Blog Ipsa Loquitur

Published on under BYO Tin Foil, Folks

Yes, I did all read all 13,000 words of the New York Times’s unbelievable investigative report: Trump Engaged in Suspect Tax Schemes as He Reaped Riches From His Father. What the Times found was what some folks had suspected for years: the President is less a master of the art of the deal and more a master of inheriting a real estate empire from his father. The President, with all the self-assuredness of a playground bully, responded to the report by calling it “defamatory” upon its publication, “misleading” later that night, and “often told” the following morning. As David Frum pointed out, the President’s responses “are rapidly evolving from denial to acknowledgment” of the substance of the report.

That’s all well and good. The person whose presidential campaign sounded like a con man’s has apparently been a con man for his entire life. It’s always nice to have your priors confirmed.

But the most interesting part to me isn’t what the Times learned but how they learned it. Here’s what the Times has to say about it:

The Times’s investigation, based on a vast trove of confidential tax returns and financial records, reveals that Mr. Trump received the equivalent today of at least $413 million from his father’s real estate empire, starting when he was a toddler and continuing to this day.

The investigation also draws on tens of thousands of pages of confidential records — bank statements, financial audits, accounting ledgers, cash disbursement reports, invoices and canceled checks. Most notably, the documents include more than 200 tax returns from Fred Trump, his companies and various Trump partnerships and trusts. While the records do not include the president’s personal tax returns and reveal little about his recent business dealings at home and abroad, dozens of corporate, partnership and trust tax returns offer the first public accounting of the income he received for decades from various family enterprises.

My Conspiracy Theory

While reading the article, I was struck by how the Times reporters reviewed so many obscure and closely-held financial papers belonging to Fred Trump and his business empire. It’s not like the IRS or the Trump Organization was going to leak this stuff. I thought this had to be the other shoe falling from the US Attorney for the Southern District of New York (SDNY), after they signed Trump’s former attorney Michael Cohen to a plea agreement.

There were tantalizing sourcing notes in the Times report like:

All told, The Times documented 295 streams of revenue that Fred Trump created over five decades to enrich his son.


As ground lease payments fattened his children’s trusts, Fred Trump embarked on a far bigger transfer of wealth. Records obtained by The Times reveal how he began to build or buy apartment buildings in Brooklyn and Queens and then gradually, without public trace, transfer ownership to his children through a web of partnerships and corporations.

Now, the FBI’s New York Field Office, which would be responsible for collecting and reviewing information for the SDNY, has a certain reputation for leaking to the press. Notably, that’s the field office that in Fall 2016 repeatedly leaked salacious tidbits about the investigation into Her Emails. Without going into too much detail, I have an amount of firsthand experience in a previous job providing information to that particular FBI field office. That information tended to wind up in the press pretty swiftly thereafter.

Given that experience, and the idea that the IRS and Trump Organization aren’t going to leak this, it seemed to me the likeliest Times source for Fred Trump’s tax returns was the FBI’s New York Field Office. After the Cohen plea deal, the SDNY could have started sniffing around the Trump Organization proper. The CFO did receive limited immunity to testify in front of an SDNY grand jury, after all.

I was pretty obsessed with the fact that the Times doesn’t appear to have examined any documents for which the statute of limitations hasn’t tolled. All this stuff with Fred Trump doing shady stuff in the 1980s isn’t enough to charge Fred with a crime. For one, he’s quite dead. Second, most criminal cases have an expiration date; a dozen bishops can witness you commit the crime, but if prosecutors wait too long, you can’t ever be convicted of it.

So if the FBI were to seize a whole bunch of documents from the Trump Organization in the course of investigating any potential criminal activity, leaking evidence of crimes for which the SDNY would never (could never) bring charges wouldn’t be the end of the world. As far as leaks coming out of the FBI New York Field Office go, at least.

So this story, in addition to documenting how Trump’s whole self-creation myth is… a myth, and how he and his family cheated Federal and State governments out of hundreds of millions of dollars in income taxes, would also prove the federal authorities were investigating the Trump Organization’s finances.

Cold Hard Reality

But I don’t think that’s how this report came about anymore.

