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The Trump Tax Scandal: Is It Really?

Trump Tax Scandal Is Not a ScandalBy now, you have probably heard about presidential candidate Donald Trump’s latest scandal involving his taxes.  If you have not, here is what you need to know.

An anonymous source mailed a single page of Trump’s 1995 income tax returns to the New York Times in which the infamous real estate mogul and reality star reported a $916 million loss.  As some of you may remember, during that time Trump was on the brink of bankruptcy after failing at his casino business, his airline company and his purchase of the Plaza Hotel at 59th Street and Fifth Avenue in New York City.

The New York Times surmised that due to this loss, Trump may not have been required to pay income taxes for nearly two decades in order to offset the major loss he took.  Trump has never revealed his tax returns, of course, but he has said that finding a way to legally not pay taxes is “smart.” Of course, we don’t know what else may be in his tax returns that he does not want revealed.

But if he did not pay taxes for 20 years, is this despicable behavior? Despite how it may be stated by other news sources or even insinuated, this is NOT a “loophole” but actually a standard feature of the income tax code.  Trump did not evade or avoid paying any taxes (if the New York Times is right).  Assuming he did not pay, he simply was not required to pay those taxes, so he didn’t.

Net Operating Loss Carry Forward

Though it may seem unfair when it comes to major tycoons such as the Donald, The Net Operating Loss laws are actually a good thing.  For starters, this standard discourages tax avoidance.  Think about it: if you (or someone with a less honorable moral code) knew that they would take a loss but somehow could mitigate said loss come tax time(s), do you think they’d be more or less likely to commit tax fraud?

Also, without this standard feature embedded into the tax code, nobody would ever take risks out of fear that if they were to fail (as most small businesses do) they would still be responsible for paying taxes on any income they made to recoup their losses, thus making it impossible to ever zero out what they lost.  Our entire economy would cease to function as it does.  America has always been known to be the “land of opportunity” but without this feature, we would no longer be the beacon of hope that has set us apart from other countries.

The Argument Against Trump

The fact of the matter is no one has seen the entire tax return that was leaked nor do we know how the accountant arrived at the $916 million.  All we do know is Trump reported the loss, and thus he is entitled to carry it forward.  In fact, if Trump had not reported the loss he would have been breaking federal law.  Signing a tax return one knows to be false in any way is criminal and the offender could face severe penalties.  So had Donald Trump not reported the massive loss out of some patriotic drive he felt to pay taxes regardless of any losses he took, he would have been committing a crime.

Perhaps a better argument against the real estate mogul is that although he did not have to pay taxes for the past 18 years, Trump should have been making donations to the federal government (though that is not required of him or anyone else).  To attack him simply because he reported a loss and because of said loss he did not have to pay taxes on the income to recuperate said loss is not his fault and a completely fallacious argument.  It is simply the way the system works and without it the United States would not be what it is.

Photograph is Donald Trump speaking at CPAC 2011 in Washington, D.C. by Gage Skidmore, https://www.flickr.com/photos/gageskidmore/5440388253

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.