The Trump/Weisselberg Tax Evasion Scheme

https://theweek.com/political-satire/1002234/crime-scene

It wasn’t just dishonest. It was dumb.


I thought I was immune to the myth of Trump the Great Businessman. But reading the indictment of the Trump Organization and its CFO Allen Weisselberg left me shocked and appalled. For some reason, I had expected their tax-evasion scheme to be clever and sophisticated. Maybe it would push the law’s ambiguous boundaries. Maybe it would involve a complex web of shell companies and offshore accounts. Whatever it was, I was sure it was something the guy who owns your local bagel shop could never pull off.

I was wrong.

The Trump Organization paid Weisselberg (and unnamed other executives) partly in cash and partly by covering his personal expenses. Then they lied to the IRS and claimed that the cash payments were his full compensation. They kept two sets of books, one false set for the tax people, and another internal set where they recorded everything.

The scheme wasn’t just dishonest, it was stupid. It would only work if nobody looked at it. But the Manhattan District Attorney looked, and so they’re caught.

Your local bagel-shop owner would know better.

The company and Weisselberg both pleaded not guilty to the 15 felony counts in the indictment. But the public statements Trump and his people are making don’t even deny the charges. David Frum comments on the Trump Organization’s official statement:

Here is what is missing from that statement: “I’m 100 percent confident that every investigation will always end up in the same conclusion, which is that I follow all rules, procedures, and, most importantly, the law.” That’s the language used by former Trump Interior Secretary Ryan Zinke when he was facing ethics charges in 2018. Likewise, when Virginia Governor Terry McAuliffe was accused of violating campaign-finance laws in 2016, he too was “very confident” that “there was no wrongdoing.” Plug the phrases very confident and no wrongdoing into a search engine and you will pull up statement after statement by politicians and business leaders under fire. For some, their matter worked out favorably; for others, not so much. Either way, everybody expects you to say that you’re confident you didn’t do anything wrong. It’s the thing an innocent person would want to say. So it’s kind of a tell when it goes unsaid.

Speaking at a rally in Sarasota Saturday, Trump — the same guy who in 2016 said “I know our complex tax laws better than anyone who has ever run for president and am the only one who can fix them” — pleaded ignorance.

They go after good, hard-working people for not paying taxes on a company car. You didn’t pay tax on the car or a company apartment. You used an apartment because you need an apartment because you have to travel too far where your house is. You didn’t pay tax. Or education for your grandchildren. I don’t even know. Do you have to? Does anybody know the answer to that stuff?

Yes, people know. They’re called accountants, and the Trump Organization probably employs a lot of them.

Like their father, the Trump sons have been claiming that this is a “fringe benefits” case, the kind of thing that is occasionally pursued as a civil complaint, but hardly ever prosecuted as a criminal matter. Don Jr. said on Fox News Primetime:

After … 3 million documents, countless witnesses and hours of grand jury testimony, outside forensic auditors, this is what they come up with: they’re going to charge a guy who’s 75 years old on crimes of avoiding paying taxes on a fringe benefit.

Prior to the indictment becoming public, Trump Sr. said investigators were focusing on “things that are standard practice throughout the U.S. business community, and in no way a crime.”

Just Security debunks that claim. There actually are tricky fringe benefit tax issues that business owners will recognize: If your company provides you with something like a car or a laptop computer that you use for work, but also for personal matters, it can sometimes be difficult to determine exactly what part of the cost is a corporate business expense, and what part is personal income. Some companies and their executives push those boundaries a little, and it’s true that they are almost never charged with a crime.

That’s not what’s happening here.

A great deal of what Weisselberg received had no conceivable business use. OK, his car, maybe. But his wife’s car? His son’s apartment? His grandchildren’s tuition? Those aren’t Trump Organization business expenses, not even in part.

Calling bundles of cash and the provision of flat screen televisions in employees’ vacation homes “fringe benefits” – especially when they are not extra pay, but replace ordinary paycheck salary, dollar for dollar – would appear to leave no employee compensation outside the term’s potential scope.

