In case against Trump’s company, echoes of his father’s tactics on taxes
By Mike McIntire and Russ Buettner
Long before Donald Trump’s company was accused of plotting detours around the tax code to compensate its chief financial officer with carpeting, televisions and car leases, there were the $16,135 boilers.
The boilers were bought for that amount by Trump’s father, Fred, in the 1990s for his numerous apartment buildings. But in a bit of financial alchemy that embodied the family ethos of paying as little tax as possible, the elder Trump used inflated invoices to pay the bill, and the extra money was skimmed off for his children — all to avoid gift and inheritance taxes.
Echoes of the earlier scheme could be found in the indictment Thursday of the Trump Organization and Allen Weisselberg, its chief financial officer, who first went to work for Fred Trump in the 1970s. While the amount of tax-free benefits that Weisselberg reportedly received is significant — $1.76 million over 15 years — the way the company went about doling them out is strikingly small-bore and incremental.
In fact, the first criminal case against the former president’s company features no grand schemes to launder money through Russia, hide millions offshore or commit other offenses commensurate with a self-described global business empire headquartered in a Fifth Avenue skyscraper. Rather, the details of the charges brought by a Manhattan grand jury have a rather low-rent feel that one might associate with a scrappy real estate operation born in Brooklyn and Queens.
Which, of course, it is.
The Trump Organization, for all the puffery of its leader, has always been essentially a family business, tightly controlled by Trump and a small number of relatives and trusted associates, including Weisselberg. Although the company has about 3,500 employees worldwide, most are lower-tier workers at golf resorts and hotels, and only 122 made $100,000 or more in 2018, according to tax records for Trump and his businesses obtained by The New York Times.
The tax records, which the Times reported on last year, also reveal a deep commitment to green-eyeshades maneuvering to winnow taxes to a minimum. Hundreds of millions of dollars in deductions for business expenses ran the gamut, from $6 for food in Uruguay and $10 for using a telephone in Panama to $13.7 million for “sales and marketing” in Las Vegas.
Of course, efficient accountants would not be doing their job if they did not try to maximize tax breaks. But in the indictment unsealed Thursday, the Trump Organization is accused of being too clever by half, to the point of criminality, in playing the game.
The Manhattan district attorney’s office and New York state’s attorney general are also investigating whether the company intentionally overvalued a 50,000-square-foot mansion in Westchester County to claim a $21 million tax write-off for a conservation easement. Both agencies are also examining the Trump Organization’s practice of deducting millions of dollars in consulting fees, some of which appear to have been paid to at least one of Trump’s children who was a full-time company employee at the time she received them.
No charges have been filed related to those inquiries, and Trump himself has not been charged. Both Weisselberg and the Trump Organization denied the charges in the indictment, and Trump has called the investigations, which were initiated by elected Democrats, a politically motivated “witch hunt.”
The Trump Organization’s relentless quest for tax avoidance has its roots in Fred Trump’s determination to fend off the taxman at every possible turn. A self-made workaholic who built and sold his first house before he was 20, the elder Trump eventually passed more than $1 billion to his children while employing legally dubious strategies to avoid nearly $500 million in taxes on the transfers, a 2018 investigation by the Times found.
Among the Trump family’s machinations was the creation in 1992 of All County Building Supply & Maintenance, a company that existed mainly on paper. It was co-owned by Donald Trump, his three siblings and a cousin, John Walter.
Vendors who sold goods and services to Trump properties were asked to send invoices to All County, which would pad the actual cost by an additional 20% or more and bill Fred Trump, who paid the inflated amount. The extra money was then split among the former president, his siblings and Walter.
Asked in a deposition why the elder Trump went to such lengths, which tax experts interviewed by the Times said were improper, if not illegal, Walter suggested it was to avoid the so-called death tax that would incur if the money were simply left to the Trump children in their father’s will.
“He loved to save taxes,” Walter said.
It is a lesson fully absorbed by his eager-to-please son Donald Trump, who has bragged about avoiding taxes. When his Democratic opponent in 2016, Hillary Clinton, accused him during a debate of not paying federal income taxes, Trump replied, “That makes me smart.”
The Times’ 2020 investigation of Trump’s tax records found that by using hundreds of millions in losses from his businesses as well as by deducting expenses and taking advantage of tax credits, he was able to pay only $750 in federal income taxes in both 2016 and 2017 and none at all in 10 of the previous 15 years. His aggressive strategies led to an IRS audit, which is believed to be continuing, of the legitimacy of a $72.9 million refund he claimed.
The indictment announced Thursday accuses the Trump Organization of a new series of off-the-books maneuvers that in some respects resemble an updated version of Fred Trump’s model. In Weisselberg’s case, rather than simply receiving a higher salary, his base pay was set at $540,000 and then augmented with a series of benefits designed to avoid income and payroll taxes, according to the indictment.
Some of the extra benefits to Weisselberg and other Trump Organization employees came from annual bonuses drawn from various corporate entities controlled by the company and classified as “non-employee” pay, which allowed Weisselberg to reduce his income taxes by putting the money into a type of retirement account intended for people who are self-employed. The Trump Organization also paid the rent for his apartment, Mercedes-Benz leases and private school tuition, none of which was reported as taxable income.
The indictment says Weisselberg also “received unreported cash that he could use to pay personal holiday gratuities.”
“Specifically,” it says, “Weisselberg caused the Trump Corporation to issue corporate checks made payable to a Trump Organization employee who cashed the checks and received cash. The cash was given to Weisselberg for his personal use. The Trump Corporation booked this cash as ‘Holiday Entertainment,’ but maintained internal spreadsheets showing the cash to be part of Weisselberg’s employee compensation.”
The indictment charges the Trump Organization with failing to report the cash disbursements as income to the tax authorities and says Weisselberg “intentionally caused the receipt of cash payments to be omitted from his personal tax returns.” In addition, the company is accused of writing checks to cover “such items as new beds, flat-screen televisions, the installation of carpeting, and furniture” for Weisselberg, expenses that were tracked internally at the Trump Organization but not reported as income.
Beyond the case against Weisselberg, the 25-page indictment hints at potential trouble for others at Trump’s company, saying the attempts to avoid declaring compensation and paying taxes extended to at least two other employees who are not identified. Prosecutors also take aim at the Trump Organization’s practice of reporting certain income as “non-employee compensation,” which is normally not subject to payroll deductions.