Trump Engaged in Suspect Tax Schemes as He Reaped Riches From His Father
THE ALCHEMY OF VALUE
The transfer of most of Fred Trump’s empire to his children began with a ‘friendly’ appraisal and an incredible shrinking act.
In his 90th year, Fred Trump still showed up at work a few days a week, ever dapper in suit and tie. But he had trouble remembering names — his dementia was getting worse — and he could get confused. In May 1995, with an unsteady hand, he signed documents granting Robert Trump power of attorney to act “in my name, place and stead.”
Six months later, on Nov. 22, the Trumps began transferring ownership of most of Fred Trump’s empire. (A few properties were excluded.) The instrument they used to do this was a special type of trust with a clunky acronym only a tax lawyer could love: GRAT, short for grantor-retained annuity trust.
六个月后的11月22日，特朗普家族开始转移弗雷德·特朗普大部分帝国的所有权。（几处房地产没有被包括进来。）他们用来做这件事的工具是一种特殊类型的信托，有一个只有税务律师才会喜欢的笨拙的首字母缩写：GRAT，全称是“捐赠者保留年金信托”(grantor-retained annuity trust)。
GRATs are one of the tax code’s great gifts to the ultrawealthy. They let dynastic families like the Trumps pass wealth from one generation to the next — be it stocks, real estate, even art collections — without paying a dime of estate taxes.
The details are numbingly complex, but the mechanics are straightforward. For the Trumps, it meant putting half the properties to be transferred into a GRAT in Fred Trump’s name and the other half into a GRAT in his wife’s name. Then Fred and Mary Trump gave their children roughly two-thirds of the assets in their GRATs. The children bought the remaining third by making annuity payments to their parents over the next two years. By Nov. 22, 1997, it was done; the Trump children owned nearly all of Fred Trump’s empire free and clear of estate taxes.
As for gift taxes, the Trumps found a way around those, too.
The entire transaction turned on one number: the market value of Fred Trump’s empire. This determined the amount of gift taxes Fred and Mary Trump owed for the portion of the empire they gave to their children. It also determined the amount of annuity payments their children owed for the rest.
The I.R.S. recognizes that GRATs create powerful incentives to greatly undervalue assets, especially when those assets are not publicly traded stocks with transparent prices. Indeed, every $10 million reduction in the valuation of Fred Trump’s empire would save the Trumps either $10 million in annuity payments or $5.5 million in gift taxes. This is why the I.R.S. requires families taking advantage of GRATs to submit independent appraisals and threatens penalties for those who lowball valuations.
In practice, though, gift tax returns get little scrutiny from the I.R.S. It is an open secret among tax practitioners that evasion of gift taxes is rampant and rarely prosecuted. Punishment, such as it is, usually consists of an auditor’s requiring a tax payment closer to what should have been paid in the first place. “GRATs are typically structured so that no tax is due, which means the I.R.S. has reduced incentive to audit them,” said Mitchell Gans, a professor of tax law at Hofstra University. “So if a gift is in fact undervalued, it may very well go unnoticed.”
但是，在实践中，赠与税的报税表很少受到国税局的严密审查。税务从业人员中一个公开的秘密是，逃避赠与税的做法相当猖獗，而且很少受到起诉。处罚虽说是有，但通常不过是审计师要求支付与原本应该支付的税款更接近的数目而已。“GRAT的典型结构是让所涉及者不需缴税，这意味着国税局缺少审计这种信托的积极性，”霍夫斯特拉大学(Hofstra University)税法教授米切尔·甘斯(Mitchell Gans)说。“因此，如果一笔赠与实际上被低估了的话，它可能非常容易不引起注意。”
This appears to be precisely what the Trumps were counting on. The Times found evidence that the Trumps dodged hundreds of millions of dollars in gift taxes by submitting tax returns that grossly undervalued the real estate assets they placed in Fred and Mary Trump’s GRATs.
According to Fred Trump’s 1995 gift tax return, obtained by The Times, the Trumps claimed that properties including 25 apartment complexes with 6,988 apartments — and twice the floor space of the Empire State Building — were worth just $41.4 million. The implausibility of this claim would be made plain in 2004, when banks put a valuation of nearly $900 million on that same real estate.
The methods the Trumps used to pull off this incredible shrinking act were hatched in the strategy sessions Donald Trump participated in during the early 1990s, documents and interviews show. Their basic strategy had two components: Get what is widely known as a “friendly” appraisal of the empire’s worth, then drive that number even lower by changing the ownership structure to make the empire look less valuable to the I.R.S.
A crucial step was finding a property appraiser attuned to their needs. As anyone who has ever bought or sold a home knows, appraisers can arrive at sharply different valuations depending on their methods and assumptions. And like stock analysts, property appraisers have been known to massage those methods and assumptions in ways that coincide with their clients’ interests.
The Trumps used Robert Von Ancken, a favorite of New York City’s big real estate families. Over a 45-year career, Mr. Von Ancken has appraised many of the city’s landmarks, including Rockefeller Center, the World Trade Center, the Chrysler Building and the Empire State Building. Donald Trump recruited him after Fred Trump Jr. died and the family needed friendly appraisals to help shield the estate from taxes.
