The New York Times and ProPublica have uncovered an Internal Revenue Service inquiry into former President Donald J. Trump’s use of a dubious accounting maneuver to claim improper tax breaks from his Chicago tower. The IRS has argued that he essentially wrote off the same losses twice, resulting in potential tax liabilities of over $100 million. This 92-story skyscraper, Trump’s last major construction project, was a vast money loser due to cost overruns and the Great Recession. Trump’s efforts to reap tax benefits from his losses were challenged by the IRS, leading to a high-level legal review during his presidency.
In 2008, Trump claimed that his investment in the Chicago tower was “worthless” due to debt on the project, resulting in reported losses of up to $651 million for the year. In 2010, Trump executed a maneuver that would draw years of inquiry from the IRS by shifting ownership of the tower into a new partnership and justifying $168 million in additional losses over the next decade. The issues surrounding Trump’s case were unique enough that a high-level legal review was conducted by the IRS during his presidency.
The outcome of Trump’s dispute with the IRS could set a precedent for wealthy individuals seeking tax benefits from partnership laws. Audits often drag on for years, and taxpayers have the right to appeal IRS conclusions. Trump’s tax records have been a matter of intense speculation, and his financial disputes with the IRS add to a series of legal and financial challenges he is facing, including defamation and civil fraud cases. The reporting by The Times and ProPublica sheds light on Trump’s use of aggressive accounting maneuvers throughout his business career to avoid paying taxes.
In 2008, Trump claimed losses of $697 million, declaring business losses due to the Chicago tower project. His financial problems continued, with sales below costs and debt forgiveness from lenders. In 2010, his tax advisers attempted an accounting maneuver by merging the entity owning the tower with other businesses, resulting in additional tax-reducing losses from the Chicago investment. The IRS began to question the 2010 merger transaction, leading to a Technical Advice Memorandum in 2019 challenging the legality of the transaction.
If the IRS prevails in the audit of Trump’s tax returns, significant revisions could be made, potentially resulting in a tax bill exceeding $100 million. Trump’s tax returns from 2011 to 2017 could be amended to remove losses and add income from condominium sales, shifting those years from losses to positive territory. The difficulty the IRS faced in keeping up with Trump’s maneuvers highlights the need for changes to the rules governing the worthlessness deduction in tax law. The ongoing audit represents a financial threat for Trump, who is facing multiple legal and financial challenges.
