Are Trump's HUUUGE Losses Real?

If there was something I never saw coming, it was the hand-wringing and TV pundit analys of the relatively common use of Net Operating Losses--albeit by Donald Trump.  To all tax attorneys, the very idea of rolling forward Net Operating Losses (or NOLs) is common and rather mundane.  So when I saw and heard the media headlines lambasting Mr. Trump for his use of this mega NOLs I wasn't all that surprised.  The only think that surprised me however, was the sheer size of Mr. Trump's NOLs, nearly $1 billion (with a "B").  Even for a businessman in Trump's position, actual losses coming close to $1 Trillion is rare.  What's interesting about the revelation in his 1995 State return that was released was that this $1 Trillion loss was simply a rollover from a prior year.  The make up of this massive NOL could have come from a whole host of different sources.  Some have speculated it related to losses on sales of casinos and land, but Mr. Trump appears to have been fully leveraged and so any debt forgiveness woud have actually been considered income and offset any NOLs.  Some have suggested Mr. Trump has engaged in a rather unscrupulous tactic called "debt parking", but the technique is extremely aggressive and I suspect would have easily been uncovered by the IRS in their apparent never-ending audits of Mr. Trump. 

Interestingly, in the middle of this NOL media firestorm, Trump's campaign released the following statement: 

“Mr. Trump is a highly-skilled businessman who has a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required. That being said, Mr. Trump has paid hundreds of millions of dollars in property taxes, sales and excise taxes, real estate taxes, city taxes, state taxes, employee taxes and federal taxes, along with very substantial charitable contributions.”

What fascinated me that while he lists certain taxes expliclity by name, he does not actually mention "income" taxes, which are the taxes which would have been offset by the his massive NOLs.  Granted, income taxes would clearly fall under the reference to "federal taxes" but I just found it curious they were not explicilty mentioned when one of the biggest allegations against him was that he may not have paid any income taxes in the past 18 years or so as a result of this NOL. 

Unfortunately, without seeing Mr. Trump's full federal returns, we'll never know for sure. 

U.S. Debt Clock: You have to see it to believe it

Last night I ran across a phenomenal website called USDebtClock.Org.     I captured the above screen shot this morning so all of the above figures are approximate as of 1:00 pm on October 18, 2013.

Unfortunately, the screen shot doesn’t do it justice and so you have to visit the site to fully understand its impact as the debt and revenue numbers are constantly churning at a dizzying rate. 

Last night when I check the U.S. Debt figure the debt was in the high $16 trillions.  I awoke this morning to find that the debt had surpassed the $17 Trillion mark.  Hurray!? 

To me, however, the most fascinating aspect is how the site divides that debt by the number of citizens and taxpayers.  As of 1:00 pm today, the debt, per citizen, was $53,715.  However, the debt per us taxpayer was an astonishing $148,29 (and it keeps growing).

Don't Make Section 501(c)(4) The Patsy of the IRS Scandal

The Visalia Times-Delta recently published an editorial of mine defending section 501(c)(4) organizations that have been vilified as of late as a reactionary response to the IRS tea party scandal.  I defend both their tax-exempt status and the fact that donors' names are kept confidential. 

How the Prop 8 Ruling Threatens Prop 13 (and other future tax reforms)

California's ballot initiative process is vital to Californians and helps ensure that the will of the people is expressed, even when California politicians are uncooperative.  Over the years, ballot initiatives have been proposed and passed that have advanced both liberal and conservative causes.  In each of these cases, the initiative process was the only way to advance these issues as the legislature would not, or could not, pass effective legislation. 

While the recent Supreme Court case on Proposition 8 may have advanced gay marriage, its unintended consequence is to put into question the sustainability and power of future ballot initiatives.  Justice Scalia ruled, in essence, that the defenders of the Prop 8 initiative did not have standing to sue because only the State of California had standing to defend Prop 8 from attacks.  While Gov. Brown and Kamala Harris, the State A.G., put up a begrudging defense of Prop 8 at the trial level, they opted not to appeal the trial court decision finding Prop 8 unconstitutional.  Defenders of Prop 8 then stepped in and decided to appeal.  The California Supreme Court held that clearly, the Prop 8 defenders had standing and could appeal the decision and were essentially representing the interests of the State. 

