NY's AG Is Investigating One of the Biggest Mysteries on Trump's Balance sheet: $50M loan to himself
New York’s attorney general, Letitia James, revealed in a court filing on Monday that her office is probing the Trump Organization for fraud and tax evasion. And among the matters her office appears to be scrutinizing is a mysterious debt that has long appeared on his balance sheet: a $50 million loan connected to Trump’s Chicago hotel and tower project that Trump claims to owe himself. In the past, Trump has suggested that this debt represents a loan he repurchased from a lender, but Mother Jones reported last year that the loan may not exist and may be evidence of tax fraud.
James’ investigation has not previously been made public, but according to the 68-page filing by her office, New York state prosecutors have been negotiating with the Trump Organization for months to turn over documents and make executives available to be interviewed—and the company has largely complied. However, James’ office now contends, the Trump Organization abruptly halted its cooperation last month: It is refusing to turn over some subpoenaed documents, and Eric Trump canceled an interview he’d previously agreed to. James is asking a New York judge to enforce seven subpoenas against the Trump Organization.
https://www.motherjones.com/politics/2020/08/new-yorks-ag-is-investigating-one-of-the-biggest-mysteries-on-trumps-balance-sheet/
The Trump Organization has consistently refused to answer questions about Chicago Unit Acquisition, a limited liability company it formed in Delaware in 2005, as construction began on the Trump International Hotel and Tower in downtown Chicago. But Trump did tell the New York Times in a 2016 interview that this debt represents a loan he repurchased from a group of lenders. “We don’t assess any value to it because we don’t care,” Trump said. “I have the mortgage. That is all there is. Very simple. I am the bank.” Jason Greenblatt, who was then the Trump Organization’s top lawyer, declined to explain to the Times the reason for the Chicago Unit Acquisition deal. “It’s really personal corporate trade secrets, if you will,” he said. “Neither newsworthy or frankly anybody’s business.”
In March 2012, as Trump resolved his dispute with Deutsche Bank, he finalized a separate deal with Fortress and its partners to clear his debt with them. According to a source with direct knowledge of the deal who spoke to Mother Jones, Fortress ultimately agreed to accept 50 cents on the dollar—or about $48 million—for the outstanding debt (which by that time amounted to just under $100 million). This was a steep loss for the hedge fund and its partners. The question is whether the deal was what’s known as a “discounted payoff”—in which the debt was considered repaid and the loan was canceled by the lender—or whether Trump purchased what remained of the loan. That distinction has enormous implications.
When a lender forgives a portion of a loan, the IRS considers the unpaid portion taxable income. For instance, if a lender accepts $50 million in repayment of a $100 million debt, the borrower, in the eyes of federal tax authorities, has earned $50 million and owes tax on that. The tax could be as high as 39 percent. But big-time borrowers have devised a tactic to forestall paying taxes in cases in which they’re able to buy back their debt at a discount. They purchase the debt through a corporation, parking the loan within this entity to temporarily avoid realizing income. Debt parking falls into a legal gray area. “Maybe there are respectable ways that it could work, but I would call it kind of a scam to pretend you haven’t gotten rid of the debt,” says Daniel Shaviro, a professor of tax law at New York University.
So the distinction between whether Trump purchased his loan from Fortress or whether Fortress forgave the debt matters significantly. James’ filing confirms Mother Jones‘ reporting that the Fortress loan was forgiven, and notes that “the debt may have been a taxable event to the borrower.”
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