Trump Faces Probe into Tax Fraud After NYT Exposes How He Helped Parents Scam Millions from Gov’t

StoryOctober 04, 2018
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The New York State Department of Taxation and Finance has opened an investigation into President Trump for fraud and tax evasion following a major exposé by The New York Times revealing that Trump inherited nearly half a billion dollars of his family’s wealth through tax dodges and outright fraud. New York City Mayor Bill de Blasio has also called for a city probe, and Democratic Senator Ron Wyden has urged the IRS to investigate the president. The Times’ 13,000-word investigative report found the late Fred and Mary Trump transferred more than $1 billion in wealth to their children, paying less than 5 percent of the $550 million in taxes they should have paid under inheritance tax rates. Donald Trump also helped his parents undervalue real estate holdings by hundreds of millions of dollars on IRS tax returns in order to reduce taxes. We speak with David Barstow, three-time Pulitzer Prize-winning investigative reporter for The New York Times and the lead author on the new investigation, “Trump Engaged in Suspect Tax Schemes as He Reaped Riches from His Father.” Barstow shares a byline with Susanne Craig and Russ Buettner.

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: It’s interesting you talk about the amount of federal grants that he got, that Fred Trump got, and interesting that just as Donald Trump came into the business, they were sued because they were getting federal support and they were discriminating against African Americans. But I wanted to go back to read from your report, David Barstow. You write, “The most overt fraud was All County Building Supply & Maintenance, a company formed by the Trump family in 1992. All County’s ostensible purpose was to be the purchasing agent for Fred Trump’s buildings, buying everything from boilers to cleaning supplies. It did no such thing, records and interviews show. Instead All County siphoned millions of dollars from Fred Trump’s empire by simply marking up purchases already made by his employees. Those millions, effectively untaxed gifts, then flowed to All County’s owners—Donald Trump, his siblings and a cousin. Fred Trump then used the padded All County receipts to justify bigger rent increases for thousands of tenants.” David?

DAVID BARSTOW: Yeah. I mean, this is something where, when Donald Trump says this is old news, I can tell you that no one had ever heard of All County Building Supply & Maintenance. It’s never been written about, described anywhere. And this is actually kind of remarkable in a way. When we were peeling back the layers on this, it felt like one of these sort of gritty scams that you might see in The Sopranos, right? It’s setting up this company to make basically huge cash gifts from Fred Trump to his children look like legitimate business transactions.

Let me give you just a really simple example. This is one that we describe, and we actually show in the story the actual invoices and purchase orders, so you can all see for yourself exactly what I’m talking about. So, they set up this company, All County Building Supply & Maintenance. It’s not a real company. There’s no corporate offices. It’s actually headquartered in the basement of Fred Trump’s favorite nephew. The owners of All County Building Supply, though, were Fred Trump’s four children and his nephew. And all that happened was—so Fred—any time Fred Trump was going to improve his buildings, he had to buy stuff, right? And in this case, soon after they formed this company, they bought 60 boilers, 60 big expensive boilers, from a company in the Bronx. Fred Trump himself personally negotiated the purchase price of these boilers, hundreds of thousands of dollars’ worth of boilers.

The man who sold Fred Trump these boilers, Leon Eastmond, told me in an interview that one day he comes back to his office and there’s an envelope, and there’s a check, huge check, from this company, All County Building Supply. He’s like, “Who the heck are these guys?” Never heard of them, didn’t know who they were. And what that was, was it was All County Building Supply was paying him the price that Fred Trump had negotiated, but then All County Building Supply would turn around and would send an invoice to Fred Trump for the very same boilers, but the invoice was padded, marked up 20, 30, 50 percent more. So all it was doing, it was basically—it was just an invoice-padding operation. It was taking the things that Fred Trump was already buying, adding 20, 30, 40, 50, 100 percent more, and then charging Fred Trump. Fred Trump was effectively overcharging himself. That’s what it looked like on paper. But, in fact, all of those profits are then flowing directly to his children. That’s point number one.

AMY GOODMAN: And he’s not just a child. Donald Trump was like 46 when All County was set up.