特朗普家族找的是罗伯特·冯·安肯(Robert Von Ancken)，他是纽约市大房地产家族最爱用的估价师。在45年的职业生涯中，冯·安肯评价过这座城市的许多标志性建筑，包括洛克菲勒中心(Rockefeller Center)、世界贸易中心(World Trade Center)、克莱斯勒大厦(Chrysler Building)和帝国大厦。小弗雷德·特朗普去世后，唐纳德·特朗普聘用了他，特朗普家族需要友好的估价，以保护遗产不受税收影响。
Mr. Von Ancken appraised the 25 apartment complexes and other properties in the Trumps’ GRATs and concluded that their total value was $93.9 million, tax records show.
To assess the accuracy of those valuations, The Times examined the prices paid for comparable apartment buildings that sold within a year of Mr. Von Ancken’s appraisals. A pattern quickly emerged. Again and again, buildings in the same neighborhood as Trump buildings sold for two to four times as much per square foot as Mr. Von Ancken’s appraisals, even when the buildings were decades older, had fewer amenities and smaller apartments, and were deemed less valuable by city property tax appraisers.
Mr. Von Ancken valued Argyle Hall, a six-story brick Trump building in Brooklyn, at $9.04 per square foot. Six blocks away, another six-story brick building, two decades older, had sold a few months earlier for nearly $30 per square foot. He valued Belcrest Hall, a Trump building in Queens, at $8.57 per square foot. A few blocks away, another six-story brick building, four decades older with apartments a third smaller, sold for $25.18 per square foot.
冯·安肯对特朗家族普位于布鲁克林的一栋六层砖砌建筑阿盖尔厅(Argyle Hall)的估价是每平方英尺9.04美元。在六个街区之外，有一栋六层砖砌建筑，年代比特朗普家族的建筑早20年，几个月前以每平方英尺近30美元的价格卖出。冯·安肯对特朗普家族位于皇后区的建筑贝尓科瑞斯特厅(Belcrest Hall)的估价为每平方英尺8.57美元。几个街区之外，另一栋六层砖砌建筑比特朗普家族的建筑老40年、其公寓比特朗普家族的公寓小三分之一，最后以每平方英尺25.18美元的价格卖出。
The pattern persisted with Fred Trump’s higher-end buildings. Mr. Von Ancken appraised Lawrence Towers, a Trump building in Brooklyn with spacious balcony apartments, at $24.54 per square foot. A few months earlier, an apartment building abutting car repair shops a mile away, with units 20 percent smaller, had sold for $48.23 per square foot.
The Times found even starker discrepancies when comparing the GRAT appraisals against appraisals commissioned by the Trumps when they had an incentive to show the highest possible valuations.
Such was the case with Patio Gardens, a complex of nearly 500 apartments in Brooklyn.
Of all Fred Trump’s properties, Patio Gardens was one of the least profitable, which may be why he decided to use it as a tax deduction. In 1992, he donated Patio Gardens to the National Kidney Foundation of New York/New Jersey, one of the largest charitable donations he ever made. The greater the value of Patio Gardens, the bigger his deduction. The appraisal cited in Fred Trump’s 1992 tax return valued Patio Gardens at $34 million, or $61.90 a square foot.
By contrast, Mr. Von Ancken’s GRAT appraisals found that the crown jewels of Fred Trump’s empire, Beach Haven and Shore Haven, with five times as many apartments as Patio Gardens, were together worth just $23 million, or $11.01 per square foot.
In an interview, Mr. Von Ancken said that because neither he nor The Times had the working papers that described how he arrived at his valuations, there was simply no way to evaluate the methodologies behind his numbers. “There would be explanations within the appraisals to justify all the values,” he said, adding, “Basically, when we prepare these things, we feel that these are going to be presented to the Internal Revenue Service for their review, and they better be right.”
Of all the GRAT appraisals Mr. Von Ancken did for the Trumps, the most startling was for 886 rental apartments in two buildings at Trump Village, a complex in Coney Island. Mr. Von Ancken claimed that they were worth less than nothing — negative $5.9 million, to be exact. These were the same 886 units that city tax assessors valued that same year at $38.1 million, and that a bank would value at $106.6 million in 2004.
It appears Mr. Von Ancken arrived at his negative valuation by departing from the methodology that he has repeatedly testified is most appropriate for properties like Trump Village, where past years’ profits are a poor gauge of future value.
In 1992, the Trumps had removed the two Trump Village buildings from an affordable housing program so they could raise rents and increase their profits. But doing so cost them a property tax exemption, which temporarily put the buildings in the red. The methodology described by Mr. Von Ancken would have disregarded this blip into the red and valued the buildings based on the higher rents the Trumps would be charging. Mr. Von Ancken, however, appears to have based his valuation on the blip, producing an appraisal that, taken at face value, meant Fred Trump would have had to pay someone millions of dollars to take the property off his hands.