Unfortunately, Justice Scalia's holding now weakens almost any ballot initiative--especially those that the Governor and Attorney General personally dislike. Consider the following hypothetical.  A homeowner sues alleging that Prop 13 violates their equal protection because their neighbor who bought their home 50 years ago pays much less than they do for their new home, despite the fact the homes are identical and have the same value.  Although merit less, the Governor and state AG could opt to not defend the suit.  All of a sudden, an injunction is issued finding Prop 13 to be unconstitutional.  The State decides it won't pursue an appeal and the defenders of Prop 13 have no standing in federal court to pursue an appeal either.

In a single opinion, Justice Scalia was able to do something many California politicians have been trying to do for year--weaken the initiative process. 

The IRS Targeting Scandal--An Engaging Infographic

Below is a fascinating infographic that attempts to fill-in the details and give the back story of the IRS tea-party targeting scandal.  (admittedly the tone is a bit left-leaning)

IRS: Bureaucratic Blunder or Political Profiling
Source: TopAccountingDegrees.org

Vote For "La Wendy"--Worst Political Support Song Ever Written

Democratic LA mayoral candidate Wendy Greuel has received heavy union support compared to fellow democratic candidate Eric Garcetti.

In perhaps the worst demonstration of political support the LA hotel workers union wrote and sang a song urging citizens to vote for "la Wendy". Union officials translated the Spanish lyrics into English. Here's a portion of the words:

"If for la Wendy you want to vote

Get in the car and let's have fun.

And for la Wendy to win

All Latinos got to have her back.

If you want to earn $15 an hour

You have to march for la Wendy.

If the blond comes to your door

Open the door and let her in.

Wendy, la Wendy we're gonna vote.

$15 an hour we'll make.

Wendy, la Wendy we're gonna dance.

Eric Garcetti start crying.

From Montecito to Huntington Park

Passing El Sereno, eating tamales

And the voters for you will fight.

We'll have extra money to spend.

The people will support you.

That's why the blond will triumph.

In the truck we'll celebrate

With the mariachis we'll sing

Her last name is difficult to sing

That's why we're writing this rhyme.

La Wendy, Los Angeles you will change

And the Latino vote will crown you."

A Rational Explanation for the Targeting of Tea Party Groups by the IRS?

Although the inspector general of the U.S. Treasury is set to release a report on Wednesday detailing the increased scrutiny certain tea party groups received in their 501(c)(4) applications, a Duke tax law professor, Richard Schmalbeck, was at the ABA meeting where this was first disclosed and has shared his thoughts:

From the Tax Prof Blog: 

I was at the Exempt Organizations Committee meeting of the ABA Tax Section meeting when Lois Lerner, the director of the division that handles exempt organizations matters, dropped the bombshell that is in the papers today, and generating a lot of media outrage, especially but not exclusively on Fox News. I think her explanation in person was probably better than the statement that the IRS released, at least in terms of explaining why some exemption applications actually require more scrutiny than others.
The IRS position on 501(c)(4) organizations ("social welfare organizations")is that, while they can engage in campaign activities, they cannot do so as their primary activity—which they understand as more than 50% of the organization's activities. Many organizations that seek this status probably should be section 527 political organizations rather than social welfare organizations. So when the service center in Cincinnati, which handles exemption applications, was inundated with unusually large numbers of (c)(4) applications, they tried to find ways to triage them, so that the traditional social welfare organizations would not have their processing held up, but organizations that might be close to the 50% campaign activity zone would get the appropriate level of scrutiny. In developing ways to identify the applications requiring attention, one of the tests that somebody decided would work is whether the organization had "tea party" or "patriot" in its name. The IRS did also look at other organizations with potential for abuse of the social welfare organization status, but apparently did not come up with any shorthand ways of identifying any such organizations that did not have "tea party" or "patriot" in their names.
This was obviously a bad idea for a number of reasons, including its political asymmetry. But a) it didn't come from the top—Lois is herself a career employee, and it was a decision made somewhere below her level; and b) it did not involve scrutiny that was inappropriate under the circumstances. The content of some of the scrutiny may have been inappropriate, however, in seeking names of donors, which is not ordinarily done. (Even here, I can imagine some basis for thinking this was relevant to the inquiry: if all an organization's funds were coming from a party, or other 527 organizations, it would be a matter of some concern, and raise a somewhat higher suspicion that the organization was being used to finance campaign activities primarily. And while public disclosure of donors is not required, there is no absolute bar on the IRS seeking information about donors. They do it routinely in their efforts to determine private foundation status and compliance, since major donors are disqualified persons for purposes of the private foundation excise taxes. I should emphasize that Lois did not offer this explanation however—it is just my speculation on why IRS staff might have asked that question.)
I think the problem is that if you hear that tea party organizations were "targeted" for special scrutiny, it is hard to imagine an explanation that doesn't depend on partisan bias. But there is such an explanation: the need to draw the line between (c)(4) and 527 organizations. I'm not saying that this was the right way to go about this, and neither is Lois or anyone else in the IRS. But at the same time, it isn't the smoking gun that some in the media seem to think it is. It is nothing like Richard Nixon asking the IRS to audit his political enemies, though it is being compared to that.

