Donald Trump’s Tax Returns Raise More Questions Than Answers

Saying I’m closer to Donald Trump than most of the general public sounds pompous, but it’s true. I used to work for the CPA firm that prepared the president’s tax returns and have some serious questions about the recent New York Times article that reveals, among other things, Trump paid just $750 in income tax the first year of his presidency.

It was inevitable that Trump’s returns would be made public (whether or not the leak from the Southern District of New York is, indeed, a felony).

Let me backtrack:

I started at Weiser LLP in 2006, when I was 22 years old, it was my first real job out of college.

The Trump name was mentioned on my very first day when I heard a man with a Queens accent complaining about Oprah’s hair blocking the view of Donald and Melania at the wedding in Mar a Lago.

This of course was the other Donald, Mr. Bender, who was in charge of the Trump account. If there’s anything I can say about him, it’s that he was loyal, precise, and liked by everyone at the firm. My cubicle was within earshot of his office.

I spent two years at Weiser LLP (later acquired by Mazars). I won’t repeat everything I heard about Trump, mainly because it was just gossip. I never saw any of Trump’s tax returns in their complete form—I may have caught little snippets on someone’s screen, but nothing substantial. The closest I got to the tax returns was delivering them to Trump Tower in a pickup truck. Yes, a pickup truck.

Finally, the New York Times has published the story the world (including me) has been waiting for. But as I read it carefully, and with much anticipation, I began to wonder if the reporting was telling us anything new, or at least anything that would make a real difference.

Trump is complicated. The smoke he surrounds himself with may be a protective cloak or a noxious vapor. Nobody really knows. We can only speculate, and this drives the media crazy. The disclosure of these tax returns does little to complete the picture. There is more we need to know.

If you were to look at the complicated tax return of any multi-millionaire (Trump has 500 businesses) it wouldn’t be strange to find something suspicious-looking. I’m talking about red flags that encourage investigation. There’s been a lot of talk about Trump having foreign interests, cooking up schemes, and receiving payments from unusual sources, but there’s no mention of that in the article. There’s not even reference to a shell company or strange LLC that has ties to Russia or China or India. That made me wonder if the New York Times is holding back information to release gradually. Or did they simply not find anything criminal they could substantiate?

The beauty of having many businesses is that you can hide their intentions. We’ve all heard the classic story of the drug dealers operating multiple car washes to hide their dirty cash, the “front” or shell company. But there’s no mention of anything like that in the article.

In October 2018, the Times reported on a scheme Trump’s father used to transfer money to his children by paying hugely inflated maintenance expenses to a company the children owned, which is only hinted at in this latest article. But are the consulting payments being paid to Trump’s daughter Ivanka inflated? Are they criminal? It is left for the public to decide without context.

I’ve prepared  tax returns for many wealthy individuals. I’ve spent countless nights studying how the 1% were able to pay so little in income tax. There’s nothing new in the story. During my training at Weiser LLP, one of the partners made an offhand comment:

“Uncle Sam is the enemy. If you can afford to hire the best accountants and tax lawyers, the goons at the Treasury Department are no match. They’re overworked, understaffed, and unambitious.”

On that note, a large part of the NY Times article emphasizes the fact Trump has paid no income tax for many years (or very little). That’s not surprising. In the accounting world, the general strategy is to show as little income on paper as possible and have as much cash coming in from your buyers of goods and services. You can have plenty of cash but no income on paper for tax purposes.

How much cash flow do DJT and his related entities have? That’s the crucial question I want answered, and the article doesn’t do that. It is vital to know how much money these businesses are taking in and is freely available for use.

Cash flow is money actually available for use by a business at any given time. How this free cash is used is at the discretion of management. In the most classic example, high cash flow can be reduced to show a loss on paper. Some of these reductions are necessary and legitimate (the depreciation of an office building is common for commercial real estate). After all, actual property has a useful life and is worth less over time. Depreciation reduces income but not actual cash available.

Free cash can also be dramatically reduced to pay for expenses that do not prevent the business from existing and may or may not be legitimate. The legitimacy is up for the IRS to decide when they conduct an audit.

Imagine moving money from your trouser pocket to another pair of trousers in your closet. If you want to, you could keep all your cash in one pair of pants that you wear when you bump into the “pickpockets” many CPAs lovingly refer to as the “Treasury Department.”

Cash flow is a number banks care deeply about. If it’s a good number (related to all kinds of fancy ratios) banks have no problem issuing large loans. The article mentions Trump has a $300M loan coming due soon. So what? If he has plenty of cash coming in and can service the loan (make the payments), the banks don’t care. He can even refinance the loan and take out more cash he can freely use. This is the beauty of running a business: you can have plenty of cash, use other people’s money and pay little tax. Just look at Amazon.

However, the other story about the $300M loan may be much more dire.

What if Trump doesn’t have a lot of cash coming in from his businesses? What if he’s barely able to make payments on the loans. This would mean he’s highly leveraged and not in good shape financially. This is a story the world should know—it would distinguish the smoke from the cloak.

It’s not just Trump dodging taxes and “losing money” that we should care about.

We need to know about the 500 entities folded into his tax return. All those golf courses, office buildings, hotels, bottled waters, hand creams, you name it. How are these businesses connected to his children? And what is the state of their affairs? To whom do they owe their wealth? And how deeply leveraged are Eric, Don Jr., and Ivanka? These are questions that desperately need answers. Before we can say for sure that the Trump tax returns will be a turning point in the 2020 election, we’ll just have to see if the New York Times has a bit more up its sleeve.