 Hello and welcome to the session. This is Professor Farhad, in which I would look at the investigative report of the New York Times. The long concealed records show Trump's chronic losses and years of tax avoidance. Before we start, I would like to go over a list of disclosure. The first one is this recording is for informational and educational purposes. Everything in this recording is according to the New York Times. So if you don't like the New York Times, you should not watch this recording. I'm not taking any position. In this recording, I may dive into small tax details because I do have a global audience. So this way they understand the technicalities of some terms. And I did not cover everything in the article. If you want to cover everything in the article, please read the article. A little bit of background just in case you are not familiar with what the case is. President Trump is the first president since Nixon since the 70s that refuses to release his taxes. Now in the US legally, you are not required to release your taxes. President Trump is claiming that he's under audit. And basically part of the recording is discussing why is he under audit by the IRS. And just to be clear, the IRS, there is no rules according to the IRS that that will stop you from releasing your taxes. So President Trump himself is choosing not to release his taxes. A little bit about the New York Times. According to the New York Times, they double checked their references and they cross reference their sources. They collected thousands of documents in this investigative reporting. They did not publish the tax return itself. And I believe that's a shortcoming because there's a lot of information they did not talk about that as tax preparer, tax professionals and CPAs, you'll be, if you see, it may, it may shed some light on some of the numbers that they mentioned. All of the information in the investigative report, I believe it's factual. In other words, when they mentioned the number, obviously it's a number. It's not really an opinion. The New York Times is biased. So the way you show the number, it could be biased or it could be neutral. So they are biased against the president. That's obvious. The New York Times promised to release more down the road. It could be just a strategy by the New York Times. Maybe waiting for the president to respond and then releasing more information. In this recording, I will try to keep things simple. I will try to keep it chronologically. So this way, you'll be able to follow. But let's first take a look at the big picture. What the New York Times is trying to show and I will discuss why later on at the end of the recording, in my opinion, why are they saying so. They're said 11 in the of the past 18 years that the president did not pay any taxes. In 2016, he paid $750. And I'm going to cover all of this little bit more in details. Since 2005, he was paid $427 million from the apprentice plus income from other endorsements related to the apprentice. $176 million in rental income. Approximately total of $600 million that practically he paid no taxes on. This is as per the New York Times. So let's start with 1995, where it all started. In 1995, the president experienced a business loss from his real estate deals of $915 million. Now, what does it mean when you experience a loss in a business? In the US, if you experience a loss, if you incur a loss, the IRS allows you to deduct this loss against future income for the next 20 years or carry it back to get a refund. Simply put, to give you an example so you could understand the technicality of this. It's not really that complicated. Let's assume we're in year 2020 and you happen to experience 100 thousands of losses for this year from your business. According to the old rules, now they change several times since then, what you can do, you can take this 100,000 and carry it forward for the next 20 years. So the next 20 years, every time you have taxable income, every every time you have a tax bill, you would say, hold on a second, I have losses from 2020. I'm going to use them up. So once you use up those losses, basically they're gone. This is one option. Or the other option is to go, file your return of 2018 and 2019, not file, amend your return, go back to 2018, 2019 and get a refund. So if you paid taxes in 2018 and 2019, you would use this 100,000 and losses to offset your income from the prior two years. You can do both. You will have to choose either carry forward or carry backward and you'll have to decide based on your situation. Now why would the congress or the IRS allows you to do so? Because business is a, not an a, business is a continuation. What does that mean? It means, this is basically the idea as fairness. Let's assume you start a new business. When you start a new business, the first year, you might have a loss. The second year, you also might have a loss because you are starting your business. Then in the third year, you might have a gain or profit. Let's call it a profit. So what happened? Year one and year two, you have a loss. Year three, you had a profit. So when you have a profit, you have to pay taxes. So it's fair enough to assume that this profit is also coming from year one and year two, where you incurred losses. Therefore, you can take your losses from year one and year two and use them to offset some of your profit to pay less taxes because it's the same business. Just because we, we stop every year at December 31st, it doesn't mean we are starting a new business. It's a continuation of the old business. So that's the idea of what's called what we called net operating loss carry over, which you carry, you can carry it over or carry it backward for that back for that, for that purpose. Okay, so this loss that he, he, he got in 1995, he kept using it. So he used all of it up until 2004. Simply put, from 1995 till 2004 in those years, every, every time, every year the president had taxable income, he would use some of it. So let's assume in year 1996, he used 100 million. He's left with 815. So he'll keep reducing them until it goes down to zero. So this 915 million helped Trump avoid paying taxes up until 2004. So this is why when you say a period of time he did not pay any taxes, it's because of that loss. Now in 2005 and 2007 he had profitable and taxable income because remember, he could have been also profitable from 1995 till 2004. I mean, we don't have the details, but the point is every time he was he had profit or taxable income, those 915 million would reduce the income down to zero. In those years he was here in the apprentice and he made 120 million in profit plus other endorsements like from Tasty Burger, Domino's Pizza, Double Stuff Oreos, Laundry Detergent Alt, Phone Ringtone if you're interested, go online in the YouTube it and you will find