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Some thoughts on whether we can see any evidence of tax evasion -- a felony -- in @nytimes description of the #TrumpTaxReturns. In general, it is hard to spot evasion from just a return, and often difficult even if you can also see the "work papers," or supporting documents. /1
But there are red flags one looks for, and you can see some of them in the president& #39;s taxes. I prosecuted at least 2 cases, one of them that went to the Supreme Court, where a small-business owner used his family business as a checking account. /2
It& #39;s legal to spend your business& #39;s money, of course, if you own that business. But when you do so, you have to report that money as taxable income (or, for partnerships like Trump& #39;s, give up your "basis" or right to claim deductions from the business in the future). /3
Often, tax-evading business owners will have the business buy things for them directly -- trips on private jets, home "office" renovations, fancy hair cuts, say -- and list those items as business expenses on the business& #39;s books. This produces a double tax benefit. /4
First, it allows owner to pretend that they haven& #39;t just pulled money out of their business for their own use -- which, again, should be taxable. Second, it also allows owner to claim deductions to reduce taxable business profits. /5
Aside for tax wonks: It actually turns out that for partnerships, double-dipping in this way often doesn& #39;t save money (b/c the partnership isn& #39;t taxed separately from its owners), but the partners still seem to love to zero out p& #39;ship income. /6
So this is to say that when we see extensive deductions for what look like personal use, we& #39;re seeing behavior that is typical of the tax evasion one sees in family-owned businesses. But sometimes the expenses turn out to be legit. /7
To be sure, you audit the taxpayer and give them a fair chance to show that, say, the private jet flights were really business-related, or that they actually did report them as income. IRS& #39;s problem is that this takes a lot of time & expertise. /8
And business owners know it - that& #39;s one reason you build a chain of 80+ cos, as POTUS has. Tax experts think that self-employed taxpayers pay only about 50% of the taxes they owe. Investing in IRS capacity to audit complex businesses is usually a money-making proposition. /9
Anyway, as @kirkstark points out, there are some items reported that sound as though they would be hard to defend on audit, such as $75k in hair cuts (which the Tax Court has called "inherently personal," i.e., not deductible). But still a few steps from there to tax evasion /10
Is this the most important thing we learned yesterday? Probably not. The President owing $400m in debts to unknown persons or powers worries me more. But the chief law enforcement official should respect the law. /fin (11 of 11)
