Login

HOW TRUMP DID IT

How a Billionaire Legally Avoided Paying Income Taxes for Years

 

Handing Tax Check Over 

 

This article is strictly non-political and has absolutely nothing to do with politics or the current (ugly) election season. Instead, I plan to explain in detail how Donald Trump, a billionaire with a vast real estate empire, legally avoided paying income taxes for years. Many people have specifically asked me as an accountant to explain how Trump did it. Here’s the answer:

 

 

Loss Carryovers
The tax law (Internal Revenue Code Section 172) allows taxpayers to carry forward (or back, subject to limits) a net operating loss “NOL”. A net operating loss exists for a given tax year if total losses and deductions exceed income. IRS Publication 536 provides detailed information on the many complex rules which apply to net operating losses.

The general rule is that NOL’s can be carried back two years and carried forward up to twenty years. Thus, a taxpayer like Trump could have substantial income in future years that would be completely offset by an NOL carry forward. Media reports suggest this is what happened in his case.

My website has an in-depth article in the Café section called “Cashing In On Business Losses” which discusses in detail the tax benefits of net operating losses.

 

 

Where Does the Tax Law Come From?
Whatever you may feel about Trump, it’s a fact that tax rules are enacted by Congress, signed into law by the President, administered by the IRS, and enforced by courts and cops. The tax law applies to everyone, everywhere (if you are a U.S. citizen.)

One unsavory feature of the tax system is that well-paid and well-connected lobbyists try to influence members of Congress behind closed doors. These lobbyists seek tax breaks and loopholes for special interests and industries who try, in effect, to ‘buy the law’ which applies to them.

This unfortunate fact leads to the widespread belief that our entire income tax system is corrupt and rotten to the core. Because the income tax system is a classic product of ‘teamwork,’ no one individual is responsible or can be blamed for its perceived flaws and unfairness.

 


Cancel the IRS?
Disgust with our tax system leads to an extreme reaction where some people (including demagogues) call for abolishing the IRS. But if the IRS is eliminated who will raise funds to pay for the Marine Corps, the FBI, NASA, the National Institute of Health, Social Security, not to mention the salary of the Senator who made this proposal? Such schemes are dishonest and fail to acknowledge the fact that ‘freedom isn’t free’.

 


A Place With No Taxes
There is a region in northeast Africa called Somalia that has no functioning central government. Somalia is a lawless area where warlords and armed gangs roam free and innocent civilians are caught in the crossfire between warring factions. It is also a fact that Somalia has no effective tax system. There is no IRS in Somalia.

Although Somalia has no taxes few people would care to live there. You would have to spend a small fortune to ensure your personal safety. A few bodyguards aren’t good enough if you plan to relocate to tax-free Somalia. The local warlords are known to be especially vicious and bloodthirsty.

You would need nothing less than your very own private army with tanks, helicopter gunships and rocket launchers. A used tank is quite expensive. And after you buy it there are additional costs for maintenance, ammunition and fuel. Even the best tanks get a lousy 5 to 8 miles per gallon. Further, you must pay your private soldiers better than what competing warlords pay their soldiers.

The cost of living in tax-free Somalia may exceed the taxes you owe to the IRS.

 


Friendlier Tax Havens
There are friendlier tax havens around the world that are not beset by the kind of violence raging in Somalia, and include the Cayman Islands, Monaco, Belize, etc. While it’s true these places offer special tax breaks to residents there is one further fact to be aware of: U.S. citizens are taxed on worldwide income. All of these tax havens have extradition and other law enforcement agreements with the U.S. government.

If you remain a U.S. citizen it doesn’t matter where you live – you must still file and pay taxes on all sources of income (subject to tax treaties and various other exemptions such as the Foreign Earned Income exclusion.)

If you give up your U.S. citizenship you may owe taxes to the IRS. There is an ‘exit tax’ which applies to high-asset and high-income individuals who renounce their U.S. citizenship. The IRS treats such individuals as having sold all their worldwide assets at fair market value on the day before they give up U.S. citizenship. See IRS Form 8854.

Also be aware of the extensive reporting requirements if you have a foreign bank account with funds which exceed the reporting threshold. (Form 114, Report of Foreign Bank and Financial Accounts.)

U.S astronauts serving on the International Space Station still owe U.S. taxes to the IRS and must file a U.S. income tax return to report salary earned while working in space.

 

It Is Lawful to Pay the Legal Minimum Tax
One of the most important income tax cases heard by the U.S. Supreme Court in the 20th century was the landmark case of Gregory v. Helvering. In this important case, Associate Justice George Sutherland famously stated that every taxpayer has the right to search for, find, and pay the legal minimum tax, not one cent more.

 

The legal right of a taxpayer to decrease the amount of what otherwise would be his [or her] taxes, or altogether avoid them, by means which the law permits, cannot be doubted.

