This will not be a political piece. There are enough of those. But as just about everyone knows, on July 1 the New York attorney general and district attorney indicted both the Trump Organization and its chief financial officer on charges of income tax evasion. The gravamen of the charges is that the Trump Organization assisted employees in evading income taxes by either paying bills for them or providing perquisites for which no income was reported and thus no taxes paid.
Most readers also know that this comes out of a longstanding fight over the books and records of the Trump Organization; a fight that went to the Supreme Court of the United States. 140 Supreme Court 2412 (7/9/2020). This case featured the Justice Robert’s quote that the public “has a right to every man’s evidence.”
It turns out in this instance, while the combatants were clashing over disclosure via subpoena, the Manhattan district attorney had discovered what is best termed “every woman’s evidence.” That evidence was in the hands of Jennifer Weisselberg, the divorced daughter in law of Trump CFO Allen Weisselberg. According to The Daily Beast in an article published on July 12 in a divorce deposition given in 2018, Barry Weisselberg (son of the CFO of Trump and an employee of the organization) indicated that one of the perquisites working for Trump yielded was $98,000 in annual tuition payments to Columbia Grammar & Preparatory School. According to the Beast, CFO Allen Weisselberg would prepare the drafts to the school but Donald Trump signed the checks for the tuition. The indictment alleges that the practice had been ongoing since 2012, thus several hundreds of thousands of dollars in tuition were involved.
Jennifer Weisselberg also had copies of her joint tax returns with her former husband. They reflected wages in 2010 and 2011 averaging $133,000 per annum. Meanwhile, Jennifer and her husband lived in a Trump owned building at 100 Central Park South, a block west of the Plaza Hotel. In deposition, Barry Weisselberg is seen testifying that he was “given” the apartment temporarily, although it appears that the practice went on for years. He professed to have no idea what the fair rental value of his unit was worth. Today’s rents for that building range from $5,000 to $20,000 a month according to the Beast. The indictment alleges other untaxed perquisites included Mercedes lease payments and various other compensatory arrangements.
Depending on what year you look at and whether you believe what is reported, the Trump Organization is a $300 million to $600 million company when measured by revenue. Their accounting work is done by the 28th largest accounting firm in the United States. Consequently, one would expect that there was a thorough awareness of Section 162 of the US. Tax Code. It states that, in general “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business….”
Unfortunately, many divorce clients seem to think that their businesses are entitled to make these side arrangements even though they disguise income or, in other instances have no relationship to the associated business. The indictment earlier this month had to do with state and city income taxes, but the federal rules are essentially the same. When you pay for your employees kindergarten or college tuition or you provide them with a stylish crib to sleep in, you are rarely doing it out of charity and, if you are, it is termed a gift, and gifts are going to be looked at very carefully in a setting where the donee is also an employee, independent contractor or has a similar business relationship.
In recent years accountants who see problems like private school payments or company cars that are not properly expense allocated have been pushing back when clients try these schemes. Section 6694 of the Tax Code puts them on the hook for “unreasonable positions.” There is material about this on the AICPA website.
But chances are that an accountant is not going to know whether the unit on Central Park South is unoccupied or employee occupied. Taxpayers all need to realize that if they want to try these off books maneuvers or to play the deduction game aggressively, they may have some protection from a spouse who is on joint returns. However, once a divorce occurs and the statute of limitations runs on those joint returns, that former spouse is now an eligible receiver under the IRS Whistleblower program. That’s IRS Publication 5251.
So be careful out there. The Biden Administration has promised that IRS enforcement is going to be making a comeback now that the Brookings Institution’s concludes that 1 dollar of every 6 eludes federal tax. Don’t let that comeback include you.