DAVID BARSTOW: Oh, yeah, yeah, yeah. Yes, yes, absolutely. Absolutely. And this was part of a fairly well-considered and orchestrated strategy that the Trump family came up with when they realized, you know, Fred Trump is—he’s getting up there in age. He’s starting to suffer some ill effects, dementia, other problems. And they’re realizing, if he dies, all of this empire, all of the buildings and huge amounts of cash sitting in his accounts, those are going to be subject to a 55 percent tax, inheritance tax. And so, the idea was, “Well, wait a minute, how do we get—how do we pull that cash out of the empire before it gets taxed 55 percent? How do we shift all of those buildings into our pockets before they get taxed 55 percent?”

In this case, I think one of the things in the All County Building Supply case—and I think it helps you sort of see at least the mindset here—is not only do they come up with this ruse basically to disguise cash gifts as legitimate business transactions, but then they submitted those padded invoices to the state regulators who govern rent increases in New York, and they used those inflated invoices in order to justify rent increases for thousands of the tenants who lived in Fred Trump’s apartments. Mostly we’re talking—you know, these are working-class, middle-class folks who were seeing their rents go up, you know, $5, $10, $15 a month, in part because of these inflated invoices from All County Building Supply & Maintenance.

NERMEEN SHAIKH: And can you speak specifically about the Starrett City development in Brooklyn, which Fred Trump made an investment in, in the 1970s?

DAVID BARSTOW: Yes. So, Starrett City is really one of the largest federally subsidized housing developments in the country. It’s massive. It’s even bigger than Fred Trump’s apartment complexes. And in the '70s, when they were trying to build Starrett City, they needed some extra money, so they were looking for private investors. It was basically going to be this investment that would create huge tax losses. That's why rich people wanted to get in on Starrett City: It would create huge tax losses. So Fred Trump could use his losses at Starrett City to shelter all of his profits from his empire.

So he made an investment into Starrett City, but he also made an investment for his kids, as well. And so, Donald Trump, starting at a very early age, was getting these huge tax breaks from Starrett City. In fact, those tax breaks helped him avoid paying any federal income taxes at all in the late 1970s. And then, of course, as time progresses, Starrett City is now worth a heck of a lot of money. It recently sold for nearly a billion dollars. And, in fact, that investment that Fred Trump made way back in the ’70s is going to give Donald Trump a windfall of $16 million this year.

AMY GOODMAN: Before we go to break, how much money would you say Fred Trump avoided in taxes?

DAVID BARSTOW: Hundreds of millions of dollars. Hundreds of millions of dollars in taxes.

AMY GOODMAN: Saying something like—I think you said $50 million instead of half a billion?

DAVID BARSTOW: So, yeah. I mean, it’s pretty simple math, right? We see that he transferred well over a billion dollars in wealth to his siblings. It’s a 55 percent tax rate. So you’re talking about a tax bill, an expected tax bill, of around $550 million. The tax records that we obtained show that the Trump family paid $52 million in gift and estate taxes. So, rather than paying a 55 percent tax rate, they paid about a 5 percent tax rate. The question then is: How did they avoid the other $500 million? What happened to that?

First of all, just to be clear, not all of that—we certainly don’t say in the story, and we don’t allege anywhere, that every penny of that was evaded money. Some of it was just usual tax avoidance measures that all rich people use. But certainly, a very significant portion of that came through tax schemes and maneuvers that the experts that we consulted with said really crossed the line.

AMY GOODMAN: We’re going to go to break and then come back to this discussion. What was illegal? What was improper? David Barstow, three-time Pulitzer Prize-winning investigative reporter, lead reporter on this massive 13,000-word piece investigating Donald Trump’s wealth and where it came from. The title, “Trump Engaged in Suspect Tax Schemes as He Reaped Riches from His Father.” This is Democracy Now! Back with David Barstow in a moment.

[break]

AMY GOODMAN: “Tryin’ Times” by Roberta Flack. This is Democracy Now! I’m Amy Goodman, with Nermeen Shaikh. Our guest for the hour is the three-time Pulitzer Prize-winning journalist David Barstow, did a massive exposé in The New York Times this week that’s going to be reissued on Sunday. The New York state taxation authority responded to the Times report on Donald Trump’s tax practices with a statement that it’s, quote, “vigorously pursuing all appropriate avenues of investigation.” Meanwhile, New York Mayor Bill de Blasio tweeted, “I’ve directed NYC’s Department of Finance to immediately investigate tax and housing violations and to work with NY State to find out if appropriate taxes were paid.” The mayor told reporters he’s looking to recoup any money Trump owes New York City.