George Sutherland, Supreme Court Justice (1922-1938) Gregory v. Helvering, 293 U.S. 465, 469 (1935)

 

 

 

LEGAL DISCLAIMER

George Adams
Certified Public Accountant Master of Business Administration
Tel: (207) 989-2700 E-Mail: GeorgeAdams@IntelligenceForRent.com
450 South Main Street: The HQ of IQ
Brewer, Maine 04412-2339

©2015 Copyright George Adams CPA MBA. All Rights Reserved.

Business Cases:

Nucor Steel: Into the Storm

10-25-2011 Hits:3019 Company Analysis George Adams

Nucor Steel: Into the Storm

One of the largest steel companies in the U.S.had a forty year track record of unbroken profitability until 2009. How can Nucor succeed in a tougher, harsher climate?

Read more

RITZ-CARLTON (Circa 2008)

12-15-2011 Hits:3169 Company Analysis George Adams

RITZ-CARLTON (Circa 2008)

 The business strategy of luxury with a human face requires both popularity and exclusivity. How can Ritz-Carlton master this apparent contradiction?

Read more

SAS Company Analysis (Circa 1995)

12-13-2011 Hits:2659 Company Analysis George Adams

SAS Company Analysis (Circa 1995)

Does it pay to fly dirty?

Read more

Otis Elevator (Circa 2004)

12-13-2011 Hits:3947 Company Analysis George Adams

Otis Elevator (Circa 2004)

The largest elevator company in the world has to make some tough choices.

Read more

Vertex Company Analysis (Circa 2003)

12-27-2011 Hits:2226 Company Analysis George Adams

Vertex Company Analysis (Circa 2003)

Crucial business decisions can benefit from the insights of combinatoric analysis.

Read more

Walmart Company Analysis (Circa 2003)

12-27-2011 Hits:2278 Company Analysis George Adams

Walmart Company Analysis (Circa 2003)

The largest retailer in the world is getting too big to grow any further without new and better thinking.

Read more

Sara Lee Corporation (Circa 2008)

12-27-2011 Hits:2212 Company Analysis George Adams

Sara Lee Corporation (Circa 2008)

Nobody doesn’t like Sara Lee, until the company started hating itself.

Read more

Southwest Airlines (Circa 2010)

12-27-2011 Hits:2482 Company Analysis George Adams

Southwest Airlines (Circa 2010)

How can the most successful U.S. airline keep it up?

Read more

The Power to Save the World: Fusion, the Unknown Ideal

12-28-2012 Hits:3100 Company Analysis George Adams

The Power to Save the World: Fusion, the Unknown Ideal

Energy is the ultimate question of our time: how do we get it, at what cost and what consequences?

Read more

Business Issues:

IT'S TAX TIME AGAIN

02-03-2017 Hits:841 Business Issue Analysis George Adams

IT'S TAX TIME AGAIN

The 2017 tax filing season opened on Monday, January 23rd when the IRS began processing returns.

Read more

HOW TRUMP DID IT

11-09-2016 Hits:1062 Business Issue Analysis George Adams

HOW TRUMP DID IT

This article is strictly non-political and explains how the billionaire Donald Trump legally avoided income taxes for many years.

Read more

WHAT RECORDS SHOULD YOU GIVE YOUR ACCOUNTANT?

01-13-2017 Hits:970 Business Issue Analysis George Adams

WHAT RECORDS SHOULD YOU GIVE YOUR ACCOUNTANT?

For many people it's not obvious what records and information their accountant needs. This article will discuss the most important information your accountant must know when it's time to do your taxes.

Read more

BEWARE OF DARK CARS

01-13-2017 Hits:755 Business Issue Analysis George Adams

BEWARE OF DARK CARS

One phenomenon that began in the last few years in Central Maine is dark cars

Read more

YEAR END TAX PLANNING

11-29-2015 Hits:1752 Business Issue Analysis George Adams

YEAR END TAX PLANNING

Once more it’s time to play another deep game of chess with the IRS. Are you ready? The clock is ticking....

Read more

Why Are You Using An LLC?

05-20-2012 Hits:5118 Business Issue Analysis Administrator

Why Are You Using An LLC?

It can cost you a fortune if you choose the wrong entity for your business.

Read more

Pi and Pi Squared

10-31-2011 Hits:5194 Business Issue Analysis George Adams

Pi and Pi Squared

How can companies motivate innovation and manage internal conflict effectively?

Read more

Secret Unions: Employee Collusion and Conspiracy

10-25-2011 Hits:5379 Business Issue Analysis George Adams

Secret Unions: Employee Collusion and Conspiracy

Anyone can use Game Theory to try to get ahead. But sometimes there is a better, simpler strategy.

Read more

Jump! Employee Performance On Trial

10-31-2011 Hits:4993 Business Issue Analysis George Adams

Jump! Employee Performance On Trial

The true and the obvious frequently differ, especially when it comes to assessing employee performance.

