Last week, a New York judge allowed a summary judgment effectively saying that Donald Trump, his family, and his organization are guilty of fraudulent business practices. Not only is that conclusion bogus, but it is the second time that Trump’s organization has been found guilty of “fraud” for doing what everybody else does.
In the most recent case, the judge said Trump inflated the value of his properties to obtain more favorable loan terms, even though for each loan, Trump was satisfied with the terms and the lender was satisfied with the terms. All loans were repaid and there were no defaults, meaning the lender was not harmed.
That didn’t stop New York City District Attorney Latitia James. James campaigned for her office promising to get Trump on something, anything, so she claimed that the public must have been hurt by Trump’s actions. That is bizarre.
When a borrower requests a loan from a bank that is collateralized by real property, the current market value of the property must be determined. That’s because the amount of the loan and the interest rate charged are determined, at least partially, by the property’s value.
Trump gave his appraisal of a property. Typically, Trump would hire a licensed appraiser who determines the current market value. The bank also does an appraisal. Then the sides come to an agreement on the value. If the value is high, then the loan amount can increase. Also, the loan-to-value ratio would be lower for a high valued property, so the bank would charge a more favorable interest rate.
Trump and the bank came to an agreement and the loan was settled.
This happens every day in business and happens even with the average homeowner.
For instance, suppose someone bought a house a few years ago for $300,000. They are now seeking a home equity loan. The amount of the loan and the interest rate charged are based somewhat on the home’s current value.
“Well,” the homeowner may say, “My neighbor just sold a house like mine for $350,000. I have a much nicer kitchen, a slightly larger backyard and I just repainted. So, my house must be worth $400,000.”
He convinces the bank that assessment is accurate, so the bank bases the loan terms on that amount. It turns out that an objective assessment may say the house’s current value is really $350,000, just like the neighbor. But, as long as the loan is repaid on time, there is no problem,
Unless your name is Donald Trump. In that case, the DA may say the homeowner defrauded the bank. That’s essentially what happened in the most recent Trump conviction.
Even worse, the Trump Organization was found guilty of criminal tax fraud last year. That case involved the benefit payments to key employees.
The court found that Trump paid benefits to those employees for the sole purpose of evading taxes. Trump paid for the housing expense, automobile expenses and even paid to send the employees’ children to private schools in NYC. Why did Trump do this?
Let’s say, he recruited someone to be Executive Vice President of Finance. The recruit said they were willing to take the job and the salary offered was acceptable. But, living expenses in NYC are extremely high.
And it is very expensive to have a car in the city. Plus, since the NYC public schools were not of the standard the recruit was accustomed to, their children would have to attend private schools which are very expensive.
Trump replied that he would add to the benefit package a housing expense, car expense and tuition for your children. The Trump Organization will pay these expenses directly rather than increase the salary to avoid the employee having to pay higher taxes.
This is not illegal and indeed almost every worker has their health insurance fully or at least partially paid, by their employer to avoid paying income taxes on that benefit. That’s not fraud. Or if it is, we are all guilty.
A university recently hired a new president. Included in the benefit package was that the president could live rent free in the university owned president’s house. The university gave the president a car and even included a driver. And if the president’s children wish to attend the university, they can do so tuition free.
Is the University guilty of tax fraud?
They would be only if their name was Donald Trump.
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