President Trump pitching, Phone Ringtone if you're interested, 15 million Trump necktie, shirts and underwear, etc. From all sorts of businesses he was, you know, he was having great years. He paid in 2005 and 2006 a total of 56.9 million. In 2007 he paid 13.1 million. In total if we add 05, 0607 he paid 70 million in taxes. Now this 70 million is the issue because we're going to revisit this topic shortly. So remember the 70 million. In 2008 he paid no taxes, it doesn't matter why, it could be because of the financial crisis. In 2009 this is the critical year. In 2009 we had the great recession, we had the, you know, we had the housing financial crisis. In that year in 2009 sometime in November I believe President Obama in the IRS and Congress changed the rules for the NOL. Remember the NOL rules? You can go back two years and you can go forward 20 years. What they did rather than having the old rules, they changed it. Now what they said, you can carry back your losses five years. For year 2008, 2009. Simply put because they did it in 2009. So if you're filing your return you could go back and change 2008. If you haven't you could use it for 2009. For those two years what you can do, you can go back five years of your experience losses because companies in those years were experiencing losses. Why? Because we were going through the great recession. So the government wants to help businesses to get money. So what they said if you're experiencing a loss take this loss, change your return for the past five years and we'll give you a refund. So the losses can be used to offset your income. So Trump for in that year had 700 million losses from Atlantic City Casino interest. So here we go. Trump claimed that he abandoned his interests and this is a technical word. He claimed that to the IRS as well to the SEC. Abandon means you left it. It's like you abandoned a car. You just kept the car at the airport and you drive away or you walked away from your home. You abandoned it. You don't get anything for it. You just walked away. Whatever happened to it's not your problem. So he left it, did not sell it. You simply dumped the business because the business was losing money and according to his basis he had 700 million invested therefore he can claim the 700 million in losses just like what he did with the 915 million. You remember from 1995 that loss now he had the same situation 700 million. Well if he sold his business let's assume he sold it for a dollar just for the sake of simplicity. If he sold it then he will have 700 million minus a dollar in loss, minus a dollar in losses but since he sold it he's limited to $3,000 per year capital loss rule deduction. So he can only deduct $3,000 which is really mean. It's meaningless but since he abandoned it, he said I abandoned it. If the business became worthless he can claim 700 million in losses. So that's fine. So in 2010 Trump's accountant or tax firm filed what's called the quick refund and I still remember this is I would always remember this. If you listen to my net operating loss lecture whether it's in my intermediate accounting or income tax course I always mention this. My last return that I filed when I was in practice was a quick refund for a client. I went back three years. It's based on this rule and the client I remember got if I remember the number $27,000 in a refund. So what he did what the president did, file a return which is called the quick refund requesting a refund. You remember that $70 million he paid in 05, 06, and 07. He said well now I have losses I'm going to use those losses to offset my taxable income to reduce my taxable income give me back my money of 70 million. Well the IRS they did this because it's a quick refund and then a quick refund they will give you the money. So because the purpose of the law is to give money back to the people so the economy keeps running and they will check your they will audit you later. So when the bankruptcy concluded for the Atlantic City Casino Trump got 5% stock interest in the new company. Hold on a second you said you abandon it now you're getting a 5% interest. So this is the whole audit is about this that you cannot claim that 700 million dollars. Okay so because of that Trump is under audit. So if he loses he's going to have to pay back almost 100 million which is the 70 million he got plus interest. Now again from 2011 till 2014 whatever he did not use for from his 700 million losses he used them in 11 to 2014 to pay zero taxes also in those here he paid zero taxes because of that 700 million loss in 2015 he paid 641,931,000 in federal taxes and in 2016 they keep emphasizing this number he paid only 750 dollars. I think there could be an explanation for this number I will talk about it in a moment. Now what other questionable expenses that the New York Times highlighted it's Ivanka the consulting expense now part of your business you may hire consultant all the time and pay them a fee that fee is tax deductible as long as it's reasonable obviously. So 20% of Trump organization fees are paid as consulting expenses which is basically a tax deductible fees again totally understandable. Now those fees are paid for Ivanka now how did the New York Times notice? Ivanka had to release her tax return when she joined the administration and what they find out they cross-referenced it and they find out revenue of 747,000 from her consulting firm triple T consulting matches the same amount as expenses on two projects one in Hawaii and one in Vancouver for the Trump organization so they're saying those 747,000 that Trump claiming claiming as an expense those are revenues for sorry claiming as an expense yes those are revenues for Ivanka which is it's a form of income shifting and this is kind of practice in quote practice standard or practice legal strategy how does it work let's assume we have a family and the parents own the business and they have let's assume you know two kids just for the sake of simplicity and what they do is is they hire the kids as employees and they pay the kids a salary it has to be a reasonable salary so let's assume the business have 100,000 in income so what you do you might pay the kid you know each one of them 20,000 20k and 20k so if you pay 20,000 for each now your taxable income is 60 from the business the kids will still have to pay 20,000 under return both of them 40 plus the business 60 you are still paying taxes on 100,000 but the point here is this the kids might pay only 10 percent their tax rate is lower so the kids might pay only 10 percent and the business might pay 30 percent what you do is you shift some of that income from the business to the kids in form of salaries so the kids will pay taxes in a lower bracket now that's perfectly legal as long as it's reasonable now how do you know if something is reasonable