In the days leading up to the Manhattan District Attorney's indictment being released on July 1, 2021, public excitement was positive. It would only be an ancillary benefit case, we were told – i. H. a dispute of the kind that almost never leads to criminal charges, whether the use of a company car or an apartment by an employee led to taxable income or not in view of the recognized personal advantage, but also with plausible claims about something other than the purely compensatory Business purpose. Everyone does, we've heard, and it shouldn't be the basis for criminal fraud charges. Furthermore, it would allegedly only be a New York state or city income tax issue, rather than federal, which would limit the extent and monetary significance of the alleged wrongdoing.
Then the indictment fell, and it turned out that the public's expectations could not be fallen short of any further than the order of magnitude of the actual indictment. Let me spell the details under several headings:
1. This is not a mere fringe benefit case. It is a clear case of fraud in which it is alleged that the defendants kept double books: false books to show the tax authorities and accurate ones to hide from sight. The question of whether a certain company apartment or a car could theoretically (with the corresponding receipts) have been an excludable ancillary service turns out to be almost completely irrelevant. A better analogy to what's billed here is as follows: suppose your employer pays you monthly through auto-paid paychecks that are eventually included on your annual W-2. But suppose you could stop by the front desk every month, request an envelope full of cash in unlabeled bills, and have your W-2 reduced accordingly. So your real income would be the same as if you hadn't come by, but your salary would be lower. If your employer carefully records and subtracts all of the cash they have given you, we would basically have this case. This is very different from simply failing to pay taxes on fringe benefits, so the indictment has been widely misunderstood, thanks in part to the preparation of the indictment by Trump's lawyers, who laid the groundwork Thursday before the indictment was released.
2. It is not just a state and local income tax fraud case. It is also a federal income tax fraud case through New York State fraud, conspiracy, and grand theft. The first three and longest counts in the indictment describe a “scheme for fraud” by the Federal Tax Office, including a “conspiracy” with several “open acts” and the commission of “major theft”. In other words, just as the Manhattan Attorney's Office might indict someone for committing such crimes (within their jurisdiction) against you or me, here they have identified the IRS as the main victim of the defendants' actions. In fact, the word "federal" appears 30 times in the Manhattan Attorney's 24-page fee document.
Given the alleged facts, it is difficult to imagine that if the IRS agreed that these facts were true, it would not immediately charge the defendants with federal income tax fraud. Failure to bring charges would mean that overt and deliberate tax fraud of the brazen kind does not need to be prosecuted. If a private individual, rather than the Manhattan attorney, had gathered all of this information and reported it to the IRS, he or she would be in an excellent position to claim a whistleblower award. And while federal agencies often refrain from bringing their own charges when state agencies are already pursuing a case; the indictment makes it clear here that the fraud was essentially directed against the federal government itself.
3. If the Manhattan Attorney's Office can prove the alleged facts, it is not a trivial case, or one that would not normally be brought forward, or one that suggests political bias or is just about pressuring a witness to the the public prosecutor wants to "turn to". ” It is inconceivable to me that a prosecutor would not bring these or similar charges under the alleged facts. If the case is proven, the prosecution will not have criminalized political disagreement, as critics criticize. Rather, it will have criminalized crime – and not a moment too soon from a broader enforcement standpoint, as there are widespread concerns about drastic enforcement not only against income tax fraud but against white-collar crime in general.
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This is the general overview. However, a look into the details can help show why this is all so. The best way to convey a clear understanding is to transform the formal presentation of the charges into a more straightforward narrative. The remainder of this comment presents the main elements of the story the Indictment tells.
Keep in mind, of course, that all of this is only the case of the Manhattan Attorney's Office. Crimes are not punishable under American law unless they have either been confessed or proven beyond doubt in a court of law. For the sake of simplicity, I'll set out the prosecutor's version of what happened without repeating (more than sporadically) that everything has yet to be proven.
4. The true economic deal claimed in the indictment – Weisselberg had a permanent business deal with the Trump Corporation. He was to be paid a fixed amount – which was $ 940,000 per year for 2011 through 2018, consisting of $ 540,000 as a base salary and $ 400,000 as a year-end bonus. Nothing else in the employment contract and the agreements between the parties discussed in the indictment would change that firm end result. Any supposed "fringe benefit" – and as we shall see, the term really doesn't fit here – that the Trump Organization (through one of its facilities) delivers to Weisselberg would be treated as compensation in the company's internal records and indicted against his $ 940,000 receipt. For example, let's say the organization paid him $ 50,000 in cash, either directly or through a payment to a third party (including other Trump companies) of consumer benefits to him. In that case, all other things being equal, Weisselberg would receive $ 890,000 instead of $ 940,000, with that lesser amount being treated as compensation in the W-2s and 1099s issued and by him on his own tax returns. But the organization's internal records would still show that he received $ 940,000 in compensation, including that $ 50,000.
5. Fraudulent double bookkeeping – Implementation of this scheme required two inconsistent records: (a) the falsified tax return records that excluded part of his remuneration (as part of the parties' financial dealings and the company's secret accounting) and (b) the true accounting records that the company kept privately entertains. Tax enforcement experts agree that keeping two books this way is "a red flag" and "a classic sign of overt tax evasion," which often leads to the government having a "slam dunk case." .
6. Additional overt acts to cover up the fraud – Even in the company's own ledgers, in contrast to those that were disclosed to the responsible tax authorities, Weisselberg concealed his donations. For example, he instructed "an accounting clerk to remove the 'Per Allen Weisselberg' entries from the entries in Donald J. Trump's general ledger relating to the tuition fees paid on behalf of Weisselberg to his family members' private school" (Second Count; Overt Act # 10).
