The latest comes from Jay Soled, tax law professor at Rutgers University, who wonders if Trump's returns indicate his use of so-called captive insurance companies, which the IRS has long been wary of because of their potential to serve as a tax dodge.
The term refers to special entities or subsidiaries formed by businesses large and small to insure aspects of their operations when traditional insurance is either prohibitively expensive or unavailable to cover some contingencies. The parent company makes payments to the captive insurers that are regarded as premiums and are tax-deductible for the parent.
"Don't be surprised to learn that Donald utilized some captive insurance companies to reduce his tax burden," Soled told Tax Analysts. "Do I have evidence of this? No, but many, many folks of his wealth class were employing this strategy" during the years Trump says are under audit, Soled says.
Trump says he has been unfairly audited many times over the past 12 years and is currently under audit, leaving him unable to release his returns. While many tax law observers say an audit is no legal bar to releasing returns -- and the IRS has said the same -- Trump has refused to budge.
Captive Insurance Issues
Meanwhile, real estate is regarded as among the industries making the most use of captive insurance, according to the Center for Insurance Policy and Research.
Trump's campaign staff, however, declined to respond to questions about whether he uses them.
And even if Trump someday produces returns showing one or more captives, that is far from signifying abuse, tax law practitioners say. "There are many real estate developers who use captives quite legitimately for wholly nontax purposes, including insuring against construction defects, environmental exposure, contractor liability, and the like. But there are also many real estate developers who have in the past misused their captive as a tax shelter," said Jay Adkisson of Riser Adkisson LLP in Newport Beach, California.
Adkisson added, "It would be plainly improper, however, to attribute foul tax motives to a real estate developer simply because they own a captive, in the absence of other substantial facts indicating that they are misusing it."
Others say Trump's business empire is of the size it would likely rely on larger captives rather than the section 831(b) variety, which are characteristic of smaller, closely held companies.
"I think it's extremely likely that he would," Stephen Moskowitz of Moskowitz LLP in San Francisco, said about Trump using several larger captives. Not only that, Moskowitz said, there is a good chance at least some of them are located offshore, where regulations are less stringent. Another aspect of captives, he said, is that their premium income is tax-excludable if it's either targeted toward reserves by a larger captive or falls under $1.2 million for smaller "micro-captives." And 70 percent of investment income for either is also excludable.
Regardless of its size, the IRS wants to know if it is really providing insurance, practitioners say.
"The IRS is looking at whether the captive structure represents insurance, for federal tax purposes, and [insurance is] a term for which numerous facts and circumstances will be considered," said David J. Slenn, an attorney with Quarles & Brady LLP in Naples, Florida. "At the heart of insurance is risk shifting and risk distribution, and whether the arrangement was insurance in the commonly accepted sense. Of course you must be dealing with insurance risk -- which is also a disputed issue as of late."
While the IRS has questioned the legitimacy of both large and small captives -- while losing several recent cases involving larger ones -- it is the 831(b) versions that have received the most negative publicity of late. In April 2015 The New York Times described 831(b) arrangements in which wealthy individuals were transferring income of nearly $1 million a year to captive insurance companies and calling it premium payments so that they could claim the payments as a tax deduction. They would then borrow from the captive to maintain their lifestyles.
For their part, larger captives can also benefit individuals, such as through dividends to shareholders, practitioners say. And it's possible Trump could be involved in both large and small captive insurers, although such instances are "very rare," Adkisson said.
Regardless, the escalating speculation about what's in Trump's returns could eventually prove politically damaging, especially if it's believed he benefits from complicated arrangements not available to average taxpayers, Cal Jillson, political scientist at Southern Methodist University, told Tax Analysts.
Jillson said the wealthy like Trump have the means to employ lawyers and accountants to find tax preferences others can't. "For others, it's 'this is what you owe, now pay up!'" he said.
David Cay Johnston, a Pulitzer Prize-winning reporter on tax issues, offered one such example when he wrote March 8 in USA Today that Trump has a history of escaping income taxes by reporting so much real estate depreciation that he has negative income in the eyes of the IRS. However, the negative income never dented his lifestyle, Johnston wrote.
And The Wall Street Journal reported March 10 that Trump has donated development rights to land he owns but speculated that he may have received large conservation easement tax benefits for those donations.
Other possible finds in Trump's tax returns that could prove damaging, Jillson said, would be effective tax rates that seem low considering his wealth or relatively little contributed to charities or churches. Former Massachusetts Gov. Mitt Romney, the 2012 GOP nominee, had tax returns that showed extensive donations to the Mormon Church. "Mitt Romney tithed," Jillson said. "I doubt Trump tithes." Republican evangelicals might be disappointed by low or non-giving to churches, he added.
But Trump so far seems to have escaped political damage from refusing to release his returns. If he turns out to be the Republican nominee, could he maintain that refusal through the general election? "You wouldn't think so," Jillson said, but added that much will depend on how smartly his opponent uses the issue against him. "He's not in a business situation but in a political environment, where it's expected you will release your returns," the SMU professor said.
One possibility, he said, is Trump holding his returns hostage until Hillary Clinton, if she becomes the Democratic nominee, releases more information about the finances of the Clinton Foundation.
Others say the pressure on Trump will have to increase considerably for him to comply.
"He will only release when the pain of not releasing exceeds the anticipated pain if he does release them. [It's] a basic law of politics," said Charlie Cook of The Cook Political Report. "The media has allowed Trump to play by a different set of rules than other candidates have."
But Cook said he believes the returns, if and when released, would likely be "politically problematic."
Wendy Schiller, political scientist at Brown University, added, "I do think that if Trump outright refuses to release his tax returns, voters will believe that Trump has something to hide either because he is not as wealthy as he says he is, or he has not donated to charity as he says he has, or some combination of both. Voters will accept bragging, and a large ego, but not if it turns out to be based on a lie."
Ferrel Guillory, political analyst at the University of North Carolina, said voters have come to expect politicians to release their returns "as insight into their veracity, integrity, and economic lives."
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