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The public now has a glimpse into President Donald Trump’s finances after two pages of his 2005 federal tax return were leaked and revealed on MSNBC, but those hoping for answers may be sorely disappointed.
The released portion of the return “just raises so many questions and is so nontransparent,” said George K. Yin, a tax law professor at the University of Virginia School of Law. Without seeing the documents associated with Trump’s 2005 Form 1040, U.S. Individual Income Tax Return—and previous years’ returns as well—it’s difficult to get a clear picture of the president’s financial dealings, Yin said.
“There was more excitement promised than delivered,” Daniel N. Shaviro, a tax professor at New York University School of Law who previously worked at the Joint Committee on Taxation, said of the big reveal on MSNBC’s “The Rachel Maddow Show.”
But as with the release of Trump’s 1995 state tax returns this past fall, the newest leak has left tax professors and analysts to fill in the gaps.
Trump’s 2005 Form 1040 shows that he paid about $38 million in federal income taxes on reported income of more than $152 million—for an effective tax rate of roughly 24 percent to 25 percent.
But he also wrote off about $103 million in losses.
Alan Cole, an economist at the conservative-leaning Tax Foundation in Washington, said the question is: “What’s in the composition of that approximate $100 million of negative income?”
It’s likely that the loss is the result of net operating losses or depreciation—which real estate owners receive an annual allowance on—or both, Cole said.
Many are speculating that the $103 million loss is primarily derived from the former, and that it’s connected to losses reported on Trump’s 1995 returns.
That amount could be loss carried forward from the nearly $1 billion in losses Trump claimed in 1995, Yin said. Yin previously served as the JCT’s chief of staff and as tax counsel to the Senate Finance Committee. In that case “it could be an indication that he’s using around $100 million a year for maybe 10 years and that would then match,” Yin said. “That also might indicate that this might be the last of the loss.”
As stated, Trump’s effective tax rate was about 24 percent to 25 percent.
The alternative minimum tax (AMT)—a supplemental income tax levied on certain individuals with exemptions or special circumstances that allow them to pay lower standard income tax—made up the bulk of his liability. The AMT is meant as a backstop to prevent the wealthy from using loopholes to avoid paying taxes.
Trump’s 2005 return shows that he paid about $31 million in alternative minimum tax, about 82 percent of his total $38 million tax liability.
“It looks from the way the return is structured that the $100 million in losses were not counted for AMT purposes; they were only counted for regular income tax purposes,” Cole said.
This may be due to the limitations on the amount of net operating losses that can be used for AMT purposes, said Robert Willens, a tax consultant in New York. That limit would explain why the AMT liability was so much higher than the standard income tax liability, he said.
Additionally, the fact that Trump pays mostly AMT would be consistent with having a large state and local income tax deduction, which it’s presumed Trump took if he was paying New York’s high taxes at the time, Yin said. “That’s one of the big deductions that’s denied under the AMT but permitted under the regular” income tax system, he said.
Willens said what stood out most to him about the 2005 return was the low percentage of qualified dividends claimed compared with Trump’s total dividends.
Of the total $314,320 in income claimed from dividends, only $6,299—or 2 percent—were qualified. Taxpayers are able to pay the capital gains tax rate instead of the higher standard income tax rate on qualified dividends.
“I’ve never seen such a small percentage of the total dividends be qualified,” Willens said. “Usually those numbers are very close to one another because most companies are eligible to take qualified dividends,” including certain foreign corporations, he said.
This low ratio means that Trump was either receiving dividends from foreign corporations organized in countries that the U.S. doesn’t have tax treaties with, or he had a lot of real estate investment trust stock. Distributions from a REIT aren’t qualified dividends.
Willens said the REIT option may be more logical because of Trump’s real estate ties.
Based on the information in the leaked 2005 return, it would seem that Trump may have given very little to charity, Yin said.
The return shows that total itemized deductions, which include charitable contributions, amounted to $17 million.
“My guess is that the bulk of that itemized deduction is your state and local income taxes,” Yin said. “And assuming he was paying in New York, the New York taxes are quite high,” he said. “That doesn’t leave a lot of room for charitable contributions.”
Shaviro agreed, also pointing to New York’s substantial income taxes. “I wouldn’t necessarily infer high charitable-giving” from the information in the 2005 return, he said.
People in high-income tax brackets do have some limitations on the amount of deductions they can take on things like charitable contributions, meaning Trump’s gross itemized deductions may have been higher, Yin said.
However, that gross sum isn’t included in the leaked Form 1040, making it difficult to incorporate in analyses of the returns, Yin said.
It’s unclear who leaked the 2005 returns to David Cay Johnston, the Pulitzer Prize-winning tax reporter who shared them with MSNBC.
But if one of Trump’s tax preparers was the culprit behind the disclosure, it could mean stiff fines and even time in prison.
Section 6713 of the Internal Revenue Code says that a preparer faces a penalty of $250 for each unauthorized disclosure or use of a client’s tax return information, up to $10,000 per calendar year.
Related Section 7216 says that a person found guilty of knowingly making such a disclosure faces a fine of up to $1,000, jail time of up to one year, or both, in addition to the costs of prosecution.
Robert Kovacev, a partner at Steptoe & Johnson LLP, who previously served as senior litigation counsel in the Justice Department’s Tax Division, told Bloomberg BNA that Trump’s tax preparer could also face sanctions under Circular 230—a document that dictates the duties and obligations of tax professionals—including disbarment from practice and monetary penalties.
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