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Five Facts About the Trump Tax Return Disclosure

4 min readBy: Joseph Bishop-Henchman, Alan Cole

The New York Times reports that it has obtained pages from Trump’s 1995 state taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. returns. The Times reported late Saturday night that it had received an envelope containing the first pages of Trump’s alleged 1995 state tax returns in New York, New Jersey, and Connecticut. The documents were mailed to the Times from New York City; the return address claimed it was sent from Trump Tower. Last week, the Times showed the documents to Jack Mitnick, who in the mid-1990s was Trump’s accountant and was listed on the New Jersey return as the preparer. He said the documents appeared to be authentic.

The documents indicate Trump had enormous business losses. The documents indicate Trump (and his then-wife Marla) earned wages and salaries of $6,108; interest income of $7,386,825; dividend income of $26,051; business gains of $3,427,092; real estate losses of negative $15,818,562; and “other income” of negative $915,729,293. This is almost certainly what is known as a net operating loss (NOL) carryforward, given the amount and the line of the form (although the document references an explanatory statement that remains undisclosed).

Net operating loss carryforwards are not a loophole, but a standard feature of an income tax that discourages tax avoidance. If a business makes $50 in June but loses $100 in July, we call that a $50 loss. A business that makes $50 in December but loses $100 in January is fundamentally the same thing, but straddles the tax year. Net operating losses (NOLs) allow businesses that lose money in one year and make money in another to smooth those ups and downs. We tax income (profits) not losses, and do so somewhat arbitrarily based on the calendar year. Otherwise, a taxpayer would have to pay income taxes despite not earning income, and would have an incentive to manipulate gains and losses to make them happen in the same year. Any taxpayer with business losses can take NOLs, and in 2014, 1.2 million taxpayers reported NOLs on their federal income tax form.

Why Trump had such a large net operating loss carryforwardA Net Operating Loss (NOL) Carryforward allows businesses suffering losses in one year to deduct them from future years’ profits. Businesses thus are taxed on average profitability, making the tax code more neutral. In the U.S., a net operating loss can be carried forward indefinitely but are limited to 80 percent of taxable income. is not known from the documents made available. The documents are just the first pages so they are incomplete, and Trump’s campaign has not released any other information that can explain the $915.7 million business loss reported on the 1995 tax return. The Times notes that several Trump ventures had faltered in 1991-92 (the Trump Taj Mahal and Castle casinos in Atlantic City, the Trump Shuttle airline, and the Trump Plaza hotel), resulting in four of the six bankruptcies in Trump’s business record. As part of the bankruptcy settlements, Trump gave up stakes in these properties to creditors in return for debt write-downs. Generally cancellation of debt is taxed as income, except when discharged as part of a bankruptcy proceeding in which case any NOLs are reduced by the debt discharged. Without further documents or clarifications by the campaign, these are guesses.

The Times may face legal troubles for their article but can mount a First Amendment defense. Trump’s lawyer, contacted for comment by the Times, threatened “prompt initiation of appropriate legal action” if the Times published their article on the documents. The Trump campaign’s response referred to the document both as “alleged” and as “illegally obtained,” and in listing all the taxes Trump pays, did not list income taxes. Unauthorized disclosure of federal tax returns is prohibited by 26 U.S.C. § 7213(a)(3), punishable by a $5,000 fine and 5 years imprisonment, but in this case only state tax returns were disclosed. New York punishes unauthorized disclosure of tax return information with dismissal if the party is a state employee (N.Y. Tax § 314) and a criminal misdemeanor (N.Y. Tax § 1825); I couldn’t find information on imprisonment length for this offense. New York further authorizes civil damages of up to $1,000 or actual damages, plus punitive damages and court costs, for unauthorized disclosure of a state tax return (N.Y. Tax § 3038). Connecticut allows for punishing a state employee that violates tax return disclosure laws to be fined no more than $1,000 and imprisoned for no more than a year (Conn. Gen. Stat. § 12-15(g)). New Jersey punishes unauthorized tax return disclosure as a “crime of the fourth degree,” punishable by up to 18 months in prison and a $10,000 fine (N.J. Stat. § 54:50-8(b); N.J. Admin. Code 18:7-11.14). Criminal actions require the state governments to begin legal proceedings, not Trump or his lawyers. In mid-September, New York Times executive editor Dean Baquet said he would publish Trump’s tax returns even if it risked jail time, and I would expect them to raise a First Amendment defense to their publication. In 1971, the Times and the Washington Post won a First Amendment defense against a government order to cease publication of the Pentagon Papers, a collection of classified documents explaining how America became involved in the Vietnam War.