MAYOR BILL DE BLASIO: There was a good old boy network, that obviously Donald Trump played like a fiddle and evaded the kind of regulation and investigation and prosecution he should have received many times over. … He, you know, finagled and paid his way to being somehow able to escape the kind of scrutiny and prosecution he deserved. And honestly, if a lot of people in New York state had done their jobs, he would never have been president of the United States. … It’s clear to me that there are real ramifications right now to what has been disclosed, that there’s either potential violations of the law, or, in the cases where the statute of limitations has ended, that there may be very serious civil penalties that can be applied by both the state and the city.

AMY GOODMAN: So, that’s Mayor Bill de Blasio responding to your investigation. What can New York recoup—New York City, New York state? And are there criminal charges at all here? Grounds for charges?

DAVID BARSTOW: I think that, clearly, the statute of limitations is the big obstacle to any kind of criminal charges. However, we actually don’t know what ended up in Donald Trump’s tax returns. And so, if there are things that he misreported that have their roots in some of the transactions that we’re describing in this article, and those misrepresentations carried forward into future tax returns from Donald Trump, that could be potentially problematic, because that could maybe take the statute of limitations off the table as an obstacle.

NERMEEN SHAIKH: And then there could be a criminal prosecution?

DAVID BARSTOW: Potentially, although, like, let’s—you know, let’s be real here. I mean, the IRS is a much-weakened agency. I mean, it’s been quite devastated by budget cuts over the years. And certainly, the IRS—I’m not talking about state authorities now, I’m talking about the federal IRS—has said absolutely nothing in response to this article. I think the more realistic accountability that’s there is this potential for civil fraud. There’s no statute of limitations for civil tax fraud. And so, both—you know, in this case, the state tax authorities, that can be a very powerful weapon if they decide to actually use it, to go back and look at these transactions.

NERMEEN SHAIKH: Well, let’s go to some of the mechanisms that you point to in the piece that Trump used in order to avoid paying taxes. Explain what GRATs are—G-R-A-T-S—and how they were used. In this video accompanying The New York Times exposé, your co-author, Susanne Craig, explains how Trump and his siblings came to own nearly all of their father Fred Trump’s empire without paying estate taxes.

SUSANNE CRAIG: GRAT. A trust designed to pass wealth between generations. In 1995, Donald Trump and his siblings began to take ownership of most of their father’s real estate empire, while avoiding hundreds of millions of dollars in taxes. They did so by creating two grantor-retained annuity trusts, also known as GRATs: one for dad and one for mom. Taxes are paid based on the final value of the GRAT, and this gave the Trumps every incentive to lowball the value of the assets. That’s exactly what they did. Take, for instance, the Fontainebleau Apartments. In 1982, the Trumps valued the 164-unit complex at $15.3 million. But for the purposes of the GRAT, they said it was worth just $2.9 million. They then broke up the ownership of the apartments, giving almost half to Mary Trump, Fred Trump’s wife. This allowed them to tell the IRS that Fred Trump, who had exercised iron-fisted control over every brick of his empire for 70 years, was a minority owner with no real say over his buildings.

NERMEEN SHAIKH: So, David, that’s your co-author, Susanne Craig, talking about GRATs. Could you just comment on whether this instrument is what essentially gave legal cover to Trump’s transactions?

DAVID BARSTOW: Yeah. I mean, so, GRATs are, you know, a well-established and legal instrument that’s used by the wealthy to pass assets on to their children in a way that allows them to avoid estate taxes. In fact, if you watch TV, you’ll often see these commercials from BDO that are actually GRAT commercials. They don’t say the word ”GRAT,” but when you see this—

NERMEEN SHAIKH: What is BDO?

