Why hasn’t New York charged Donald Trump for tax fraud?

Since the 2016 general election, Donald Trump’s tax returns have been Democrats’ holy grail, and while efforts to secure a complete picture of the president’s financial history have failed, a few puzzle pieces have come together. An investigation by The New York Times last October revealed a pattern of “suspect tax schemes” through the 1990’s by Trump and his family members, while the Times’ most recent investigation showed that from 1985 to 1994, the president reported more than $1 billion in business losses.

Observers worry about more than just the likelihood that Trump has committed tax fraud or tax evasion: they wonder if he is financially entangled with foreign investors or governments whose interests may not align with those of the United States. The Trump administration has so far fought back against Congress’ demands and subpoenas for the returns.

New York legislators have considered several bills to gain access to Trump’s tax returns or give it to Congress. On Wednesday, the state Senate passed a bill that would allow the commissioner of New York’s Department of Taxation and Finance to release any state tax return requested by leaders of the U.S. House Ways & Means Committee, the U.S. Senate Finance Committee or the Joint Committee on Taxation.

But while Democrats wait for that bill to take effect – after it is passed by the Assembly and signed by Gov. Andrew Cuomo it will presumably face some legal challenge – what is already known about the president’s creative efforts to minimize his tax liability could also run afoul of state laws.

Last fall, the Times characterized some of the president’s actions as “outright fraud,” raising the question of why New York Attorney General Letitia James and Manhattan District Attorney Cyrus Vance haven’t charged the president with anything related to the revelations.

As it turns out, doing so isn’t that easy. City & State took a look at the possibilities and limitations for prosecuting Trump over his questionable tax history.

What did the October investigation reveal?

The New York Times’ investigation last October reached back to the 1980s, uncovering that Donald Trump and his family members filed tax returns for valuations for their properties far below what independent estimates would suggest. Fred and Mary Trump, the president’s parents, passed down over $1 billion in wealth to their children, for which they paid only $52.2 million in taxes – despite the fact that the 55 percent tax rate on gifts and inheritances of that size would have racked up a tax bill of at least $550 million.

As the Times’ pointed out, the line between legal tax avoidance and illegal tax evasion is blurry. But the practices detailed in the report go beyond the average filer’s exploitation of loopholes. In 1992, Fred Trump set up a company called All County Building Supply & Maintenance, whose main purpose was to make large cash gifts to the Trump children without incurring the 55 percent tax, by disguising the gifts as business transactions.

Along with Fred’s nephew John Walter, the Trump children co-owned All County. Beginning in 1992, All County started to deal with billing and invoices between Fred Trump’s empire and the many vendors and crews he paid to supply maintenance and services to his many properties, such as superintendents, boilers and kitchen supplies. Vendors Fred Trump had done business with for decades began receiving their checks from All County, and they were paid whatever price they’d agreed to with Fred. But when it came time for All County to bill Fred Trump’s empire for the checks it had written to vendors, the company generated invoices with the money Fred owed marked up 20 to 50 percent, or even more. The extra 20 to 50 percent from Fred wasn’t going to the vendors, but to the co-owners of All County: Donald, Maryanne, Elizabeth and Robert Trump, and John Walter.

This scheme also affected Fred Trump’s rent-stabilized buildings in New York. An owner of a rent-stabilized building needs state approval to raise rents beyond government-set annual increases, and something like capital improvements could be used to get that approval. The Times found that the Trumps also used padded All County invoices to increase rents in some of these buildings, claiming more than $30 million in major capital improvements.

When the Times published this report, Donald Trump’s lawyer, Charles Harder, vehemently denied the allegations, calling them 100% false.

So why haven’t New York prosecutors charged Trump over those findings?

These bombshell findings seemed to present an opportunity for New York prosecutors, including Vance and James, to open investigations into the Trump Organization, the president and other members of his family that could result in criminal charges. But at least one large hurdle stands in the way of that happening. “The problem with charging Trump is that none of the information is current,” said Danshera Cords, a tax law professor at Albany Law School. “There's a statute of limitations on how far back they can go in charging criminal tax fraud. And so all of the information that The New York Times has found that it's made public is outside of the criminal statute of limitations, which precludes the state of New York or the city of New York from charging criminal tax fraud.”

The statute of limitations for criminal tax fraud and evasion tends to depend on the specific charge, but in New York state, the statute of limitations only goes up to five years. For federal offenses, the statute of limitations is three to six years. Even if Vance and James wanted to pursue criminal charges, they’d be out of luck.

When the allegations first came out last year, the New York Department of Taxation and Finance said that it was reviewing the allegations and “vigorously pursuing all appropriate avenues of investigation.” As attorney general, even James would need a referral from the state’s taxation department to pursue criminal charges. A spokesman for the department said that they do not comment on investigations.

Is there any way that the attorney general or district attorney could act on the information?

Even with the statute of limitations long expired, there is some action that New York could take, based on the information revealed in the Times’ October report. There is no statute of limitations for seeking back taxes or civil penalties for tax fraud, and while Vance doesn’t have the authority to pursue civil penalties, they could be sought by the state attorney general or the state Department of Taxation.

Still, pursuing civil penalties would be an uphill climb and it may be unlikely. “The problem is that it all dates back 15, 20 years, and even though The New York Times has, they say, more than 100,000 (pages of) documents, the older it gets, the harder it is to collect,” Cords said. “It gets harder and harder to find enough of the witnesses to prove it, it gets harder to prove the intent.” In other words, it would be possible to pursue back taxes and civil penalties, but extremely unusual, difficult and therefore unlikely.

If James were to go after back taxes, it could be a huge bill for the Trumps. “It would depend on the amount of unpaid taxes that it was determined were owed,” Cords said. “But the penalties are very significant, and those would accrue interest from the time that the taxes were owed. So the speed at which they accrue is very rapid. So it would be substantial. But that again assumes that they could prove the amount of tax. “

Should New York prosecutors be doing more to go after Trump?

Despite the difficulty involved, some Trump critics would say that obtaining a more complete picture of the president’s possible tax fraud and evasion is worth the effort – especially for those operating on the assumption that Trump’s dubious tax schemes at the end of the century could still be going on more recently, within the statute of limitations.  

“For years, while millions of working people paid their fair share in taxes, Donald Trump was cheating the system, enriching himself and his family. The facts point to a consistent pattern of fraud and deception that warrants an investigation by the Manhattan DA.” New York Assemblyman Dan Quart, who is rumored to be considering a run for Manhattan District Attorney in 2021, said in an e-mailed statement. “That being said, Cy Vance’s record speaks for itself. Time and time again, he has shown little interest in holding the wealthy and well-connected accountable. He refuses lenience for everyday New Yorkers caught up in the criminal justice system, but gives the benefit of the doubt to the rich and influential, allowing them to skirt responsibility.”

Neither the attorney general, the district attorney nor the Department of Taxation would comment on any investigations. So while it’s possible that Vance and James are pursuing other avenues of investigation, Cords says that it would be wise not to pursue civil penalties for Trump’s alleged tax fraud in the 1990s. “Because of the challenges that it would present, I think it's unlikely that they will. And I think that that's a reasonable decision given the amount of time that's elapsed and the difficulty of proof, even with the amazing investigative work that the Times has done,” she said. “I would certainly love to see some of the more recent transactions because I think there's a picture here that suggests what the future will look like.”