Mr. Von Ancken told The Times that he did not recall which appraisal method he used on the two Trump Village buildings. “I can only say that we value the properties based on market information, and based on the expected income and expenses of the building and what they would sell for,” he said. As for the enormous gaps between his valuation and the 1995 city property tax appraisal and the 2004 bank valuation, he argued that such comparisons were pointless. “I can’t say what happened afterwards,” he said. “Maybe they increased the income tremendously.”
THE MINORITY OWNER
To further whittle the empire’s valuation, the family created the appearance that Fred Trump held only 49.8 percent.
Armed with Mr. Von Ancken’s $93.9 million appraisal, the Trumps focused on slashing even this valuation by changing the ownership structure of Fred Trump’s empire.
The I.R.S. has long accepted the idea that ownership with control is more valuable than ownership without control. Someone with a controlling interest in a building can decide if and when the building is sold, how it is marketed and what price to accept. However, since someone who owns, say, 10 percent of a $100 million building lacks control over any of those decisions, the I.R.S. will let him claim that his stake should be taxed as if it were worth only $7 million or $8 million.
But Fred Trump had exercised total control over his empire for more than seven decades. With rare exceptions, he owned 100 percent of his buildings. So the Trumps set out to create the fiction that Fred Trump was a minority owner. All it took was splitting the ownership structure of his empire. Fred and Mary Trump each ended up with 49.8 percent of the corporate entities that owned his buildings. The other 0.4 percent was split among their four children.
Splitting ownership into minority interests is a widely used method of tax avoidance. There is one circumstance, however, where it has at times been found to be illegal. It involves what is known in tax law as the step transaction doctrine — where it can be shown that the corporate restructuring was part of a rapid sequence of seemingly separate maneuvers actually conceived and executed to dodge taxes. A key issue, according to tax experts, is timing — in the Trumps’ case, whether they split up Fred Trump’s empire just before they set up the GRATs.
In all, the Trumps broke up 12 corporate entities to create the appearance of minority ownership. The Times could not determine when five of the 12 companies were divided. But records reveal that the other seven were split up just before the GRATs were established.
The pattern was clear. For decades, the companies had been owned solely by Fred Trump, each operating a different apartment complex or shopping center. In September 1995, the Trumps formed seven new limited liability companies. Between Oct. 31 and Nov. 8, they transferred the deeds to the seven properties into their respective L.L.C.’s. On Nov. 21, they recorded six of the deed transfers in public property records. (The seventh was recorded on Nov. 24.) And on Nov. 22, 49.8 percent of the shares in these seven L.L.C.’s was transferred into Fred Trump’s GRAT and 49.8 percent into Mary Trump’s GRAT.
That enabled the Trumps to slash Mr. Von Ancken’s valuation in a way that was legally dubious. They claimed that Fred and Mary Trump’s status as minority owners, plus the fact that a building couldn’t be sold as easily as a share of stock, entitled them to lop 45 percent off Mr. Von Ancken’s $93.9 million valuation. This claim, combined with $18.3 million more in standard deductions, completed the alchemy of turning real estate that would soon be valued at nearly $900 million into $41.4 million.
According to tax experts, claiming a 45 percent discount was questionable even back then, and far higher than the 20 to 30 percent discount the I.R.S. would allow today.
As it happened, the Trumps’ GRATs did not completely elude I.R.S. scrutiny. Documents obtained by The Times reveal that the I.R.S. audited Fred Trump’s 1995 gift tax return and concluded that Fred Trump and his wife had significantly undervalued the assets being transferred through their GRATs.
The I.R.S. determined that the Trumps’ assets were worth $57.1 million, 38 percent more than the couple had claimed. From the perspective of an I.R.S. auditor, pulling in nearly $5 million in additional revenue could be considered a good day’s work. For the Trumps, getting the I.R.S. to agree that Fred Trump’s properties were worth only $57.1 million was a triumph.
“All estate matters were handled by licensed attorneys, licensed C.P.A.s and licensed real estate appraisers who followed all laws and rules strictly,” Mr. Harder, the president’s lawyer, said in his statement.
In the end, the transfer of the Trump empire cost Fred and Mary Trump $20.5 million in gift taxes and their children $21 million in annuity payments. That is hundreds of millions of dollars less than they would have paid based on the empire’s market value, The Times found.
Better still for the Trump children, they did not have to pay out a penny of their own. They simply used their father’s empire as collateral to secure a line of credit from M&T Bank. They used the line of credit to make the $21 million in annuity payments, then used the revenue from their father’s empire to repay the money they had borrowed.
On the day the Trump children finally took ownership of Fred Trump’s empire, Donald Trump’s net worth instantly increased by many tens of millions of dollars. And from then on, the profits from his father’s empire would flow directly to him and his siblings. The next year, 1998, Donald Trump’s share amounted to today’s equivalent of $9.6 million, The Times found.
This sudden influx of wealth came only weeks after he had published “The Art of the Comeback.”
这笔突如其来的财富，是他在出版了《东山再起》(The Art of the Comeback)一书仅数周之后收到的。
“I learned a lot about myself during these hard times,” he wrote. “I learned about handling pressure. I was able to home in, buckle down, get back to the basics, and make things work. I worked much harder, I focused, and I got myself out of a box.”
Over 244 pages he did not mention that he was being handed nearly 25 percent of his father’s empire.