or not you'd look at the kids' age education experience what other companies are paying for similar positions so if the kid is let's assume you hired your daughter as a secretary for the business just for the sake of illustration and you're paying her $100,000 well while the IRS would look at other similar businesses secretary in your area how much is he or she getting and based on that they will determine the reasonableness reasonableness of the expense and that secretary was not a good example let's assume you hired your your daughter as an accountant not secretary and you will pay her a certain amount of money is that reasonable or not that's fine now here's the problem with Ivanka it's not it's not the income shifting the problem is Ivanka is is is getting a 1099 income which is she's a consultant to the business and at the same time she's an employee which is she's getting a W2 why because she's also a director in the Trump organization so he cannot be a consultant to a business and an employee at the same time you have the IRS they have special rules about this you're either a consultant or an or an employee so you cannot have a 1099 and W2 at the same time and this is an issue which is again it's going to be resolved eventually and you know once that comes up hopefully I will do another recording other other questionable expenses on the tax return that the New York Times is highlighting is transportation expense cost of his aircraft is a business expense more than $70,000 to her his hair stylist during the apprentice and $96,464 for Ivanka for hair and makeup also related to the apprentice now also they the IRS and not the IRS the New York Times claiming that they that the president underreported license revenue for overseas deal on his White House disclosure so on his annual presidential disclosure he claimed a deal in in Turkey of three million dollar on his tax return that deal is 13 million and the Philippine annual disclosure 4.1 million per tax return 9.3 million as are Bay John and annual disclosure 1.1 million per tax return 5 million now now I don't know the specific requirement for the annual presidential disclosure on what type of accounting method they used but there's a big difference for example here $10 million difference why is the president underreporting his revenue from overseas you know that's something that's questionable that's what the New York Times is saying let's go back to the 2016 tax payments you remember that $750 here's what the president paid the same year in other countries in the Panama he paid $15,598 in taxes in India $145,400 in the Philippine $156,824 and in the US he only paid $750 and people would look at the $750 and would say even a school teacher pays more than $750 well here you have to understand the international taxation or a little bit about international taxation is it could be again i'm just making this possibility i'm not defending or anything i'm just saying it could be that when you not it could be when you pay taxes in certain countries like and in those three countries we have tax agreement with them i know that for a fact the IRS will give you what's called a tax credit so simply as if you paid that money in the US so technically technically if that's if that's the case which is we don't know because yeah we have to see the actual tax return there's a form called the tax credit for foreign income tax credit and we can see that line so the New York Times was not clear about this which is i'm saying it could be i'm not saying that's the case but what is the New York Times trying to show what is the New York Times trying to shed what the pictures what pictures are they trying to come across with in my opinion that the that the president is in a bad financial shape that's what his tax record is showing since 2000 his golf courses are losing money Trump organization is losing money cumulatively over the years his Washington hotel losing money and he's he failed to pay his loans since 2010 and they have questions about who's who does he owe the money to and to obtaining more fund he's guaranteeing his that personally it's a it's a practice that he did that he used in 1995 when he had the massive losses so what they're saying is his entire financial status and he's under financial pressure and that's the picture that they're trying to show in my opinion in this tax return and this picture here does is not reflective of it this is goes back to 1985 and i'm not you know i didn't go back that far but the point is that's the picture that they're trying to show and they're trying to show that he benefited benefited from the presidency again as per the new york times that his club club membership increased by 10 000 percent at the marlago from 600 000 to 6 million in membership fees and he tripled his pay from that club he increased his pay from the he tripled his pay from that club in his 40 wall street building the rental went from 30.5 to 43 43 million and that's obvious if you're a president people wants to associate to associate with you therefore you know it's a prestigious therefore you're gonna get a premium so what they're saying is this if he loses the race he's gonna lose revenue and he's an endire financial situation again i think that's the picture because the tax return itself released in it or not it's not really an issue because in 2016 that was the case and i don't think it matters now it could matter for some people but i i think the the picture that trying to show that what the article is trying to show is show and look at the look at the title itself long concealed like president trump is trying to hide chronic losses look they they use the word chronic like really those are you know very uh i would say vicious words in the years of tax avoidance so it's interesting what they're trying to say is he's not paying taxes he has that and the only thing that's helping him financially is the presidency again that's not you know i'm not taking any position it's for you to decide i'm just showing and presenting the fact not the facts presenting what the article is saying uh president trump saying it's a fake story he will release his return once it's audited once he's out of audit and over the decades he's claiming that he pays tens of million of impersonal taxes now he wasn't clear about you know what taxes because we have many different type of taxes we have social security medicare real estate state local but that's not the taxes that we are talking about here we're here we are talking about federal income taxes the federal income tax that they are discussing i hope i hope i did not miss anything important or if i did miss something please write in the comments below i tried my best to put all of this together it took me a few hours but i finished it good luck and most importantly stay safe