Sunday 23 October 2016

Trump 'signed off deal to avoid millions in tax'

Ruth Sherlock, Edward Malnick and Claire Newell Washington

Published 26/05/2016 | 02:30

Donald Trump: businessman (Reuters)
Donald Trump: businessman (Reuters)

Republican Donald Trump signed off on a controversial business deal designed to deprive the US government of tens of millions of dollars in tax.

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The billionaire approved a $50m (€45m) investment in a company - only for the deal to be rewritten several weeks later as a 'loan'.

Experts say the effect of this move was to skirt vast tax liabilities and court papers seen by the 'Daily Telegraph' allege that the deal amounted to fraud.

Independent tax accountants and lawyers said the documents that Mr Trump signed - copies of which were obtained by the 'Daily Telegraph' as part of a three-month investigation - contained 'red flags', indicating that the deal was irregular.

But the Republican presumptive presidential nominee signed nonetheless.

Bob McIntyre, director of the US-based Citizens for Tax Justice campaign group, said the disclosures raised serious questions about Mr Trump's judgment, as well as that of his advisers.

Mr Trump's tax affairs have come under scrutiny in recent weeks after he broke with US political convention and refused to disclose his tax returns before this November's presidential election.

The outspoken tycoon - who revealed last week that he had earned more than $500m (€450m) in the last year - has previously boasted of how he pays as little tax "as possible".

Jack Blum, chairman of the Tax Justice Network and a financial crime attorney, said Mr Trump was a "poster child" for tax-avoidance property schemes and that these ultimately harmed middle-income Americans.

The allegations centre on Mr Trump's business alliance with Bayrock Group, the property company that was building Trump SoHo, the mogul's prized New York building, as well as two other projects to which he had licensed his name.

In 2007, Bayrock struck a deal with FL Group, an Icelandic company that had agreed to invest $50m in four of Bayrock's subsidiary partnerships.

However, the deal was later relabelled as a loan.

In New York, the sale of a stake in a partnership would make the existing partners liable to pay more than 40pc in tax on their 'gain', based on the highest tax rate. However, if the investment is classified as a loan, no tax would be payable.

Former employees of Bayrock have alleged in a case against the company that the deal was intended to fraudulently evade some $20m in tax through a disguised sale of partnership interests.

They also claim that the participants mislabelled the sale as a loan in order to avoid paying a further estimated $80m taxes on the projected profits from the real estate.

The newspaper obtained copies of the letters that Mr Trump signed for both the original version and the new form as a 'loan'. He and his lawyers were sent copies of the relevant paperwork, including the final loan agreement.

Alan Garten, Mr Trump's lawyer, claimed that the billionaire "had nothing to do with that transaction" and that by signing the letters he was simply acknowledging the deal as a "limited partner".

"He was not signing off on the deal," Mr Garten insisted.

But copies of the final agreement, which were seen by the 'Telegraph', reveal that the deal required Mr Trump's approval because he was a key player in Bayrock's investments. He had a 15pc stake in Trump SoHo.

Independent experts who have reviewed copies of the final agreement have said the documents appear to be an equity investment disguised as a loan in order to avoid tax payments on the profit that FL was expecting to receive.

Howard Abrams, professor of law and director of tax at the University of San Diego, said: "Converting the original equity into debt improved their tax position dramatically. However, they have changed the labels, but they didn't really change the economics at all.

"It's not a loan, it's really equity. I don't think they would survive a challenge (by the Internal Revenue Service)."

Experts said that the matter would usually be one for the IRS, which could audit, or re-audit, the deal and attempt to recover any tax that should have been paid. In such cases, the IRS can subsequently pursue fraud charges if there is sufficient evidence of intentional wrongdoing.

A former federal prosecutor in the Department of Justice's tax division said that if action was to be taken by the IRS, it could see Mr Trump deposed from the presidency in court.

A source at FL Group - which went bankrupt in the Icelandic banking crisis in 2008 - stated: "Whether it was structured as a loan or an equity investment, we were always buying an interest in certain projects."

Mr Trump's lawyer said the tax implications of the deal were not relevant to him because the presidential contender was not a "party" to the transaction.

"Our interests are protecting our rights," said the lawyer.

Bayrock described the allegations, in the legal complaint by Jody Kriss, its former finance director, as "baseless".

The company said the deal was "vetted and approved by outside accountants and tax counsel". It also claimed that the deal's "tax treatment" was subject to an "extensive field audit… conducted over many months" by the IRS, which "concluded that it was entirely appropriate".

However, the company refused to provide proof of the audit or answer a series of questions about what information had been made available to officials.

Frederick Oberlander, the tax lawyer who has represented Mr Kriss in his complaint against the company, said: "Being audited only means they didn't catch anything. It doesn't mean there isn't anything to catch."

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