Read more

You Have to Break Eggs to Make an Omelet

11-30-2011 Hits:4682 Business Issue Analysis George Adams

You Have to Break Eggs to Make an Omelet

Some employees take their work seriously while others don’t.

Read more

The Fallacy of Teamwork Part I: Train of Thought

11-30-2011 Hits:5599 Business Issue Analysis George Adams

The Fallacy of Teamwork Part I: Train of Thought

Is teamwork the answer to every business problem?

Read more

The Fallacy of Teamwork Part II: Michael Jordan Doesn’t Need a Memo

11-30-2011 Hits:6440 Business Issue Analysis George Adams

The Fallacy of Teamwork Part II: Michael Jordan Doesn’t Need a Memo

What does neuroscience have to say about the applicability of the team sports model to business collaboration?

Read more

On the Relative Importance of Sales People and Technical People to Business

11-30-2011 Hits:5052 Business Issue Analysis George Adams

On the Relative Importance of Sales People and Technical People to Business

Is it really true that technical employees are just a bunch of nerds a company puts up with so its star sales people can make big profits?

Read more

Business Cannot Ignore Its Environment

11-30-2011 Hits:5027 Business Issue Analysis George Adams

Business Cannot Ignore Its Environment

The power of goodwill to destroy the most successful companies.

Read more

Artificial Intelligence

11-30-2011 Hits:6882 Business Issue Analysis George Adams

Artificial Intelligence

There is nothing new under the sun, until computers become smarter than the smartest person.

Read more

The Growing Spectacle of Job Lotteries

11-30-2011 Hits:5006 Business Issue Analysis George Adams

The Growing Spectacle of Job Lotteries

A new take on the growing commodification of labor.

Read more

Understanding Tax Clients

06-05-2012 Hits:3287 Business Issue Analysis George Adams

Understanding Tax Clients

The primary cliché of our profession of taxes and accounting is that every client is different.

Read more

Making Business Succeed, Part One: Winning at Retail

06-26-2013 Hits:3475 Business Issue Analysis George Adams

Making Business Succeed, Part One: Winning at Retail

What you don't know may put you out of business.

Read more

Making Business Succeed, Part Two: Fresh Thinking For Farmers

07-23-2013 Hits:2791 Business Issue Analysis George Adams

Making Business Succeed, Part Two: Fresh Thinking For Farmers

There are many reasons for having faith in a seed.

Read more

Making Business Succeed, Part Three: Succeeding with Services

09-05-2013 Hits:4788 Business Issue Analysis George Adams

Making Business Succeed, Part Three: Succeeding with Services

Your journey to success will have many twists and turns. Here are important insights to guide you to success with your service business.

Read more

Making Business Succeed, Part Four: Victory for Vacationland

09-26-2013 Hits:3231 Business Issue Analysis George Adams

Making Business Succeed, Part Four: Victory for Vacationland

Tourism and related businesses dominate the economy of Vacationland.

Read more

Five Key Facts of Life for Non­‐Profits

08-14-2013 Hits:3953 Business Issue Analysis George Adams

Five Key Facts of Life for Non­‐Profits

You may be the last line of defense for your non-profit organization.

Read more

CLOUDY, WITH A CHANCE OF PAIN

07-31-2014 Hits:3550 Business Issue Analysis George Adams

CLOUDY, WITH A CHANCE OF PAIN

The truth about cloud-based accounting and the dangers of bundling.

Read more

TAX RETURN FRAUD IS RAMPANT

04-26-2015 Hits:2044 Business Issue Analysis George Adams

TAX RETURN FRAUD IS RAMPANT

According to a January 2015 news release from the IRS, for the period 2011 – 2014 the tax agency stopped 19 million suspicious tax returns and prevented the issuance of approximately $63 billion in phony refunds.

Read more

GEORGE'S POWER BREAKFAST

01-17-2016 Hits:2865 Business Issue Analysis George Adams

GEORGE'S POWER BREAKFAST

Business owners are the nucleus of their business, the center upon which everything else depends. It is frequently the case that business owners simply can't afford to get sick. Healthy food is the best preventative medicine of all.

Read more

GHOST ASSETS

10-27-2016 Hits:958 Business Issue Analysis George Adams

GHOST ASSETS

Are You Being Haunted By Them? If You Are It’s Costing You Money

Read more

 

Contact Me

Member

Telephone: (207) 989-2700
Fax: 1-866-444-0032
Email - georgeadams@intelligenceforrent.com
Address: 450 South Main Street: The HQ of IQ
               Brewer Maine 04412-2339

Maine Society of Certified Public Accountants
Certified QuickBooks Professional Advisor
Bangor Region Chamber of Commerce
Beta Gamma Sigma and Phi Kappa Phi
National Association of Independent Writers and Editors
Published Contributing Writer-Maine Eagle Magazine
New England Peer Review

 

© 2017 Copyright George Adams CPA MBA. All Rights Reserved.
George Adams - More Than Just a CPASM