Some additional headlines on this matter: 

American Thinker:  IRS Scandal Deepens: High Officials Knew of Tea Party Targeting in 2011

  • CNN:  IRS Abuses Power in Targeting Tea Party
  • Fox News:  Republicans Slam IRS Targeting of Tea Party as 'Chilling,' a Form of Intimidation
  • The Hill:  Rep. Issa: IRS apology to Tea Party Groups ‘Not an Honest One’
  • Legal Insurrection:  IRS Reaped Hatred of Tea Party Sown by Democrats and the Media, by William   Jacobson (Cornell)
  • Legal Insurrection:  The Washington Post leads on the #IRScandal ... Who Will Follow?
  • Mother Jones:  The IRS Shoots Itself in the Foot, Then Reloads
  • New York Post:  The Nixon Wing at the IRS
  • New York Times:  IRS Focus on Conservatives Gives G.O.P. an Issue to Seize On
  • Politico:  5 Questions on the IRS Debacle
  • Reuters:  IRS Kept Shifting Targets in Tax-Exempt Groups Scrutiny: Report
  • The Volokh Conspiracy:  IRS Scrutinized Teaching the Constitution, by Jonathan Adler (Case Western)
  • Wall Street Journal:  Wider Problems Found at IRS: Probe Says Tax Agency Used Sweeping Criteria to Scrutinize Conservative Groups
  • Washington Examiner:  Conservatives Want Congress to Audit IRS for Targeting Tea Party
  • Washington Post:  IRS Targeted Groups That Criticized the Government, IG Report Says 
  • Washington Tims:  IRS Scandal Grows to Include Debt Critics
  • Grover's Anti-Tax Pledge Spreads to Italy

    So Grover Norquist's anti-tax pledge has spread to Italy, and beyond: 

    Today, as questions loom in the U.S. over whether the recent fiscal cliff negotiations show Norquist's pledge is dead, the conservative anti-tax activist's signature document is proving its tenacity by spreading its tentacles of influence to another unlikely place: Europe.

    A group called Tea Party Italia, inspired by the tea party movement in the U.S. and by Norquist's pledge, created a similar taxpayer contract it is pushing ahead of the country's general election next month. The pledge says politicians won't raise taxes and will work to reduce the country's debt, which the Associated Press reports hit a record $2.64 trillion in December.


    David Mazzerelli, a co-founder of the Italian tea party group, tells Whispers that getting supporters hasn't been a problem. The group has hosted 200 mostly well-attended events over the last several years, he says. But getting politicians to sign on to the pledge might prove more of a challenge.
    "Candidates in the U.S. want to sign this pledge because they have to do a difficult and hard campaign," he says. Italian candidates, on the other hand, are chosen by the party and don't go through a campaign season. "So it's very difficult to find [politicians] that believe in our ideas in Italy."

    Remembering Robert Bork

    Robert Bork died this morning at the age of 85.  He was nominated by Ronald Reagan to serve as a Justice of the US Supreme Court but faced fierce opposition (albeit, unjustified) in the Senate.  He was not confirmed and ultimately resigned as an appellate justice.

    After retirement he wrote several books.  Two of which are on my top ten list of favorite books:  Slouching Towards Gomorrah and the Tempting of America.  Despite the unfair attacks he suffered he was reportedly always good-natured and upbeat.