NYT: Donald Trump Strategy To Avoid Taxes Pushed Legal Boundaries

David Goldman

Donald Trump used a legally questionable interpretation of a tax loophole to avoid paying millions in income taxes for years, according to a Tuesday report from the New York Times.

The Times reported that during the 1990s as Trump struggled to stem financial losses on casinos that went bankrupt, Trump utilized a tax avoidance strategy that even his own lawyers warned him against, according to documents unearthed by the Times.

"Whatever loophole existed was not ‘exploited’ here, but stretched beyond any recognition,” Steven M. Rosenthal, a senior fellow at the nonpartisan Tax Policy Center, told the Times.

The IRS typically considers forgiven debt as taxable income, but even as Trump received substantial debt forgiveness from creditors, he avoided what could have been a crippling income tax bill for it.

By the time Trump was dealing with his casino losses, a tax strategy known as “stock-for-debt swap,” was no longer legally viable for Trump, but his advisers were able to utilize a similar strategy where they swapped partnership equity for debt. That allowed Trump to achieve enormous tax breaks while losing other people's money. It made it look like Trump had re-payed the entire debt even though the partnership equity might be virtually worthless.

"Enter the tax advisers with their audacious plan: Why not eliminate all that taxable income from canceled debt by swapping “partnership equity” for debt in exactly the same way corporations had been swapping company stock for debt?"

“He’s getting something for absolutely nothing,” John L. Buckley, who served as the chief of staff for Congress’s Joint Committee on Taxation, told the Times.

While Trump declined to comment for the New York Times's story, his spokesperson Hope Hicks told the Times that "your e-mail suggests either a fundamental misunderstanding or an intentional misreading of the law,” Hicks said. “Your thesis is a criticism, not just of Mr. Trump, but of all taxpayers who take the time and spend the money to try to comply with the dizzyingly complex and ambiguous tax laws without paying more tax than they owe."

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