According to recent news stories, President trump may have made a questionable real estate deal with his son Eric in April 2016. A limited liability company managed by President Trump sold two condominium apartments to a limited liability company managed by Eric Trump. Despite being located in a prime Midtown Manhattan neighborhood, the sale price for each condo was just $350,000. For comparison, similar units in the building recently sold for $690,000. The conditions and exact square footage of the units in question are not readily known, but two months before the sale to Eric Trump’s LLC, they were advertised for $790,000 and $800,000.
Without knowledge of the actual fair market value of the units, we can only speculate on the propriety and tax implications of the transfer. However, if President Trump did, in fact, sell the apartments to his son for less than fair market value, he needed to file a gift tax return. Typically, a sale between a parent and child does not trigger a gift tax, but only if the sale is for fair market value. If a parent makes a sale to a child at a highly discounted rate, the parent makes a taxable gift in part. In this case, the President would be potentially required to pay a gift tax of about $350,000 if he and possibly his current wife had already used up their lifetime gifting exemptions. In any event, the filing of a gift tax return is how the lifetime gifts are tracked and the purposeful omission of a gift tax return potentially constitutes a violation of the criminal tax statutes that follow.
Every U.S. tax person currently has a $5.49 million lifetime exemption (meaning you are permitted to give away that much money or property without incurring gift tax). Typically, highly wealthy individuals use this exemption by making gifts to family members of appreciating assets to minimize the eventual estate tax. Even if President Trump argued the transfer was covered by the exemption, he would still be required to file a gift tax return to claim the exemption. It’s possible that President Trump did file the proper paperwork, but based on the available evidence, it does not seem likely. He still has not released his tax returns, but New York City property records indicate that Trump paid $13,000 in state and local transfer taxes for the two sales to Eric. This amount would be correct if the sale were to a stranger, but he made no indication on real estate forms that the transfer was, at least in part, a gift. Therefore, it’s still possible, but extremely unlikely, that President Trump treated the transfer as a gift for federal gift tax purposes. This also make it apparent that state and local transfer taxes could have been illegally evaded by purposefully understating the value of the property sold/gifted.
Both the willful and fraudulent failure to file a gift tax return are forms of tax evasion. If you feel that you may have committed tax evasion, through failure to file a gift tax return or any other means, contact an experienced criminal tax defense attorney as soon as possible as the clock may be ticking on your opportunity to rectify the matter. The Tax Law Offices of David W. Klasing can deliver strategic guidance and aggressive advocacy. To schedule a confidential reduced rate initial consultation, call (800)-681-1295 today or contact us online. Criminal prosecution can potentially be avoided through a domestic voluntary disclosure as long as you are able to approach the government before they approach you!
Differentiating Between Willful and Fraudulent Failure to File
The willful failure to file a tax return, including a gift tax return, is a misdemeanor, punishable by a $25,000 fine and imprisonment of up to one year or both. In cases where an overt act of evasion occurred, willful failure to file may be elevated to a felony under IRC 7201 and be considered “fraudulent.” The fraudulent failure to file carries a fine of up to $100,000 and imprisonment of up to five years, or both. The IRS provides guidance to its agents on how to detect potentially fraudulent taxpayers. The following items are listed as indicators (or badges) of fraud:
- Repeated contacts by the IRS;
- Knowledge of the filing requirements;
- Failure to reveal or attempts to conceal income or assets;
- Understating income;
- Failing to cooperate with IRS agents or employees;
- Failing to maintain adequate records;
- Offering implausible or inconsistent explanations;
- Providing incomplete or misleading information to the taxpayer’s tax return preparer;
- Large number of cash transactions, payment of personal and business expenses in cash where cash payment is unusual;
- Refusal or inability to explain failure to file.
- Refusing to disclose your tax returns upon repeated official and unofficial requests while running for President of the United States… (Kidding???)
President Trump’s failure to file a gift tax return subjects him to penalties, fines and even federal and state criminal tax charges. Moreover, Presidential income tax returns are subject to mandatory audit under federal tax law.
When Do I Need to File a Gift Tax Return?
According to IRS guidelines, if you are a citizen or resident of the United States, you must file a gift tax return (whether or not any tax is ultimately due) if you gave gifts to someone in 2016 totaling more than $14,000 (other than to your spouse). Generally, the federal gift tax applies to any transfer by gift of real or personal property, whether tangible or intangible, that you made directly or indirectly, in trust, or by any other means. If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a return as long as you transferred your entire interest in the property to qualifying charities.
If you made no gifts during the year to your spouse, did not give more than $14,000 to any one donee and all the gifts you made were of present interests, you likely do not need to file a gift tax return. However, since both the willful and fraudulent failure to file a gift tax return are forms of tax evasion that can be heavily prosecuted, it is best to consult with an experienced tax attorney to make sure you are complying with your state and federal tax obligations.
Contact an Experienced Criminal Tax Defense Attorney Today
Complying with state and federal tax regulations can be a challenge for many Americans. Unfortunately, the IRS is not automatically aligned with your stated intentions to properly file, but only with the fact that you may have purposely failed to do so. Evading taxes comes with serious penalties that an Experienced Criminal Tax Defense Attorney can help you avoid. The tax professionals of The Tax Law Offices of David W. Klasing can provide guidance and if needed, aggressive representation to those who need to get right with the government. If you are facing an audit or criminal tax investigation, our team of Tax Attorneys, CPAs and EAs can help. To schedule a reduced rate initial consultation by calling (800)-681-1295 today or contact us online.
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Here is a link to our practice overview videos on:
Warning signs an audit has gone criminal
https://www.youtube.com/watch?v=gTW_KSjf57w
What is an eggshell tax audit?
https://www.youtube.com/watch?v=saJLVlER-iM
What is an effective tax defense in an IRS eggshell tax audit?
https://www.youtube.com/watch?v=7qixPqWTtvA
So you cheated on your taxes and you are under a tax audit
https://www.youtube.com/watch?v=FZce4jqQJpI
Why should I hire a tax attorney to represent me in a tax audit?
https://www.youtube.com/watch?v=NDwc4GUfBX8
Common issues when facing a sales tax audit
https://www.youtube.com/watch?v=yXVIXvUKxD0
Criminal Tax Evasion
