the Association of Certified Fraud Examiners, such as when “an employee overstates the cost of actual expenses and seeks reimbursement.” And this is the type of fraud that the Times claims the Trumps engaged in with the aid of All County Building Supply and Maintenance.

An annotated document contained in their article breaks down how a purchase of 60 boilers for Fred Trump’s properties, conducted through All County Building Supply, was marked up by 20%. This extra 20% was pure profit, paid out to the owners of the building supply company. With enough business transactions conducted in this way, substantial amounts of money can be legally fed from Fred to his children without having to pay gift taxes.

And that’s how Donald Trump and his siblings were able to drain their father’s accounts before his death while paying the bare minimum taxes possible.

Allegedly!

For more information regarding different types of tax fraud, read the next article in this series titled Tax Avoidance By The Numbers: The Paradise Papers.


Conclusion

Let’s go over the different types of fraud discussed in this article: those that have been allegedly committed by the 45th President of the United States according to the Times’ exposé:

  • Gift tax fraud, where IRS fees on gifts are avoided by disguising them as loans or legitimate business transactions.
  • Securities fraud, where the value of stocks and investments are misrepresented in order to deceive investors or the IRS.
  • Loans fraud, where a loan is disguised as a different transaction in order to avoid involving a financial institution and setting fair interest rates.
  • Appraisal fraud, where the value of a property is misrepresented in order to manipulate mortgage rates or deceive the IRS.
  • Estate tax fraud, where the value of an individual’s estate is misrepresented in order to avoid paying a high percentage to the IRS.
  • Expense reports fraud, where business expenses are misrepresented in order to deceive a business or the IRS.

Not all of these fraudulent activities are specifically tax fraud, but they can all be used for the purpose of committing tax fraud. This is because they involve misrepresenting the value or existence of properties and expenses in order to deceive individuals, businesses, accountants, and tax auditors.

So what does this teach us about tax law? Bine, by understanding what we aren’t supposed to do, we should be able to figure out what we are supposed to do, at least in the eyes of the IRS.

    • We’re supposed to pay a portion of anything inherited or received as a gift if it’s worth a significant amount.
    • If we’re taking out a loan instead of receiving a gift, we have to go through proper channels in order to ensure that the payment schedules and interest rates are set fairly.
  • And we’re not supposed to lie about the values of our properties, investments, or business expenses.

Sounds pretty simple, dreapta? The truth is, most of our lengthy and confusing tax code can be distilled to these core values:

Be truthful, be fair, și amintiți-vă pentru a partaja!

Kenneth W. Boyd

Kenneth W. Boyd is a former Certified Public Accountant (CPA) and the author of several of the popular "For Dummies" books published by John Wiley & Sons including 'CPA Exam for Dummies' and 'Cost Accounting for Dummies'.

Ken has gained a wealth of business experience through his previous employment as a CPA, Auditor, Preparator fiscală și Colegiul profesor. Today, Ken continues to use those finely tuned skills to educate students as a professional writer and teacher.