It’s been two weeks since the news broke of the Trump Organization and its CFO, Allen Weisselberg, being indicted by the State of New York. And, perhaps predictably, the main stream media immediately went into overdrive with experts opining as to how this would finally mean real trouble for former president, Donald J. Trump.
Some even suggested that the indictment put President Trump that much closer to an “orange jumpsuit,” a reference to what one wears when headed for prison.
I tried watching some of the coverage, but nothing I heard on cable news about the indictment impressed me as rising to a level anywhere near that of an “orange jumpsuit.” I’ve been CEO of a consulting firm for over 20 years, so I do have some experience with employment law and corporate tax issues.
And, in fact, based on what I was hearing from the “experts,” I was somewhat surprised that it was a criminal indictment at all.
So, I turned off the television and downloaded the actual indictment, which I read very carefully more than once before calling some of my own experts to see what they were thinking about the much-anticipated news.
One, was a U.S. Attorney for some 30+ years who had led the federal government’s white-collar crime task force prior to retiring a few years ago. Another, the former Attorney General for the State of Ohio. And the third has worked inside Fortune 500 companies and has been a corporate tax accountant for decades.
All are obviously smart and experienced professionals. And, I think it’s important to note that although I wouldn’t describe any of them as being “far left” in their political thinking, none would be considered “Trump supporters,” by any means.
For the record, I would not be considered a “Trump supporter” either, so I’m not writing this to defend our former president. I’m writing this because Trump may just be right when he says that this is being driven by politics as much as anything else.
The Investigation
Manhattan District Attorney, Cyrus Vance, really became interested in investigating the Trump Organization when Trump’s former personal lawyer and “fixer,” Michael Cohen, pleaded guilty to eight counts related to tax fraud, excessive campaign contributions, making false statements to a financial institution, and unlawful corporate contributions, including paying hush money to Stormy Daniels, with whom Trump was alleged to have had an affair.
Cohen, testifying before Congress and appearing almost nightly on cable news, made statements about the Trump Organization having over-valued properties in order to obtain bank loans, while under-valuing the same properties to minimize taxes.
That’s classic mortgage or bank fraud, and understandably those sorts of claims piqued the interest of Vance and other investigators.
For roughly 18 months, it appeared to be all about gaining access to Trump’s much-discussed tax returns, which the president had done everything imaginable to deny, but ultimately Mr. Vance got what he wanted when, in July of 2020, the Supreme Court ruled in his favor.
Within hours of that ruling, the Manhattan district attorney’s office enforced a subpoena on Trump’s accounting firm, Mazars USA, receiving eight years of Trump tax returns.
The mainstream media appeared jubilant at news of the high court’s decision. Now, they told us, we would all get to see the myriad of crimes committed by the most polarizing president in American history. And far too many were absolutely certain those crimes would be many and varied, ultimately leading to the former president donning an “orange jumpsuit.”
Did they actually know any of that to be true? No. No one did. But that didn’t stop anyone from sharing their opinions. It is all about ratings these days, after all.
As time passed, the intensity of probability forecasts grew. Vance enlisted the help of NY’s Attorney General, Letitia James, and numerous experts… surely that had to mean something, right? Surely, we were only days or weeks away from Vance delivering the bombshell of criminality that the country had been told to anticipate.
And, then came that Thursday.
The Indictment
Now, in terms of full disclosure, I am not an attorney, nor do I ever pretend to be one. I don’t need to… I’m literally surrounded by lawyers in both my personal and professional life. When I want or need a legal opinion, I call an attorney who is expert in the related field, which is what I did in this case.
I am, however, a pretty solid reader and as I said earlier, I have been the CEO of a company for over 20 years, so I have dealt with compensation issues related to fringe benefits and the idea of minimizing taxes wherever possible. That’s what all company CEOs do.
So, when I read the indictment’s 24 pages, I found myself reacting quite differently than the cable news talking heads I watched interpret the document the night before.
Fundamentally, the indictment is about the Trump Organization paying for things on behalf of CFO Weisselberg that the Manhattan DA says should have been part of his compensation and therefore were taxable… although the amounts were not reported as being part of his compensation and therefore were not taxed.
