New York could levy hefty penalties if Trump tax fraud is proven

ALBANY, N.Y. – New York's taxing authority has a wide amount of leeway to audit President Donald Trump and his family for potential tax fraud detailed this week by The New York Times – and could levy hefty civil penalties if necessary.

State law limits the amount of time prosecutors have to bring criminal charges in most tax fraud cases to three or six years after filing their income taxes, similar to federal law.

But a civil case would not face the same limitations.

In an investigation published Tuesday, The Times detailed numerous schemes and methods late New York City real-estate developer Fred Trump allegedly used to pass on hundreds of millions of dollars worth of gifts to his children — including Donald Trump — without paying much in taxes.

The conduct detailed by The Times, which the paper and tax experts suggested was fraudulent, occurred in prior decades, meaning the criminal statute of limitations has almost certainly expired. Fred Trump died in 1999.

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What could be pursued?

New York could seek civil penalties if it can prove the Trumps actively avoided paying their full tax bill.

State law provides three exceptions where the statute of limitations does not apply to civil tax penalties: When someone failed to report a return at all, when someone failed to notify the state of changes made to their federal return by the IRS or when someone filed a false or fraudulent return with the intent to evade tax.

If state tax auditors were to determine the Trumps committed fraud, they could go after them for back taxes, interest and penalties.

On Tuesday, a spokesman for the state Tax Department said the agency was looking into the matter. It is the latest entanglement between Trump and New York regulators.

"The Tax Department is reviewing the allegations in the NYT article and is vigorously pursuing all appropriate avenues of investigation," spokesman James Gazzale said in a statement.

While The Times had access to more than 100,000 pages of documents, including Fred Trump's tax returns, the state Tax Department would be able to review records and returns that Times reporters likely weren't privy to, said Danshera Cords, a tax-law professor at Albany Law School.

"The amount of documentation that they would have simply from the returns that have been filed may be much more significant," Cords said.

"If The New York Times was able to find such sufficient documents, there would be tax returns that have been filed."

In a tweet Wednesday, Trump accused The Times of publishing a "hit piece."

His press secretary, Sarah Sanders, issued a statement Tuesday saying all of the Trump family's tax methods were approved by attorneys.

“Fred Trump has been gone for nearly twenty years and it’s sad to witness this misleading attack against the Trump family by the failing New York Times," Sanders said. "Many decades ago the IRS reviewed and signed off on these transactions."

What happens next?

The state would be able to pursue civil penalties against either Trump or the family's companies, Cords said.

"We all make mistakes, but when you do more than a mistake and you commit fraud or evasion. You don’t get to just say, ‘Oops,'" she said.

"We’re held to a much higher standard on that, and there isn’t a statute of limitations."

How far back the state could reasonably go is uncertain.

The Times' story detailed conduct that went back decades, most notably the creation of a shell company in 1992. 

The company, known as All County Building Supply & Maintenance, acted as a purchaser for Fred Trump's real-estate empire.

But All County billed Fred Trump's companies at a significant markup, which essentially acted as a way for Fred Trump to pass through millions of dollars to his kids without being taxed, according to The Times.

The further back the conduct goes, it may be hard to conduct interviews — particularly when Fred Trump has been deceased for 19 years — or obtain records.

"As a matter of proof, the further back it goes, the more difficult it becomes," Cords said. 

"But as a legal matter, you can go back in time and establish fraud and collect civil penalties and collect the taxes that are owed. And it sounds like not an insignificant sum."

Other experts, though, were not so sure the state would be able to easily reopen the tax cases.

The state would have already signed off on the tax arrangements for decades, said Syracuse University tax-law professor John Petosa said.

"I don’t think there was anything new being presented here that wasn’t already known at the time," Petosa said.

"So I don’t know how you go back and say, ‘Well, we looked at it then, and we thought it was OK, but now because the Times wrote an article, we have to reopen these.’ I don’t know that is a basis."

Tangles with Trump

New York's state government, meanwhile, has been aggressive against the Trump administration and the president's charity.

Attorney General Barbara Underwood and her predecessor, former Attorney General Eric Schneiderman, have brought more than 100 actions against the Trump administration, suing it over everything from immigration to environmental standards.

Underwood also sued Trump and the Trump Foundation earlier this year, alleging a wide array of law-breaking at the charity, including allowing Trump's 2016 campaign to dictate which veterans groups received contributions from a fundraiser held by the then-presidential candidate in lieu of a primary debate.

That lawsuit spurred an ongoing investigation of the charity and its tax practices by the state Tax Department, which is part of Gov. Andrew Cuomo's administration.

Cuomo has made his various clashes with Trump's administration a major part of his re-election campaign. A Democrat, Cuomo is seeking a third term in November.

"We elected Donald Trump, not technically, but he is the president of the United States and we have seen the consequences of that election," Cuomo said Monday at a campaign rally on Long Island. 

"And you know what? We don’t like them. You know what? We are repulsed by them."

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