The Criminal Case Against The Trump Organization And Its CFO Is Not As Easy As It Seems

Last Thursday, a New York grand jury indicted the Trump Organization and its CFO Allen Weisselberg, mostly for tax crimes. The indictment accused the defendants of structuring a tax evasion scheme where Weisselberg avoided reporting taxable income by taking noncash benefits through the Trump Organization. This included the use of a Manhattan apartment and a luxury car. And Weisselberg’s family members received payments for tuition expenses which could have been constructive income attributable to Weisselberg. And these actions resulted in the filing of false tax documents and tax returns. This case is expected to produce information that can be used to indict former President Donald Trump.

But the transactions could have been tax free in one form or another. And even if the transactions resulted in income to Weisselberg, do they warrant jail time?

There is an argument that the benefits Weisselberg received were nontaxable fringe benefits from the Trump Organization. Not all fringe benefits are tax free, and the tax laws and regulations are fairly specific as to which benefits qualify for tax free treatment.

I am not at liberty to opine on whether the benefits described on the indictments are taxable noncash income or nontaxable fringe benefits. But there are provisions in the law where the use of automobiles in addition to providing lodging and educational assistance can be nontaxable fringe benefits.

It is very possible that the benefits provided to Weisselberg and his family are not fringe benefits and should be subject to tax. But if the defendants can prove that they tried in good faith to comply with the law instead of plotting a scheme to evade taxes, it may be enough to show that there was no criminal intent.

The indictment also claims that Weisselberg did not pay New York City income taxes despite living in an apartment in Manhattan. For those who don’t live in New York City, it charges its own income tax to its residents.

Weisselberg lived in Long Island which is not subject to the New York City tax. Donald Trump even stated that it was “embarrassing” that his CFO lived in a modest house in the area.

So how can he prove his Long Island residency and avoid the tax? New York law states that a person is a full-time resident for tax purposes if they meet one of two requirements. One requirement is that they must maintain a permanent place of abode in New York for substantially all of the year and spend more than 184 days (more than half of the year) in the state. Or they must be domiciled in New York regardless of how many days they are actually in the state.

Being domiciled in a state basically means that it is a person’s intention to live there permanently, even if they spent very little time in the state during a particular year. Proving domicile can be complicated as it requires an analysis of an individual’s facts and circumstances. Generally, tax auditors look to see which state the taxpayer has the closest connections to. They look at where their driver’s license or ID card was issued, where they registered to vote, the location of their primary banks, place of employment, and locations of family and friends. These rules have been around for many years, but in this mobile era of emails, online banking, virtual meetings, and text messages with emojis, some of these rules should not be given much as weight as they used to.

Some people have said that the defendant’s actions are commonly done in business. This is true especially in small businesses where owners tend to commingle personal and business expenses without doing proper bookkeeping. Typically, the owners do what they want and let their accountant sort everything out. Criminal charges for these types of actions are not the norm. While prosecutors do not have to follow the “everyone else does it” defense, it may make jury selection difficult because “everyone else” might be more sympathetic to the defendants and more likely to acquit.

Lastly, there is the question of whether Weisselberg will turn on Trump in exchange for leniency or even immunity. Weisselberg is 73. His advanced age means that even a light sentence could be a life one. But he has likely already lived his best life. So long as his children are taken care of, he probably won’t care about jail. Will he do whatever he has to do to avoid jail time? Or will he look forward to lounging at the taxpayer-funded minimum security prison while preparing tax returns for the prison guards? So far only one person knows that answer.

For those looking for intrigue and complex tax avoidance schemes involving hiding billions of dollars alongside Vladimir Putin, you will likely be disappointed with this indictment. As the case progresses, we will see whether the transactions noted in the indictment are disguised compensation or are nontaxable transactions such as gifts. Assuming the jurors are not politically motivated, it is not a slam dunk case as the transactions may not be taxable. And even if they are, the transgressions may not warrant a criminal punishment. This is mainly because it is very difficult to pay the back taxes while you are incarcerated. But it remains to be seen whether this will produce information and documents that can be used to prosecute the former president.

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Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.