In cases like these, normally the company doing these types of things can get in trouble with the tax authority, such as the IRS or a state tax board. It’s the company’s responsibility to withhold taxes on all compensation, so not doing so can carry some liability, penalties and interest. In other words, it can be expensive.
However, I can’t think of anyone that worried about prison time because they didn’t include the value of a corporate car provided to an executive on his W-2.
Of course, this is more serious than that. This is alleged to have gone on for roughly 15 years, so it can’t be seen as merely an oversight. They knew exactly what they were doing and it was unquestionably wrong.
I found other allegations in the indictment not so clear as to their veracity or seriousness.
Unreported Cash
For example, one of the counts in the indictment alleges that Weisselberg used to write a check around the holidays have an employee cash it and then deliver the cash to him. This cash, between 2011 and 2017, according to the indictment, totaled $29,400… which breaks down to $4,200 a year.
The indictment calls this money “unreported cash,” but I don’t think we can be sure that’s true. While he may not have reported it as personal income, it’s not clear that the Trump Organization didn’t include the amounts on its tax returns as being used for legitimate business expenses.
Back in the early 1990s, as the CEO of my firm, I used to do something similar around the holidays. I’d write a check for say $5,000 and have someone run to the bank, cash it and bring me the cash. I’d then use that cash to give employees and key vendors cash bonuses. You know, the kind that come in those little envelopes upon which is often printed “Happy Holidays,” or whatever.
Some would get $100. Others might receive $300. The point is that I did not include the $5,000 on my personal tax return as income, because it wasn’t my income. It was given out to employees and vendors to show a little extra appreciation for the value they contributed to my company that year. It was a legitimate business expense, according to my controller and CPA and I never thought twice about it.
Some years I remember giving out gift certificates for turkeys at a local grocery store. I’m sure we deducted the cost as a business expense, but I’d be surprised to learn that any of the recipients declared their gifts as income on their tax returns.
So, when we accuse Weisselberg of receiving $29,400 in cash over eight years that he didn’t declare as personal income, is that what we’re talking about? What if Weisselberg has receipts showing how that cash was used? What if he used it to hand out tips to low level workers around the holidays?
I don’t know. Maybe it’s more wrong than I think it is, but it still doesn’t feel like much of a criminal act, much less one that would threaten to land someone in an orange jumpsuit.
According to the indictment, Weisselberg earned just shy of $1 million a year working at the Trump Organization. And, he’s been there for 50 years. That doesn’t exonerate him from anything, by any means, but it does make one wonder why he’d bother committing tax evasion over $4,200.
The Apartment and New York City Taxes
On page four of the indictment, it states that “beginning on or about March 31, 2005, the Trump Corporation maintained a lease for an apartment on Riverside Boulevard in New York, New York.” Trump didn’t own the building for a change, it was just a lease.
Now, the indictment says that Weisselberg and his spouse lived there, that it was his “permanent place of abode” between 2005 and June of this year and this relates to two major criminal counts found in the indictment.
One says that the value of that apartment should have been classified as income to Weisselberg and therefore been taxed. According to the indictment, Weisselberg should have paid taxes on income of roughly $1.2 million for that apartment.
The other has to do with Weisselberg not paying New York City taxes between 2005 and 2013, because he maintained that his permanent place of abode was the home that he owned in Wantagh, New York… which is on Long Island and not in New York City.
Prosecutors claim that Weisselberg “evaded the payment of $210,923 in New York City resident income taxes” for the years 2005-2013, and this is what the indictment describes as “grand larceny,” because the practice essentially “stole” money from the City of New York.
Okay, so it should be easy to see the rationale behind how this got started, right? Trump rented an apartment so that Weisselberg wouldn’t have to make the one hour or more commute out to Wantagh, but since Weisselberg’s home was in Wantagh, he didn’t consider himself a resident of New York City.
The indictment supports this thinking. It states that Weisselberg began paying New York City taxes in 2013, which is when he sold his home in Wantagh.
Look, there’s not one business person in America that doesn’t understand what went on here. Trump rented the apartment so Weisselberg could stay there, but did that make it his “permanent place of abode?” What if Weisselberg went home to Wantagh on the weekends? What if he divided his time between the city and Long Island, but considered Long Island his permanent home?