If this stands, in other words, there’s no reason why businesses should pay any of their employees taxable salaries. If you make, say, $50,000 a year, your company could just give you a corporate credit card with a $50,000 annual limit as a tax-free “fringe benefit”.

That’s not “standard business practice”, that’s tax fraud.

Just Security’s dollar-for-dollar claim brings us to the stupidest part of the scheme: They wrote it all down.

During the time of the scheme, Weisselberg was making a fixed salary in the neighborhood of $900K per year. Instead of paying all that in cash, the company rented a New York City apartment for Weisselberg, rented cars for him and his wife, paid private school tuition for their grandchildren, and covered a bunch of other personal expenses. And the company kept a spreadsheet deducting all that from his salary, but not adding it to the W-2 forms reported to the IRS and New York state, as if Weisselberg’s personal expenses were Trump Organization business expenses. (The Trump Organization should also have been paying payroll taxes on this money, but didn’t.)

All in all, the company helped Weisselberg hide about $1.7 million of income and avoid more than $900K of federal, state, and local taxes. That’s not fudging a little on your taxes. That’s grand larceny. The Washington Post quotes law professor Dan Hemel: “If you pay your employees under the table, a good rule of thumb is not to write it down.”

On The Wire, Stringer Bell made the same point more forcefully: “Is you taking notes on a criminal fucking conspiracy? What the fuck is you thinking, man?”

The deeper into the indictment you read, the stupider the scheme gets. The rental agreement on Weisselberg apartment lists him and his wife as the sole occupants, and says it’s their primary residence. But Weisselberg didn’t tell New York City he lived there, and so skipped out on NYC income tax. Just Security explains that NYC residency is not just a personal choice:

It is a widely-known fact among New York-area taxpayers – and not just those with specific tax and accounting knowledge, like Weisselberg himself – that, if one has an apartment in New York City (as he did) and is in the City for at least a part of more than 183 days in a given year, then one counts for that year as a City resident. This is not an issue that turns on any broader (or other) facts and circumstances. Under the indictment’s stated facts, therefore, Weisselberg unambiguously was a New York City resident for all of the years from 2005 through 2013, based on an objective black-letter rule that is hardly arcane or obscure.

And then we get to the penny-ante stuff, the kind of scam you only try if you’re already in the habit of cheating:

It was a further part of the scheme to defraud that Weisselberg received unreported cash that he could use to pay personal holiday gratuities. Specifically, Weisselberg caused the Trump Corporation to issue corporate checks made payable to a Trump Organization employee who cashed the checks and received cash. The cash was given to Weisselberg for his personal use. The Trump Corporation booked this cash as “Holiday Entertainment,” but maintained internal spreadsheets showing the cash to be part of Weisselberg’s employee compensation.

Is that a “common business practice” in your experience? Did your boss ever make out a check to you, and then tell you to cash it and bring the money back to him? In any job I ever held, I would have found that a bit odd.

Finally, at least one part of the scheme seems to have broader implications: About $400K of Weisselberg’s annual income is an end-of-the-year bonus, which comes from a different Trump company as a consulting fee. This allowed Weisselberg to claim he’s self-employed — so he started a Keogh plan (a more-generous IRA for the self-employed) to avoid more taxes.

This resembles the consulting fees the NYT traced to Ivanka Trump — who likewise is simultaneously a well-paid executive and a consultant for Trump companies. This has led numerous observers to speculate that maybe this whole scheme wasn’t devised for Allen Weisselberg’s benefit. Maybe he was just piggybacking on a scheme created to benefit the Trump children.

There’s precedent for such schemes, as the NYT outlined in a 2018 article exposing the source of Trump’s wealth

Much of this money came to Mr. Trump because he helped his parents dodge taxes. He and his siblings set up a sham corporation to disguise millions of dollars in gifts from their parents, records and interviews show. Records indicate that Mr. Trump helped his father take improper tax deductions worth millions more. He also helped formulate a strategy to undervalue his parents’ real estate holdings by hundreds of millions of dollars on tax returns, sharply reducing the tax bill when those properties were transferred to him and his siblings.

