in Chicago, Wednesday, September 24, 2008. AP Photo / Charles Rex Arbogast
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Manhattan District Attorney Cy Vance has expanded his prosecution to include former President Donald Trump’s business empire, including questions about a mysterious loan to Trump’s Chicago Tower, the circumstances of which Mother Jones first fully covered in 2019.
Vance began investigating Trump’s personal finances in 2018 after the Wall Street Journal reported details about the president’s $ 130,000 hush money payment to adult movie star Stormy Daniels. But the focus of its investigation by the grand jury has grown steadily over the past few years. A US Supreme Court ruling last month granted Vance access to Trump’s tax returns, a huge victory for the prosecutor, who spent more than two years battling Trump’s attorneys over his subpoena to Trump’s accountants. While the grand jury’s process is secret, Vance has previously been reported to be investigating potential tax, banking and insurance fraud cases involving multiple Trump Manhattan properties.
On Monday evening, CNN reported that the investigation is also investigating the circumstances of a loan Trump took out in 2006 to fund the construction of his hotel and condominium tower in downtown Chicago. Trump borrowed more than $ 600 million from German financial giant Deutsche Bank and then took out a second, smaller $ 130 million loan from private equity firm Fortress Capital. When the 2008 financial crisis hit and it became clear that Trump would not be able to make all of his payments to Deutsche Bank, Trump and Deutsche Bank got into a bitter legal battle. The battle was finally resolved a few years later when Trump repaid part of the loan and refinanced the rest with a separate division of the German bank specifically aimed at wealthy clients. But the Fortress loan just seemed to vanish from public records, with few clues as to how it was handled.
It turned out that in 2012 Trump cleared his outstanding debt with Fortress by paying them less than half of their debt – the amount had grown to as high as $ 150 million. It’s not uncommon for a lender like Fortress to agree to take much less than what they owe if they think they have little chance of getting the full amount back or if it’s not worth litigating Effort. Trump never directly addressed the loan in public comments, but on several occasions implied that he had not paid back the loan at a discount. Instead, he suggested buying the loan from Fortress at a discount. While this is a seemingly small difference, it would have a huge tax impact on Trump. From Mother Jones’ 2019 article on the loan:
When a lender extends a portion of a loan, the IRS takes into account the unpaid portion of the taxable income. For example, if a lender accepts repayment of a $ 100 million debt for $ 50 million, the borrower has made $ 50 million in the eyes of federal tax authorities and owes tax on it. The tax could be up to 39 percent. But large borrowers have developed a tactic to avoid paying taxes in cases where they can buy back their debts at a discount. You buy the debt through a company and park the loan within that company for temporary no income. Parking debt falls into a legal gray area. “Maybe there are respectable ways it could work, but I would call it a scam if you pretended not to get out of debt,” said Daniel Shaviro, professor of tax law at New York University.
When Trump first announced his candidacy in 2015, his personal financial disclosure, a form required of all presidential candidates presenting their assets and debts, carried a mysterious debt of $ 50 million or more – to himself itself – in connection with the Chicago Tower. In an interview with the New York Times, Trump implied that this was the Fortress loan he had bought from the lender. If this were true, he would have held onto an unpaid debt and perhaps avoided paying the income tax he would have owed.
Unless, as Mother Jones confirmed, the loan was not sold to Trump, but made by Fortress.
To recap, Trump claims he bought a debt related to his Chicago business, but neither of the two loans associated with that property appear to have been bought. The Deutsche Bank loan was refinanced. The Fortress debt was canceled, according to sources with knowledge of the transaction. And that begs the question: Did Trump create a bogus loan to escape a hefty tax burden on roughly $ 48 million in income?
New York Attorney General Letitia James, who leads a civil investigation into the Trump Organization, which includes the Chicago loan, has confirmed that the loan was made, not sold, and is investigating whether the Trump Organization does, according to court documents Properly reported to tax authorities. The Trump Organization has claimed it was properly reported and all reasonable taxes paid – though they never explained the nature of the loan in its personal financial disclosure. According to CNN’s report, Vance is now investigating the same issue as James, except that his investigation is criminal.