Donald Trump avoided paying federal income taxes for years by using a “legally dubious” maneuver that even his lawyers believed would cause the Internal Revenue Service to declare the maneuver improper if he were audited, according to The New York Times on Monday.
The method Trump used was later outlawed by Congress, but the 70-year-old Republican presidential nominee still escaped paying tens of millions of dollars in personal income taxes.
“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 method also afforded Trump enormous tax benefits for losing large sums of other people’s money, according to tax experts.
Furthermore, the Times reported that Trump pressured his financial backers to forgive hundreds of millions of dollars in debts he could not repay, which saved his casinos.
Tax laws in the United States also allowed the businessman to use his $916 million loss in 1995 to cancel out an equivalent amount of taxable income, something which tax experts have debated over since his huge casino losses should have been offset by hundreds of millions of dollars in taxable income he must have reported to the I.R.S.
By avoiding reporting his canceled casino debt, Trump’s major deduction could have been kept as a way to avoid paying income taxes he could have owed on books, TV shows or branding deals. The taxation rules of 1995 could have allowed Trump to use the $916 million loss to wipe out more than $50 million a year in taxable income for 18 years.
Trump’s major strategy for avoiding income taxes? Eliminating all taxable income from canceled debt by swapping “partnership equity” for debt owned — with the idea that partnership interest has the same value as debt.
The I.R.S. and Congress disapproved of the idea, reported the Times. Congress moved to ban equity-for-debt swaps by partnerships in 2004.
Among the senators who moved to finally close that loophole was Hillary Clinton.