Perhaps it began one way and morphed into something else. Maybe Weisselberg started by staying in the city a few nights a week and over time stayed there longer? Or, maybe it was an intentional tax avoidance scheme from day one, but either way, it seems like the sort of thing for which a company and/or its CFO would receive a large bill, packed with penalties and interest, for failing to pay taxes on what should have been included in compensation.
Paying Personal Expenses
One of the counts in the indictment charges that the Trump Organization paid for such things as flat screen televisions, beds, furniture and carpeting, which were installed by Weisselberg in his Florida home.
The indictment doesn’t place a dollar value on these things, but I just have to point out that it’s not surprising in the least. I can’t even imagine how many flat screen televisions, beds and carpets the Trump Organization purchases each year, but it has to be a lot. So, did Weisselberg cheat by having Trump pay for these things as corporate expenses instead of classifying the amounts as personal income?
Yes, of course he did. If you’ve ever owned a rental home, you know the drill here, albeit on a much smaller scale.
I have a friend that owns several hundred apartments in Southern California. When he buys a new refrigerator or installs some carpeting in his own home, do you think he declares the amounts as his personal income? Or, does he just lump it into his business expenses, claiming that the purchases were used in his apartments?
I have no idea, but if an audit by the tax authority were to show that it was the latter, I wouldn’t be surprised in the least, nor would I worry that he might be criminally charged for the transgression. Truth be told, I’d be surprised to learn that he DID declare every such purchase as personal income.
A Private School Too Far
The indictment also alleges that the Trump Organization paid roughly $360,000 between 2012 and 2017, for private school tuition for Weisselberg’s “family members,” which I believe reportedly referred to two of his grandchildren.
Okay, so this seems pretty clear cut and I’m sure it could be called tax fraud. My friend, the tax accountant, says that he sees no way to justify this, there is no legitimate business purpose to paying for someone’s grandchildren to attend private school. It’s more than a bridge too far, there’s simply no bridge in sight.
I mean, Trump’s kids went to private schools. Did the former president and CEO of the Trump Organization deduct their tuition payments as business expenses? That would surprise me, although I don’t know why.
Driving Compensation
The indictment also states that Weisselberg had two cars that were leased and paid for by the Trump Organization. And, this sort of thing has been going on, I don’t know, my entire business life and maybe since the tax code was invented.
During the 1980s, as I recall, we used to be able to lease a car in the company name and then give it to an executive to drive. It was the classic and ubiquitous “fringe benefit,” and I can’t even count the number of “company cars” I was given to drive over the years.
Now, I know the Internal Revenue Code has been revised over the years related to companies providing cars as fringe benefits. There are limits that must be followed, many of the loopholes that were open in the 1980s have long since been shut.
But, I’m quite sure that it still goes on and business owners that push the envelope on things like this can find themselves with a big bill from state or federal tax authorities should they be audited and found not to be compliant with the code.
I can’t imagine anyone being charged criminally for writing off a car as an expense when they shouldn’t have.
W-2 vs. 1099
The last charge in the indictment that I’m going to discuss in any detail has to do with paying employees, and it has to do with whether a given employee is considered “exempt” or “non-exempt,” or employee vs. non-employee, as the indictment puts it.
Employees receive W-2s. Taxes are withheld from their paychecks and the amounts are forwarded to the various tax authorities. We all know how that works, right?
Non-employees receive 1099s. No taxes are withheld. People that receive 1099 compensation are required to file their own tax returns and they can deduct things that an employee cannot. Employers benefit too, as they are not required to pay the employer portion of Social Security when not withholding taxes.
There are very specific rules governing when someone can be considered a non-employee and therefore paid on a 1099, without having taxes withheld. And various tax authorities have been cracking down on the practice of paying people as non-employees for at least the last 30 years.
What is alleged in the indictment is that, although Mr. Weisselberg (and others, although we don’t know who those “others” are) received a W-2 for his salary, showing taxes being withheld, but some annual bonuses were paid on 1099s.
Here’s what it says in the indictment:
“The salary, and in most instances, a portion of the executives’ end of year bonuses were paid to the executives by Trump Payroll Corp. and reported to federal, state and local tax authorities as employee compensation on W-2 forms.”
