WASHINGTON, August 22, 2016 — Donald Trump said he won’t release his tax returns because he is being audited. As such, the final version of his tax returns is likely to be different than what he submitted, because his tax lawyers and the IRS will debate the interpretation of complex tax laws. And there are other reasons why Trump should not release his tax returns.
As on CNBC, many argue that Trump must release his tax returns. CNBC says “Trump should release his tax returns (because) we are entitled to view this portrait of the man who aspires to lead our country.”
Trump has said he would release his tax returns after the audit is complete. That means he will not release them prior to the election and probably never because these tax audits take a long time to complete and a new audit would begin once the next year’s returns are filed.
Trump won’t and shouldn’t release his tax returns because the returns don’t really give a “portrait” of Trump. All the returns show is how complex tax laws were interpreted by Trump’s accountants and lawyers who are instructed to file a return that minimizes his tax liability, the same thing we tell our tax preparers.
Even the most knowledgeable tax accountants and tax lawyers often give differing interpretations on IRS rules and tax law. A real estate developer with numerous complex projects and a tax return that is thousands of pages long will have numerous income statements that are potentially open to challenge.
In Trump’s case, it is evident that most members of the media for the most part do not want Trump to be elected. To amplify that message, they have smeared him as a racist, a bigot and unworthy to be president. If he released his tax returns, the media would dissect the information and cherry pick certain items to further portray him as unfit to be president, uncovering and condeming every instance where Trump’s tax advisors have offered a different legal interpretation of tax laws than the IRS may take.
One or more items that would likely appear in Trump’s filings on many of his projects would be one or more ongoing or resolved lawsuits. In real estate, major developers are nearly always enmeshed in numerous lawsuits primarily filed because complex contracts in this area can and are interpreted differently. The media would highlight those lawsuits, falsely offering them as evidence that Trump is dishonest.
This writer recalls speaking to an attorney employed by a large national law firm. Noting that his office was not busy at the moment, but since there a few large-scale real estate projects were about to break ground, he he expected his office to be very busy over the next few years, since large construction projects always bring numerous lawsuits. “It’s just the way it is in the construction business,” he said.
Trump’s tax returns would further reveal that he or his firms and projects are currently indebted to the tune of hundreds of millions of dollars. The media would instantly put a negative spin on this, claiming, likely wrongfully, that given all of this debt, Trump is really not as rich as he says he is and won’t care about the size of the public debt either. The reality is that real estate investing only works when leverage (the use of debt) is employed.
Suppose a project has a cost of $1 million and is projected to yield a profit of $100,000 annually. If a developer supplied the entire $1 million, then the profit would represent a 10 percent return on the investment. That return would likely not justify the developer making the investment since that developer could earn a 10 percent profit in the stock market with much less risk. If the developer were required to provide the entire $1 million, the project would not happen.
However, if the developer invested only $200,000 and borrowed the other $800,000 at 5 percent interest (resulting in an annual $40,000 interest expense), then the profit would fall from $100,000 annually to $60,000. But earning a $60,000 annual profit on a $200,000 cash investment would yield a 30 percent return on investment (ROI), which would be large enough to incentivize the developer to take the risk.
In other words, the use of leverage makes many costly projects feasible. But the media would jump all over Trump for being hundreds of millions of dollars in debt, which, while true, is perfectly legal and customary in real estate and not the evil activity the media would imply it is, especially considering that the value of the assets far exceeds the debt incurred.
Even though all other presidential candidates have released their tax returns, Donald Trump should not release his. There has never been a non-politician or a large-scale businessperson before who has chosen to run for president having never directly entered politics before. Trump’s complex, easy to distort tax returns are his business and no one else’s and should not be subject to a biased media review by reporters who are almost certainly not familiar with investment tax laws at all.
The law gives Americans ironclad guarantees of confidentiality and privacy with regard to their personal tax information. Even if he is running for president, Donald Trump does not have to give up that right to privacy. The financial disclosure forms are sufficient.