Leaked Tax Documents Show Trump Used Bondholder Losses To Offset Tax Debts

By:
Chris Gaetano
Published Date:
Nov 1, 2016
IRS

Leaked tax documents sent to the New York Times show that Republican presidential candidate Donald Trump convinced bondholders to forgive hundreds of millions in debts he could not repay and then, to avoid having to report the debt forgiveness as income, gave the investors partnership equity to make it appear as if the entire debt had been paid off. This maneuver, known as a "debt-for-equity swap," became illegal in 1993 for corporations and 2004 for partnerships (The Times noted that Democratic nominee Hillary Clinton was one of those who voted in favor of the ban). However in the 1991 and 1992 tax years, according to The Times, it was vital to allow Trump to retain the tax benefits from almost one billion in losses from his casinos, which he then used to avoid paying federal income tax for years. Even at the time, though, The Times said that the strategy was legally dubious, citing opinion letters stating that there was no statute, judicial opinion or regulation that would justify Trump's claims. While it is unknown what the IRS's response was, The Times quotes the former chief of staff for Congress’s Joint Committee on Taxation as saying it essentially allowed Trump to take deductions on someone else's loss: only the bondholders should have been allowed to deduct those losses. 

Trump's campaign said that the story had no merit, as Trump did not break the law, and felt that it was unfair to criticize him for complying with the tax code to avoid paying any more than what he actually owed. 

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