President Trump’s touchstone mob boss, Al Capone, famously went down for tax evasion when the feds couldn’t nail him on more serious crimes. Has Trump stopped to consider whether he could be headed for the same fate?
Trump and surrogates have argued that his former lawyer’s and his campaign chairman’s near-simultaneous legal losses don’t imperil the president himself. After all, none of the charges that Michael Cohen and Paul Manafort were convicted of this week involved Russian connections to Trump’s 2016 campaign.
Quoth the president: “And what’s come out of Manafort? No collusion. What’s come out of Michael Cohen? No collusion.”
As for the Cohen crimes that did directly implicate Trump — the campaign finance violations — the president and his people have argued that these are not actually crimes. After all, they’re so rarely prosecuted!
What about tax crimes, though?
There’s plenty of precedent for prosecuting those. And the Cohen filings this week raise serious new questions about whether Trump has criminal tax-fraud exposure.
To be clear, we don’t know whether Trump has violated any tax laws. But there’s a red flag in prosecutors’ filings against Cohen regarding the fate of hundreds of thousands of dollars in taxes one would expect to have been paid Uncle Sam.
It’s a little technical, so bear with me. The issue involves payments that the Trump Organization made to Cohen as part of an agreement silencing adult-film actress Stephanie Clifford (a.k.a. Stormy Daniels) and how the company accounted for them.
Cohen paid Clifford $130,000. Trump’s company ultimately reimbursed him for this payment to the tune of $420,000.
Why so much more than the original hush-money amount?
Because the Trump Organization peculiarly decided not to categorize the payment as a reimbursement for an expense Cohen incurred, the way a client might normally reimburse a lawyer for airfare while traveling on client business. Instead, according to prosecutors’ filings, the Trump Organization falsely called the entire payment a “retainer” and accounted for it internally as “legal expenses.”
That is, they indicated they were merely compensating Cohen for legal services provided to the company.
But income for legal services, unlike reimbursement for airfare, would require Cohen to pay taxes on the payment, meaning he wouldn’t be made whole by a mere $130,000. So, the Trump Organization “grossed up” the total to cover Cohen’s taxes (on both the $130,000 Clifford payment and a separate $50,000 payment Cohen made for “tech services”). It also added a $60,000 bonus.
“These are not normal business practices,” said Jenny L. Johnson Ware, a criminal tax lawyer. “None of this is how a company normally does business.” Other tax practitioners I consulted said the same.
Why go through all this rigmarole? Well, maybe to hide something.
Maybe Trump Organization execs were helping hide an excessive campaign contribution, one of the charges Cohen pleaded guilty to. Or maybe, as current Trump lawyer Rudolph W. Giuliani has argued, it was merely a payment for a personal legal settlement designed to “save” the “reputation” of Trump’s marriage.
Under neither explanation, though, would the $420,000 be a legitimate business expense that Trump or his company could deduct on their tax returns.
And yet: “The reason to go through the shenanigans of making this transaction look like legal expenses, to me, is to make something not deductible look deductible,” said Johnson Ware.
Hence that red flag.
I sent a list of questions to the Trump Organization about the $420,000 payment — including whether it was deducted on returns filed by Trump or any of his companies, and how it was categorized on the 1099 form Cohen should have received in January. (This 1099 info would indicate whether Trump or one of his companies planned to deduct it, if they haven’t yet filed returns for 2017.) As of press time, I had not received a response.
This is not the only tax issue for which Trump could have some legal exposure.
New York state’s Department of Taxation and Finance this week subpoenaed Cohen as part of its investigation into the Trump Foundation and whether Trump illegally used tax-subsidized charitable donations to settle his private companies’ legal disputes, pay personal expenses and help his campaign. The state attorney general has already filed a civil suit against Trump, while leaving open the possibility of criminal charges.
There’s an easy way for Trump to clear up these concerns: He could release his tax returns.
Or maybe Congress could help a brother out and release his returns for him — which it could do by majority vote in any of three committees.
That would, of course, require a Republican or two to “flip” — which I know could pose a problem. As Trump and Capone could both tell you, the family doesn’t care for rats.