These maneuvers met with little resistance from the Internal Revenue Service, The Times found. The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances.

The Trumps paid a total of $52.2 million, or about 5 percent, tax records show.

This suggests that Don Jr.’s is-that-all-they-have ploy might just be whistling in the dark. This indictment is the Manhattan DA’s first shot. The second one might be aimed at him and his siblings.

Apart from the legal considerations, and whatever effect these charges might have on whether Weisselberg or some other executive flips on Trump, I have to wonder what this is doing to the Trump image.

To his fans, Trump above all is a smart businessman, and this scheme is not at all smart. In addition to working-class people, who have no choice about what appears on their W-2s, small businessmen are also a key part of the Trump base. If they look at this indictment at all, they have to be thinking “Even I would know better than to try that.”

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Comments

  • Karen Hughes  On July 5, 2021 at 11:36 am

    Trump’s surprise at all of this may be due to a “business mindset”. I don’t know a lot of businessmen but those that I do know all cheat the IRS or the franchise owner or their employees in one way or another.

  • Larry Benjamin  On July 5, 2021 at 1:47 pm

    Ironically, much of this was revealed during Weisselberg’s son’s acrimonious divorce. Jennifer Weisselberg couldn’t figure out how her husband was able to cover their living expenses and children’s tuition on his salary as a skating rink manager. When she obtained his tax returns, the deception was obvious.

    This demonstrates why it’s difficult to keep a large conspiracy under wraps. All that’s needed to blow it open is one of the bit players wondering if they’re being cheated. If Weisselberg Jr. had arranged for his ex-wife to have a nice apartment and generous stipend, she probably wouldn’t have started asking questions. Instead, he was a cheapskate, and everyone from Trump on down will pay the price.

    https://www.bloomberg.com/news/articles/2021-07-02/a-divorce-raised-questions-then-aided-the-probe-of-trump-s-cfo?srnd=politics-vp

    Even Trump keeping a spreadsheet was the mark of a cheapskate, as he wanted to make sure that he didn’t pay Weisselberg or anyone else a penny more than whatever total compensation they had agreed on.

  • mary  On July 5, 2021 at 2:07 pm

    The important question at this point, is: Will anyone in the T family be indicted and convicted? Not whether they committed tax fraud.

    Chris Ladd (PoliticalOrphans.com) points out the fact that the IRS Commissioner appointed by Trump – who never prosecuted him for very dubious, multi-million dollar tax deductions years ago, also refused to make his tax returns available to the House Committee -totally within their legal rights. This man is still IRS Commissioner. Biden has neither compelled the release of Trumps returns to this committee nor has he replaced this man. Why not?

    • Larry D Benjamin  On July 5, 2021 at 5:06 pm

      Because Biden wants to avoid the impression that he has a personal vendetta with his predecessor. This is also why AG Garland hasn’t charged Trump for instigating the Jan. 6 riot (although that could change after the commission has issued its report). By leaving any prosecution of Trump to New York State (and possibly the Fulton County, Georgia DA), Biden avoids any accusations of partisan prosecution, because the federal government isn’t involved. He won’t even have to respond to requests to pardon Trump because he has no ability to do so.

  • ramseyman  On July 5, 2021 at 6:35 pm

    It’s very similar to how Republicans operate much of the time these days: short term gain, and screw the long-term consequences. The deficit, the biosphere, all the scandals and indictable actions, and now this, all obliviously overlooking what happens to themselves and each other down the road. And maybe they’ll weasel out of it, who knows? At least they’re living high on the hog till then.

    • mary  On July 5, 2021 at 7:11 pm

      Not buying it. This is a very old IRS dispute. It needs to be impartially investigated and either dismissed or challenged, just as it would be for any one else. I don’t dispute the very real probability that T put the kibosh on the Commissioner for four long years, but it raises real questions about his integrity and loyalty.

  • Alan  On July 5, 2021 at 8:17 pm

    To be fair, at this scale of crime, you really need to keep books, for, well, ask the same reasons any large organization does. Of course, making sure law enforcement never gets the books is kinda important too.

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