Law professor addresses Trump tax scandal

After The New York Times reported that President Donald Trump only paid $750 in federal income taxes in 2016 and 2017, he has declined the claim multiple times. Graphic by HARRY LADA, Art Director

President Donald Trump has repeatedly denied The New York Times’ Sept. 27 report claiming he paid $750 in federal income taxes in 2016 and in 2017 and nothing in many of the years prior. Trump instead claimed during the first presidential debate that he’s paid “millions” in income tax.

While Trump’s tax returns are not publicly available, Chapman University tax law professor Bobby Dexter explained how a net operating loss could be at fault. This tax credit occurs when a business’ tax deductions are more than its taxable income in a given year. In other words, when a wealthy individual or company takes large financial risks that end up failing, they can take on a net operating loss, potentially minimizing their tax bill to zero and carrying unused amounts into future tax years.

The New York Times reported that Trump was able to avoid paying taxes for years because of a net operating loss of $916 million in 1995 that spread out 18 years, wiping out any taxes he owed during the timeframe.

“It’s entirely possible for a taxpayer to have deductions that far exceed whatever amount of income they may have from a particular business,” Dexter said. “It really does boil down to a close examination of deductions, allowance, etcetera, that might allow the offset of income year after year that reduce a particular taxpayer’s liability to zero.”

The New York Times’ investigation revealed Trump’s business empire has struggled, with major properties like the Trump National Doral Miami resort and the Trump International Hotel in Washington, D.C., steadily losing money while others reported a higher loss than revenue gained. In addition, the article reports Trump will be required to pay approximately $421 million in loans and other debts in the next four years.

Trump is also involved in a decade-long audit with the Internal Revenue Service (IRS) regarding a $72.9 million tax refund he received after declaring huge losses in 2010. A ruling against him could cost him more than $100 million, The New York Times reported.

“Were the deductions really deductions? Were the losses really losses?” Dexter said in reference to Trump’s tax returns. “If we are talking about 10 or 15 years in which the final number is zero, maybe the deductions simply gave rise to large net operating losses – those net operating losses were just used year after year and the end result was zero taxpayer liability … That’s what might very well be happening.”

However, even with the aid of tax professionals, Dexter said it would be difficult to minimize an employed person’s tax liability to zero for several years in a row.

“Your average person, even if they aren’t having a good year, can’t necessarily get their tax liability all the way down to zero,” Dexter said.

Alan Garten, the executive vice president and chief legal officer at The Trump Organization, denied to The New York Times that the president paid such a small amount of taxes. Instead Garten said Trump "has paid tens of millions of dollars in personal taxes to the federal government” and that their article “is riddled with gross inaccuracies.”  

While the internet is littered with varying contradictory statements, Dexter claims that the only individuals viewers should trust are tax experts and the IRS personnel.

“Someone could easily make a claim that there is an inaccuracy, especially if someone has a 500-page tax return,” Dexter said. “If you're not talking to a tax expert who has seen and analyzed Trump’s tax returns, then I’m not willing to say that either (argument) is correct.”

In addition, a 2016 video from the Sept. 26 presidential debate between Trump and Hillary Clinton shows Trump calling himself “smart” after Clinton claims he has not paid anything in federal income tax.

These findings come less than five weeks before the Nov. 3 presidential election. Early voting is already underway in many states, and Chapman Department of Political Science Chair John Compton believes the report won’t have a large effect on the election outcome, suggesting voters have already made up their minds.

“If you are someone who cares about Trump's questionable business and financial practices, you are probably already voting for Biden,” Compton said. “That does not mean the story is completely inconsequential. It's possible that a few undecided voters will be turned off by the revelation that Trump has often paid less in federal income taxes than the typical teacher or blue-collar worker.”