However, Weisselberg (and unnamed “others”) also received bonuses that were paid without withholding taxes for which they received 1099s. On the surface this seems like it would be another indisputable violation of the tax code, like paying for private school, but like everything tax, it’s nuanced by structure and details.
Trump is not just one company. It’s a bunch of corporations and LLCs including: Wollman Rink Operations LLC, Trump International Golf Club LLC, the Mar-a-Lago Club, Trump Productions LLC, VH Property Corp., Trump Las Vegas Development LLC, Trump CPS LLC, among others. And those are the corporations that paid Weisselberg his 1099 bonuses, not the Trump Corporation, for which Weisselberg works as its CFO.
There’s no mystery here. Trump paid some executives bonuses as non-employees, but my guess is that those employees weren’t employees of the corporations paying them the bonuses in question. If Weisselberg was never an employee of Wollman Rink Operations LLC, for example, then in theory he could be paid a bonus and receive a 1099 for let’s just say consulting services provided to that company.
Like I said, there are rules that must be followed, but you can see what the argument in support of the practice would likely be.
Let’s say that I work for ABC Corp. as an employee. But, my boss also owns another corporation, like maybe a flower shop across town. I’ve never worked for the flower shop, but my boss asks me to help the shop in some way and pays for my time out of the flower shop’s accounts. At the end of the year, I receive a W-2 for my compensation from ABC Corp. and a 1099 for the work I did for the flower shop, a separate corporation.
Remember, the indictment isn’t saying that Weisselberg failed to pay personal income taxes on the non-employee compensation, or that Trump companies didn’t expense the amounts properly, what their saying is that those bonuses should have been included on Weisselberg’s W-2, instead of the 1099s he received.
Would it be strictly kosher? I don’t know for sure, but it’s certainly something one might argue about with an auditor… and if it were determined to be in violation of the code, you’d probably get a pretty big bill for having done it wrong… without spending a day in jail.
Flipping Weisselberg
The mainstream media is positively aghast at the details presented in the indictment. It’s as if none of them have ever heard of such rampant criminality, which seems kind of ridiculous considering that we’re talking about New York City and Donald Trump. I mean, we are talking about someone who has been accused of much worse crimes, right?
However, it does seem that some of the talking heads know that the indictment isn’t what many were expecting (mostly because they told them to expect so much more) so they’ve come up with an alternative narrative.
It’s not about this… this is nothing… it’s about what’s to come. They just did this to get Weisselberg to “flip” on Trump, meaning that he’ll be so threatened by the indictment that he becomes willing to tell the prosecutors where Trump’s proverbial bones are buried.
I’ll go on record now. That won’t happen. And it’s almost ridiculous to think otherwise.
First of all, Weisselberg has been with the Trump Organization for 50 years. He started in his twenties working for Fred Trump, Donald’s father. So, everything in his entire professional life has been dependent on and derived from Trump. He’s not a CPA and yet he became CFO of the Trump Organization. Even under the most threatening of charges, walking away from a 50-year relationship is a tall order.
Not only is this indictment a long way from being the most threatening, it’s not even the sort of things normally found in a criminal indictment. Normally, in a situation like this, the resolution is a bill from the IRS or other tax authority. Pay the bill… problem solved… is how this would almost always go.
Weisselberg has already pleaded not guilty, so it seems clear that he intends to fight it in court and my guess would be that Donald is paying the legal bills. I think, at a minimum, Weisselberg’s defense will argue that:
- He wasn’t a resident of NYC until 2013, which is when he sold his home in Wantagh, moved to NYC and started paying NYC taxes.
- He wasn’t an employee of the companies that paid him 1099 bonuses.
- The carpeting, furniture and flat screen televisions were gifts or maybe an oversight. Or, maybe he was just testing them out for use in a hotel?
- The tuition payments on behalf of his grandchildren were just… actually, I don’t know what he’ll say about that.
- And, best of all, that he acted under the advice of an accounting firm or tax attorney somewhere.