The Times graciously published a look behind the scenes of their report; kind of a report on how they put together their report. Suzanne Craig, one of the reporters with a byline on this report, was on Rachel Maddow’s show the other night. Craig told Maddow the Times began their investigation on March 14, 2017. That’s more than a year before the SDNY flipped Cohen, and long before the Cohen matter was formally referred to SDNY from the Special Counsel’s Office, if I recall correctly.

Now, the Times started their investigation in March 2017 because that was when Maddow’s show featured a handful of pages from Trump’s 2005 tax return. The Times had already published part of Trump’s 1995 tax return, so Craig and her colleagues found the 2005 tax return especially intriguing. Why’s that? Let’s take a super quick dip into income tax law.

super quick tax dip

In 1995, Trump reported a loss of $916 million on his taxes. (Casino went bankrupt. It was a whole thing.) Thanks to some particularly favorable tax rules for Limited Liability Companies (LLCs), companies like Trump’s can spend twenty years deducting from their income the amount of money they lost in a given year.

Sidebar: Do note that because of the way Trump structures his businesses, Trump reports his companies’ profits, losses, and deductions on his own personal income tax returns. For the tax purposes of this post, there’s no difference between a Trump company and Trump personally. It’s a whole thing, just go with it. Corporations are people, my friend: people with magical income tax superpowers.

So the IRS permits a company/person that had a particularly bad (i.e. money-losing) year report less income for twenty years. That company declares a Net Operating Loss (NOL), and the amount of loss becomes a big pool of deductions, and the company gets to apply that deduction to twenty years of taxable income. This is a little weird, because deductions are usually a one-year affair. If you donate $100 to a charity, you can deduct $100 from your income for that year. Your income taxes are a percentage of your income, so if you reduce the amount of your income, you reduce your income taxes.

But if you have a NOL of $916 million in a single year, you can’t really deduct that $916 million from your income, because you had no income. That’s what a NOL means: your income was negative $916 million. You can’t deduct from less than zero (except when you can, because lol tax law, but you cannot here). So the IRS grumbles and says “here, you can have your lousy deduction next year.” And so on the next year’s tax returns, you deduct $916 million. If there’s still money left over, you go for another year. And another year. And another year. And so on, until you’ve deducted that $916 million for twenty years of tax returns.

Trump’s Ten Years

So when the NYT reported in October 2016 that Trump declared on his 1995 taxes a $916 million NOL, you could assume he wouldn’t pay taxes for a good long while. Heck, if you told me I didn’t owe taxes on my next $916 million, that would cover me for at least the next millennium or ten. It is suddenly obvious why the IRS put that twenty year limit on deducting NOL.

But then when Maddow put Trump’s 2005 income tax return on her show, there was $150 million in revenue. According to Suzanne Craig, that’s when the Times reporters realized that Trump had run out of that $916 million NOL about a decade early, and that something weird was going on with his finances.

As it turns out, Donald Trump and his siblings sold off their late father’s business empire the year before. There hadn’t been a lot of publicity during the sale, and it sounds like the Times reporters realized that to understand what happened to Donald Trump’s finances, they had to understand more about Fred Trump’s finances. The more the Times researched, the more they realized the two were hopelessly intertwined with a series of increasingly… creative real estate arrangements.

Land records are filed with government agencies, and for a variety of historical reasons, they’re largely subject to public records requests. When you’re reporting on the financial history of a family with a real estate empire, you won’t really have to depend on FBI leaks for that.

And then there’s this bit in the Times report:

John Walter, a favorite nephew of Fred Trump’s. Mr. Walter, who died in January, spent decades working for Fred Trump, primarily helping computerize his payroll and billing systems. He also was the unofficial keeper of Fred Trump’s personal and business papers, his basement crowded with boxes of old Trump financial records.

Yeah, that might just be where the two hundred tax returns and tens of thousands of financial records came from. I’m going to go ahead and formally reject my conspiracy theory at this point. Sure, nothing says the Times couldn’t have filled in some of the gaps with the help of a certain FBI field office, but I don’t think reading between the lines of the report provides a modicum of evidence to support that.