Trump taxes: Deal behind Mar-a-Lago seven-figure tax break veiled from IRS review
Among the tax avoidance revealed in a New York Times investigation of two decades worth of President Donald Trump's tax returns are acts of "charity" — one involving Mar-a-Lago — that have saved the president over $100 million and sparked an investigation by the New York attorney general.
The maneuver, called a conservation easement, can potentially provide massive reductions on taxes if the property is donated to a non-profit in the name of historic preservation or conservation.
In the case of Mar-a-Lago, the deduction had another important goal: It provided Trump with the bargaining chip he needed to leverage permission from the Palm Beach town council to convert Mar-a-Lago from an opulent private residence into a money-making private club.
The New York Times investigative series is not the first time Trump's use of aggressive accounting practices involving the future Southern White House has drawn attention.
A 2017 investigation by the Palm Beach Post revealed how, to make sure the future president could get the $5.7 million deduction on the iconic Palm Beach estate, Trump and his lawyers intentionally left out of the written agreement Trump's promise to preserve features of the mansion. The inclusion, the paper reported, would have prevented Trump from claiming the deduction.
The Mar-a-Lago club stand-off between Trump and the town, which took shape in public meetings over several months in 1993, was just the beginning of legal mano-a-mano feuds between the then-real estate tycoon and local officials over Mar-a-Lago.
One later battle was fought over the size of a flagpole. Another battle would be fought over flight patterns at Palm Beach International Airport.
The use — or abuse — of historic preservation and conservation easements to settle Trump's dispute over the creation of the elite club provides a look at Trump's largest form of charity: an obscure and controversial land-use deduction known as a conservation easement.
Since then, Trump has used the tax break to his golf courses and an estate to deduct more than $100 million from his taxes.
As noted in the New York Times, "While his use of these deductions is widely known, his (Trump's) tax records show that they represent the lion’s share of his charitable giving — about $119.3 million of roughly $130 million in personal and corporate charitable contributions reported to the I.R.S.”
Congress created the charitable deduction in 1969 as an incentive to conserve land and preserve historic buildings. But by the 2000s, it became widely abused by the wealthy. In such easements, owners donate control of property, be it land or historic features, to a nonprofit, which reduces the property's value.
The deduction eventually was included in the IRS' "Dirty Dozen" list of 12 ways individuals grossly reduced their taxes.
One way it was abused: Donors claimed the deduction when they got something in return, which means, in essence, that the easement was not a charitable donation. In Trump's case, he did get something in return: permission to turn the private residence into a money-making club.
In the early 1990s, the future of Mar-a-Lago, the island's most opulent estate, was in jeopardy. Trump said he had spent millions fixing up the mansion built in the 1920s by cereal heiress Marjorie Merriweather Post. With the rest of his real estate empire crumbling, and the bank demanding payment on the mortgage, he needed to make money off Mar-a-Lago.
Trump's finances were in a tailspin. He owed more than $3 billion to banks and his loans were coming due. His casinos in Atlantic City were in bankruptcy and by the end of 1994, Trump's core businesses had racked up more than $1 billion in losses during the prior decade, based on IRS transcripts of Trump’s tax returns from 1985 to 1994 analyzed by the New York Times in a report published in May 2019.
Trump's first try — breaking up the 18-acre property and building homes on it — was rejected by the Town Council in 1992, partly because he didn't have an adequate plan to preserve the mansion.
The next year, he pursued a new idea.
In March 1993, Trump's Palm Beach attorney filed paperwork asking the council to allow Trump to turn Mar-a-Lago into a private club, one that would be open to anyone who could afford initiation fees, which would start at $50,000.
Trump knew that to win the town council's approval, with this plan, he would need to have a historic preservation plan. Trump's attorney told the Town Council that Trump would offer to "voluntarily make an income tax deductible donation," vowing to preserve the interior of Mar-a-Lago.
The easement that Trump proposed covered not only the exterior of Mar-a-Lago but also “critical features” of the interior, which are not protected by the town’s rigorous rules.
Under its terms, Trump could continue to own and use Mar-a-Lago but must maintain, replace, rebuild and repair the critical features “in substantially the form and condition with substantially similar materials.”
Those features include carvings, columns, doors, windows, light fixtures, walls, floors and ceilings in 25 rooms, including bedrooms, the dining room, bathrooms and the living room. The easement also protects panoramic views of the ocean.
But the Town Council was highly suspicious of the brash New Yorker: If Trump wanted a club now, what would he ask for next?
During several meetings, council members quizzed the attorneys about the easement: When would Trump donate the easement? Whom would he donate it to? If they voted in favor of Trump's plan to turn Mar-a-Lago into a private club before Trump had secured the easement and donation to a non-profit, how could they be assured he would follow through?
To address some of those concerns, Trump selected the National Trust for Historic Preservation as the beneficiary to ensure Mar-a-Lago's finest features would be maintained forever. Trump's appraisers confirmed that the easement would lessen the value of the estate. If Trump were to try and sell the estate, the new owners would be bound by the easement's restrictions and could not alter those features.
Such an act would pay off for Trump, nonetheless. He could deduct the $5.7 million estimated value of those features from his income taxes — as long as his intentions were charitable.
But Trump's promise couldn't be in writing, Trump's attorney told the council, according to meeting minutes and transcripts. If the council insisted Trump's commitment be in writing, his donation might be disqualified by the IRS as a charitable contribution.
But Trump's attorney could not get around the council's suspicions about Trump's willingness to follow through on the donation. To appease them, Trump promised the club would not open until the easement was in place. The Town Council still wasn't convinced, and the easement became a sticking point that threatened to derail the deal.
Council members wanted the easement in place before they signed the final agreement to allow the club to open its doors. Trump wanted the signed agreement in place before he donated the easement.
"Suppose I put preservation easements in place and then they decide to not sign the agreement?" he told a Palm Beach Daily News reporter for a story published Aug. 1, 1993. "Nobody has ever accused me of being stupid."
They eventually came to an agreement: Trump could have his club, but the town wouldn't issue a certificate of occupancy for it to begin operations until the easement was in place.
"If there is one blade of grass out of order, there will be no certificate of occupancy," Councilwoman Hermine Wiener said at the July 1993 meeting.
It took two years, but ultimately Trump donated the easement, and the town let the club open.
Since the Mar-a-Lago historic preservation easement, Trump has used the easement deduction on three other properties: Trump National Golf Club Bedminister; Seven Springs estate in Westchester County, N.Y.; and Trump National Golf Course in Los Angeles.
In all, Trump's easement donations account for about $119.3 million of roughly $130 million in personal and corporate charitable contributions reported to the I.R.S., according to investigations by the Palm Beach Post and New York Times.
The Times obtained Donald Trump’s tax information extending over more than two decades. An exhaustive report released Sunday — just two days before the first presidential debate between Trump and Democratic rival Joe Biden — revealed struggling properties, vast write-offs, an audit battle and hundreds of millions in debt coming due.