Regardless of the specifics, and assuming that Trump hasn’t changed (LOL), it’s sure to be a case that takes four days shy of forever to resolve. It’s just a reality in this country that if you have enough money, you can delay all sorts of things. It’s a legal strategy that companies use all the time and I can’t imagine this being any sort of exception.
One thing that everyone seems to agree on is that former President Trump, himself, is not going to be indicted, at least not related to these charges. It’s not surprising. According to AP News…
“The tax fraud charges against the company are punishable by a fine of double the amount of unpaid taxes, or $250,000, whichever is larger.”
Wow. Very scary. Trump University was ordered to pay a $25 million fine and that didn’t seem to scare anyone all that much, why would this?
As to Weisselberg personally, again according to APNews…
“The most serious charge against Weisselberg, grand larceny, carries five to 15 years in prison.”
The most serious is the grand larceny charge? The one that says by not paying the taxes on what should have been reported as income, Weisselberg effectively “stole” money from the city, state and/or federal government? That “grand larceny?”
I’ve never heard of anyone being charged with grand larceny because they had a tax problem. Tax evasion, sure. Tax fraud… yes. But grand larceny? And, usually, wouldn’t it be the IRS or state tax authority bringing the charges… not the Manhattan DA working with the AG?
Why am I writing this?
Listening to the mainstream media in the weeks and months leading up to last Thursday, guessing at what would come from a three-year investigation by Vance assisted by the NY AG, I thought the entire world was going to come crashing down around The Donald, and this certainly isn’t that.
The dollar amount alone was shockingly low… $1.7 million in compensation and a tax bill of $900k? That’s it?
Trump University settled a lawsuit and had to pay $25 million to “victims” and I don’t recall the media referring to it as a “criminal organization” as a result. Similarly, Trump’s foundation was also shut down, required to pay $2 million to eight different charities… and not much was said about that being criminal either.
Am I disappointed? Yes, but not with the charges. I’m disappointed with the mainstream media for the way this story has been built up and the way it was explained once the indictment was released.
I can’t be alone. Former advisor to President Obama, David Axelrod, the night before the indictment was released, had the following to say on Twitter:
“I’m sure the NY DA and AG understand that, from an optics standpoint, the first charges they bring against the Trump Organization can’t be petty, rarely-prosecuted crimes. Don’t they?”
Well, apparently not… and I can only imagine his disappointment.
Look, I’m not trying to defend Trump or his organization. I’m sure that he’s done and been involved in all sorts of things that he shouldn’t have, either for moral or legal reasons. And, this indictment is jam packed with examples of what he… and Weisselberg shouldn’t have done.
There’s no justifying paying for Weisselberg’s grandchildren to attend private school or providing Weisselberg with a free apartment… or even paying Weisselberg bonuses on a 1099, when he was an employee. None of those things are legal and we’ll have to watch and see what happens going forward.
But, the mainstream media has fed a literal frenzy in the run-up to this indictment and now all they can do is keep going on the track they’ve laid for themselves. Now, they’re saying… don’t worry, this is only the beginning… which of course they don’t know is true either.
The whole thing is a guessing game. No one knows anything for sure.
Politics and more politics…
However, we do know a few things. We know that the New York AG’s fastest path to the NY governor’s mansion runs directly through a Trump conviction. So, there’s that… and even though that shouldn’t matter… it does.
That makes it political.
Next you have The New Yorker’s interpretation…
“The Theory of the case appears to be to pressure the seventy-three-year-old Weisselberg to turn on Trump, his boss of decades, by threatening him with the prospect of prison time.”
Okay, so look… this investigation has been going on for three years now and if you’ve got real criminal charges, great. If you don’t then live with it.
But, if you’re simply out to get someone that you don’t like for whatever reasons, that doesn’t make it okay to prosecute him or her differently than anyone else that would be prosecuted for the same charge… and prosecuting people in headlines is never the right thing to do.
Did the Trump Organization do things they shouldn’t have? Yes, it would seem so. Were those things illegal? Sure. But, does this indictment mean that we should call the company a “criminal organization?” I think that’s a reach.
They say that next we’ll see Ivanka indicted because she was also paid consulting fees on a 1099, while she was an employee of the Trump Organization.
However, if that’s all you’ve got… then send her a big bill and let’s move on.
Mandelman out.
