Got the ol' Robert Fisk pic going this time, Besoeker!This is similar to the NYT 'story' on Trump's 'tax returns' that I fisked into a bloody pulp last Wednesday. In order to avoid redundancies, I will largely ignore the NYT's examples of slanted / misleading language ('loopholes', significant depreciation, etc., that y'all can spot by now) and focus on a few things where it differs from last week's story the Times tried to pass off as some grand revelation.
[Zero Hedge] - Less than two weeks after the NYT released what a massive 12,000 words "bombshell" report on the "fraudulent" tax dealings of Trump's father, and which promptly got swept away by the non-stop news cycle, on Saturday the NYT has come back with part two, this time dissecting the the tax records of Trump's son-in-law, Jared Kushner, highlighting that he paid almost no federal income taxes in several recent years despite a net worth that soared to $324 million in 2016 from $106 million in 2011, and billions of dollars spent building his real estate empire.
Citing the leaked tax documents it obtained, or as it called them, "confidential financial records", the Times reported that Kushner, a real estate investor and senior White House adviser, for years minimized his tax bills by booking heavy losses on reported depreciation of his real estate holdings that overwhelmed his reported income. And since this is an all too often used loophole of the US tax code, the Times noted that nothing in the documents indicate that Kushner or his company broke the law.
But we're gonna run with the story anyway...
The records, which were given to the NYT by "a person who has had financial dealings with Kushner and his family", describe Kushner’s business dealings and finances from 2009 to 2016. They were drafted with Kushner’s help as part of a review of his finances by potential lenders and contain information from his federal tax filings in addition to other data provided by advisers, according to the report. Reviewed by "more than a dozen tax accountants and lawyers" the records indicate that Kushner paid little or no federal income taxes in five of the last eight years.
Behold: presentation-wise, the saddest looking balance sheet I've ever seen. This tell me that it's for internal use; otherwise you'd see something much more professional looking and with GAAP-adherent terminology and classifications (current assets, long-term / fixed assets, current liabilities, current portion of long-term debt / liabilities, long-term liabilities, etc.). That tells me the financial information wasn't leaked by someone at the lenders who financed his main building, 666 Fifth Avenue when he bought it in 2007 (UBS and / or Barclays), which is linked to below. The lenders would be getting audited financial statements, not that piece of shit balance sheet in the ZH article. You could also eliminate the brokers in this deal - generally speaking they wouldn't be reviewing Jared's finances, only the lenders would.
The Times reported that in a 2015 example, Kushner booked $8.3 million in losses driven by "significant depreciation" of real estate owned by Kushner and his company. The loss offset Kushner’s income of $1.7 million in salary and investment gains.
A spokesman for Kushner’s attorney told the Times that Kushner followed the advice of attorneys and accountants, and filed and paid all taxes due required by law. The spokesman also said he wouldn’t respond to assumptions taken from documents that offer an incomplete view of Kushner’s finances.
Kushner’s losses, stemming in large part from the depreciation deduction, appeared to wipe out his taxable income in most years covered by the documents.
Note the intentional uncertain language that's been employed - 'significant', 'in large part' and 'appeared to' are in no way quantitative measurements and are indica of an incomplete financial picture. I could argue a certain single deduction is 'significant' even if, for example, it comprised 10% or 15% of total expenses.
Then again, after reading this article on the Kushner flagship property, one might reconsider the parameters for 'significant', etc. Too bad the NYT doesn't grant Jared Kushner the same courtesy.
I'm going to skip over most of the rest of the ZH article (primarily the class warfare bullshit where they focus on 'cash generation' and conveniently ignore cash outflows like interest on the loans and the principal payments thereon) because there's only one real thing to discuss, and that of course is what the NYT omits from all this in order to paint the most negative portrayal of real estate companies. The depreciation deduction is not a 'loophole'; it is a long-standing accounting concept. The specific thing not mentioned is this - a taxpayer (any taxpayer) who uses physical / capital assets in the course of business is allowed a depreciation deduction, which is a gradual, annual reduction of the cost basis of that asset, so when you eventually sell / dispose of that asset, your taxable gain on that asset is increased by two things - the increase / appreciation in market value of the asset and the accumulated depreciation on that asset between the time you buy it and the time you sell it. That number can be 'significant', if I may ape the NYT's terminology! Eventually you pay the piper but depreciation allows you to delay the inevitable. Essentially, the real estate business is a calculated gamble on a) the increase in rents you can derive from a rental property and b) the appreciation of that property.
A brief note on all this, which includes many of the previous stories on Trump's properties over the past forty or so years. The tone is this - when Trump loses money on a real estate or other business deal, it's reported that he's a bad / stupid businessman; when Trump makes money on a real estate or other business deal, it's reported as nefarious activity that takes advantage of tax 'loopholes' and all the rest. Ever notice that? I bet you did!
Now for the fun / speculative part:
The outcome is apparent in Jared Kushner’s tax returns, which were summarized in the documents reviewed by The New York Times. Here’s an example from 2015.
Income
W-2 income: $198,000.
Taxable interest: $536,000.
Dividends: $1,000.
Capital gains: $974,000.
Deductions
Tax losses from real estate and other partnerships: $3.5 million.
Tax losses carried forward from previous years: $4.8 million.
Total adjusted gross income
Negative $6.6 million.
Tax refund
$4,000.
Do you notice a few things missing from here and / or something else which would make you scratch your head? Let's start with the W-2 - $198K. Unless Jared made the very unusual W-4 (employer withholding tax form employees file when hired) choice / election of 'Exempt' (no Federal withholdings, which is foolish but you can choose to do, but Social Security & Medicare taxes are still withheld by statute), his Federal tax withheld on that W-2 is in the $35K to $38K range, which tells me that Jared did in fact pay Federal taxes that year. If he owed $31K for a Federal liability and $35K in Federal tax was withheld, there's your '$4,000 refund'. And by the way - how likely is it that a refund is exactly $4,000? I would make an attempt to reproduce this situation with my tax software but there are too many unknowns, the large ones being the composition of that NOL - it's most likely the (active) real estate loss but he could have other carryforwards like a capital loss (which is used against the aforementioned $974K capital gain; he could even have a charitable contribution carryforward, which would be the amount disallowed on the prior year's return because it's limited ion certain cases. For that matter, note how all the other numbers are rounded, most likely an effort by the NYT to a) avoid being sued for disclosing confidential information if they gave exact figures or b) they're pulling number out of their asses again.
To summarize, it's another piece of shit hit job by the NYT, but you knew that already - I'm just making it official.