DAVID BARSTOW: BDO is this tax—or, this consulting firm that is actually on CNBC, MSNBC and CNN, is running commercials that are effectively commercials for GRATs. And so, it’s a technique that when you talk to tax lawyers, you know, they kind of—they almost get a little misty-eyed about GRATs. They say, “This is like magic.” These things are these incredible devices that assets go in, all kinds of financial gymnastics occur inside of them, and then they sort of—assets come out, and they’re like free of taxes.

AMY GOODMAN: I wanted to go to another of your former colleagues, and that is David Cay Johnston, also a fellow Pulitzer Prize winner and now editor-in-chief at DCReport.org. He noted on MSNBC that Trump’s sister, who’s a federal judge, is heavily implicated in these charges of tax fraud.

DAVID CAY JOHNSTON: Let’s keep in mind, Donald’s sister, Maryanne Trump Barry, is a sitting judge on the 3rd Circuit Court of Appeals. She’s a senior judge. I tweeted today that I think she should immediately remove herself from the bench. We should not have a tax cheat in the White House or on the federal bench.

AMY GOODMAN: What do you think of this? That’s David Cay Johnston, David Barstow.

DAVID BARSTOW: So, I think the important thing to say about this is that Fred Trump’s estate tax return is a very important document. And there were three executors. There were three people who signed off on that estate tax return. One was Judge Barry, one was President Trump, and the third was Robert Trump, the president’s younger brother. When you sign an estate tax return, you’re responsible for the accuracy of that tax return. You’re responsible for accurately describing the assets. And you’re also responsible for describing all of the gifts that were given by the person in that estate.

So, what we describe in our story is that the estate tax return that the three of them signed, that the three of them vouched for, that that tax return is grossly inaccurate. It used all of the same kind techniques that we described in other parts of the story, and it did so in order to make what was left of Fred Trump’s empire look like minuscule. And so, I think that, actually, the fact that she put her John Hancock on that estate tax return, I think that’s an area that is potentially problematic.

AMY GOODMAN: What most surprised you in what you found, David, as we begin to wrap up?

DAVID BARSTOW: The thing that I think continues to surprise me about Donald Trump is that this is this guy who has been so much in the firmament of our culture and our media for so long, and yet there’s so little that we actually know about him and his finances. You know, there’s this mountain—right?—mountain of books and interviews, and, you know, it’s daunting to look at. But when you kind of put all of that aside and just try to get to ground truths with this guy, every time we’ve done that, we feel like, “Oh, my gosh.” The idea—whatever the idea was that we thought we had about him, it’s quite different when you pull some more layers back.

AMY GOODMAN: “After Fred Trump’s death,” you write, “his empire’s most valuable asset was an I.O.U. from Donald Trump.” And you say he betrayed his father and what he wanted with his empire.

DAVID BARSTOW: Yeah. Fred Trump really wanted the empire to stay in the family. Donald Trump was in some financial difficulty again in 2004, and he was the one who came into a family meeting and said, “It’s time to sell dad’s buildings.” And so they did. And the irony is, the price that they got for all those buildings was actually hundreds of millions of dollars less than what the actual property was worth, according to banking records that we have uncovered.

AMY GOODMAN: Do you think this will force, somehow lead to seeing Donald Trump’s tax returns, this exposé and the political blowback from it?

DAVID BARSTOW: You know, it’s hard to say. It depends so much on who’s actually in control of the subpoenas in Congress, on the basis of what happens in the midterm elections.

AMY GOODMAN: But they could subpoena them?

DAVID BARSTOW: Sure, absolutely. And they’ve—

AMY GOODMAN: And so, if the Democrats came to power.

DAVID BARSTOW: And every Democrat—I mean, every—you know, there’s a long line of Democrats who have said this story is all the more reason to exercise that subpoena power, should they win control of the House.

AMY GOODMAN: And your piece is coming out again on Sunday?

DAVID BARSTOW: It is, as a special section.

AMY GOODMAN: David Barstow, three-time Pulitzer Prize-winning investigative reporter for The New York Times, lead author on the new New York Times exposé, “Trump Engaged in Suspect Tax Schemes as He Reaped Riches from His Father.” We will link to the many-page exposé.

That does it for our show. Happy birthday to Becca Staley, our director!

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NYT Exposé: “Self-Made Billionaire” Donald Trump Built Empire on Father’s Money, Tax Dodging & Fraud

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