7. Much of the items that the company funded (and then deducted from Weisselberg's reported compensation) were unrelated to the type of items that, under appropriate circumstances, could potentially constitute tax-free employee benefits. It is true that the items that the company (but actually Weißelberg himself, indirectly) paid for and then secretly excluded from its reported income included (a) the rent (1) for an apartment in Manhattan closer to where he worked when the apartment he owned was in Wantagh, New York, and (b) a Mercedes-Benz car. In appropriate factual and legal circumstances, the value of housing used for the convenience of the employer and the value of using a company car – even though it is a "passenger car" in the indictment – can potentially be exempted from taxable income. However, the following items, which the company paid on behalf of Weisselberg, most clearly do not fit into the profile of potentially excludable fringe benefits:
• School fees for private schools for the family members of Weißelberg (first count ¶9). (2)
• a Mercedes Benz automobile, which was the private car of Weisselberg's wife (first count ¶10).
• unreported cash that Weisselberg could use to pay personal vacation pay (first count §11).
Treating cash as a “fringe benefit” would mean that the term encompasses all employee compensation. Does this mean that if you get paid with cash off the books and don't report it, the IRS is just arguing about fringe benefits? Of course not.
• Personal expenses for Weisselberg's other apartments and an apartment that is maintained by one of his children; that included things like new beds, flat screen TVs, carpeting, and furniture moving for his Florida home (First Count, §12).
• Rent-free accommodation and other services to a family member from Weißelberg (first count, §13).
In view of such items, in addition to the secret double bookkeeping and the in-house treatment of all these items as compensation, there are only three possible explanations for the term "fringe benefits". The first is that no one has read the indictment or otherwise acquainted himself with the facts. The second is one that is ignorant of not only the extremely basic aspects of federal and state income tax law, but also general English usage. Labeling bundles of money and the provision of flat screen TVs in employee vacation homes as "fringe benefits" – especially when it is not additional pay but replaces the dollar-for-dollar paycheck – does not seem to leave employee compensation beyond the scope of the term. The third is that you chose to misinform your audience.
8. Fraudulent misrepresentation of employee compensation, supported by misleading bookkeeping The company also reported Weisselberg's year-end payments ($ 400,000 for 2011-2018) as compensation for non-employees, using Form 1099 in place of the W-2 used for salary (¶16). He relied on this misrepresentation to turn these amounts into deductible annual contributions for a Keogh Plan, which is a tax-privileged pension plan that can be deducted from self-employed income, but not from employee wages (¶¶15 and 17). To support this characterization (which Weisselberg is alleged to be false in the indictment), year-end payments would be made from Trump Organization companies he was not employed by, such as the Mar-a-Lago Club and Wollman Rink Operations LLC (¶¶15 and 17). This creation of a false paper trail – since he himself, as an independent contractor, had not provided any services to these companies that assisted in receiving such payments from them – is the alleged pattern of not only being in the wrong tax position, but of deliberately misleading overt acts in support of a conspiracy to fraud. (3) It probably also shows the awareness of guilt.
9. Avoid New York Income Taxes by falsely denying local residency status – The indictment states that from 2005 to 2013 Weisselberg and the other defendants acted to "disguise his status as a resident of New York City" and thus "enable him to avoid paying New York income taxes" . " (§8th). It adds that he “spent most of his days in New York City each year, working in the Trump Organization offices in Trump Tower. He was a New York City resident and knew he was a New York City resident, but falsely claimed to his tax advisor and tax authorities that he was not a New York City resident. ”That behavior didn't stop when he did sold a house in Wantagh, New York, that he owned, presumably because he could no longer claim to live there instead of New York City.
It's a well-known fact among taxpayers in the New York area – and not just those with specialized tax and accounting skills like Weisselberg himself – that if you have an apartment in New York City (like him) and be in the City, you are for at least one a part of more than 183 days in a given year, then you are considered to be a resident of the city for that year. This is not a topic that relates to more general (or other) facts and circumstances. Therefore, according to the facts set out in the indictment, Weisselberg was clearly a resident of New York City for all years from 2005 to 2013 based on an objective black letter rule that is hardly mysterious or obscure.
10. What role did Donald Trump play in this? The indictment states that "Tuition fees for Weißelberg's family members (were) … were paid by personal checks made out on and signed by Donald J. Trump." It also states that "Trump Corporation, acting through their president ”, signed the New York apartment lease agreement on behalf of Weißelberg in 2005 – listed as an open act promoting the alleged conspiracy to evade federal income tax (Second Counting; Overt Act No. 1).
Otherwise, however, there is little direct discussion about what Donald Trump himself did or knew personally about the facts alleged in the indictment. If Trump is subsequently charged by the prosecution in connection with the crimes alleged here or anything else, his conviction would require unequivocal judicial evidence of his necessary criminal acts and intentions. However, in the courtroom of public discussion and debate, any allegation that the crimes alleged in the indictment could have happened without his involvement and knowledge can be viewed by many as begging gullibility.
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(1) In addition to the rent for the apartment itself, the company paid for the telephone, internet and cable TV from Weißelberg as well as the monthly garage costs. (First count, ¶7). I will not go into the question of whether these may all fall under the legal exclusion for certain accommodation expenses made available to the employer. However, a conscientious taxpayer who wanted to ensure compliance with his tax obligations would certainly have checked when (as here) these are billed separately.
(2) The study grant provided by the employer may, under appropriate circumstances, be a tax-free fringe benefit, but this also includes the company offering it under a program that applies to a wide range of employees – not just one of the senior executives of an organization about a special offer.
(3) See ID., Heading before §18.