Leaked Tax Documents Show Trump May Have Legally Avoided Liability. How?

Oct 3, 2016
Originally published on October 3, 2016 6:26 am
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RENEE MONTAGNE, HOST:

Republican presidential nominee Donald Trump may have been able to avoid paying income taxes for years. We don't know whether that's the case because Trump has not released his tax returns. But we know it's possible because some of Trump's tax documents from more than 20 years ago were made public over the weekend by The New York Times.

Trump's campaign has neither confirmed nor denied whether Trump was able to escape having any tax liability for those years. But if he did, it could have been perfectly legal. NPR's Scott Horsley joins us, now, to sort this out.

Good morning.

SCOTT HORSLEY, BYLINE: Good morning, Renee.

MONTAGNE: Now, this idea that Trump might not have paid any federal income taxes is one that Democrat Hillary Clinton raised in the debate last week. And The Times story suggests it's not far-fetched at all. What does the newspaper base that on?

HORSLEY: The New York Times story is based on some leaked documents that give us a fragmentary look at Donald Trump's 1995 tax return. Of course, we don't know the whole story because, as you say, he's refused to release his complete tax returns. But The Times got hold of just a few pages of the 1995 documents. And through that sort of peephole glimpse we know that Trump claimed an eye-popping loss that year of nearly $916 million.

MONTAGNE: So if you lose money one year, you can deduct it from your taxes in subsequent years. I mean, depending on who you are and how that money was lost.

HORSLEY: That's right, Renee, within some limits. And the limits are especially flexible for people in the real estate business like Donald Trump. Now, if you were a doctor, for example, who happened to own a rental property on the side, and you lost money on the rental one year. You could only use that loss to offset income from the rental property. You couldn't deduct it from the money you make practicing medicine.

But real estate professionals play by a different set of rules. So in theory, Trump could have used that massive $916 million loss to escape tax liability on all kinds of income, including the money he made starring on "The Apprentice" television program or licensing the Trump name to people who make neckties.

All of that is legal. You have to understand, the real estate lobby is a powerful force here in Washington. And so as a consequence, the tax code is quite generous to real estate professionals.

MONTAGNE: Well, how much could this have benefited Trump, himself, in the long run?

HORSLEY: Well, the tax code at the time allowed Trump to stretch out losses for up to 18 years. So even if he made, say, $50 million a year for almost two decades, he could have had no tax liability.

MONTAGNE: Now, Scott, many of us regular folks, we pay federal income taxes. And a lot of people complain about how expensive that is, how much comes right out of their paycheck. So what is the political liability for not paying income tax?

HORSLEY: Well, Trump supporters don't think this is a political liability for him. His campaign has not denied that Trump escaped paying income taxes. And if he did, his surrogates defend the idea. This is how Trump supporter Rudy Giuliani responded yesterday when he was asked about The New York Times story on ABC's "This Week."

(SOUNDBITE OF ARCHIVED RECORDING)

RUDY GIULIANI: My response is he's a genius. I mean, the reality is...

GEORGE STEPHANOPOULOS: A genius?

GIULIANI: Absolute genius. I mean, the man - in "The Art Of The Deal" this is described. First of all, we're talking about 26 years ago, perfectly legal. We should get that straight immediately. This is a perfectly legal application of the tax code, and he would've been a fool not to take advantage of it.

HORSLEY: That's an echo of what Trump himself said in last week's debate when Hillary Clinton suggested he might have escaped paying taxes. And Trump interjected, that makes me smart. Democrats aren't so sure ordinary taxpayers will see it that way.

MONTAGNE: Well, just briefly, how did Trump run up those losses of nearly $916 million?

HORSLEY: Well, we don't know for sure because the tax document leaked to The Times doesn't include that detail. It is certainly a valid question to ask how a presidential candidate, whose main qualification for office is the notion that he's a gifted businessman, could have lost nearly a billion dollars. Of course, Trump could answer that question by releasing his complete tax returns.

MONTAGNE: Scott, thanks very much.

HORSLEY: My pleasure, Renee.

MONTAGNE: NPR's Scott Horsley. And a reminder, NPR will be live fact-checking the vice presidential debate tomorrow starting at 9 Eastern on npr.org. Transcript provided by NPR, Copyright NPR.