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  • The New York Times detailed in an in-depth investigation a series of financial transactions by Fred Trump, President Donald Trump’s father, to pass down wealth to his children.
  • The investigation turned up a series of shady business practices, including what the paper called “outright fraud.”
  • Legal experts say investigators would not be able to look into most of the allegations in the story because of the statute of limitations on estate and gift tax audits.
  • But there is one avenue investigators could follow, experts say — whether or not the Trump family omitted or misrepresented gifts on Fred Trump’s estate tax return.
  • Even if investigators do look into the angle, experts say, it is unlikely anything would come of it.

Following a bombshell New York Times report, the New York State Department of Taxation and Finance said the agency would open an investigation into President Donald Trump’s family wealth and allegations of shady business practices, including what the Times characterized as “outright fraud.”

“The Tax Department is reviewing the allegations in the NYT article and is vigorously pursuing all appropriate avenues of investigation,” a spokesperson told Business Insider in an email.

But given the complex series of transfers and massive number of companies the Trump family created to facilitate those transfers, what can investigators really do?

According to tax law experts, investigators for New York state and the Internal Revenue Service have little recourse for many of the allegations contained in the New York Times piece. But one avenue could open up Trump to possible penalties.

Those same experts also cautioned, however, that while there may be some legal recourse available, it’s unlikely any investigation would yield significant consequences.

The statute-of-limitations question

Many of the practices in the Times report, such as aggressively undervaluing properties on tax forms, would not open Trump and/or his family to an investigation because the IRS and New York state tax officials have already had a chance to review those claims via an audit.

Whether or not the properties were undervalued, as long as their properties were disclosed to the IRS on a gift or estate tax return after the statute runs they can’t reopen it,” Corey Glass, an associate with a focus in estate-tax planning for high net-worth individuals at the law firm Arnold and Porter, told Business Insider. “They had their bite at the apple when it was audited.”


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Framed photographs of President Donald Trump’s parents, Fred and Mary Trump, sit on a table in the Oval Office in August 2018.

(Chip Somodevilla/Getty Images)

There is a three-year statute of limitations on federal and New York state estate and gift tax audits. Fred and Mary Trump’s estate was audited in 2000 and various gift tax returns were audited in the 1990s, so officials could not reopen those cases.

But in some circumstances, the statute of limitations may not apply, said Beth Kaufman, a member in the law firm Caplin & Drysdale who has experience in estate planning.

“For many of the federal tax issues, the question would be whether the government could prove fraud, because there is no statute of limitations that applies if there is fraud,” Kaufman told Business Insider via email.

Similarly, any intentional misstatements or omissions from an estate or gift tax return would mean New York State never had a “bite at the apple,” Glass said, which would allow investigators to assess possible civil penalties.

The transactions that could be open to scrutiny: a series of loans from Fred Trump to Donald that the Times said were never repaid — or were considered repaid after Fred took a deal to take a position in Donald’s properties.

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“The loans from Fred to Donald that were later deemed paid when Fred took an interest in one of Donald’s entities, which he later sold back to Donald at a bargain price,” Kaufman said. “This series of transactions raises significant gift tax issues.”

Glass said it depends on how those loans were reported on Fred’s estate tax return:

  • If there was no repayment or interest charged, the loans should have been considered gifts and been subject to higher gift taxes. In turn, those gifts should have been disclosed on Fred’s estate tax return.
  • If you made a loan and just forgave it, that’s cheating the government out of potential gift tax,” Glass said. “That’s something no adviser or lawyer would ever advise or encourage.”

For instance:

  • The Times reported that Fred Trump was given an ownership stake worth $15.5 million in Donald’s Trump Palace development, mostly in exchange for the elder Trump’s forgiveness of loans to his son.
  • But according to the Times, Fred sold back his stake to Donald four years later for just $10,000.
  • In legal terms, that would amount to a $15.4 million gift subject to a 55% gift tax rate.

Fred never reported such a gift, according to the Times. If it was was also left off the estate tax return, that could open up Donald — who was one the executors of the estate — to investigation.

The estate tax return “says you have to file with the estate tax return all the prior gift tax returns and also disclose all prior gifts made,” Glass said. “So if all these forgiven loans were not disclosed on the return, that could be tantamount to a misrepresentation.”

IRS investigation is unlikely, but New York is another matter

If investigators determine a possible avenue to pursue penalties against Trump and the family, most experts don’t think the IRS would lead it.

“The likelihood of this IRS going after [Trump]?” Glass said. “Probably not.”

But experts say New York state could step in and take a look at the Trump family’s returns.

Authorities on the state and federal level in New York have spearheaded investigations into a variety of Trump’s business entities — most notably the Trump Organization itself. The New York State Department of Taxation already has an open investigation into the Trump Foundation, the president’s nonprofit.

But the likelihood of any meaningful penalties from an investigation, even if one is pursued, is slim.

“In such an old case, this would be a high bar for the government to overcome,” Kaufman said.



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