DAVID CAY JOHNSTON 07.14.16 2:41 PM ET
Four Donald Trump-licensed real-estate developments are at the center of a huge income tax evasion scheme, according to allegations in a lawsuit unsealed Thursday afternoon by a judge in Manhattan.
The presumptive Republican nominee is not personally accused. He is described as a “material witness” in the evasion of taxes on as much as $250 million in income. According to the court papers, that includes $100 million in profits and $65 million in real-estate transfer taxes from a Manhattan high rise project bearing his familiar name.
However, his status may change, according to the lawyers who filed the lawsuit, Richard Lerner and Frederick M. Oberlander, citing Trump’s testimony about Felix Sater, a convicted stock swindler at the center of the alleged scheme.
Trump received tens of millions of dollars in fees and partnership interests in one of the four projects, the Trump Soho New York, a luxury high rise in lower Manhattan. His son Donald Junior and his daughter Ivanka also were paid in fees and partnership interests, the lawyers said, and are also material witnesses in the case.
Trump and Sater traveled extensively together and were photographed and interviewed in Denver and Loveland, Colorado, Phoenix, Fort Lauderdale, and New York. The two Trump children were also with Sater in Moscow, Alan Garten, the Trump Organization general counsel, has said.
Trump has testified about Sater in a Florida lawsuit accusing the two of them of fraud in a failed high-rise project. Trump testified that he had a glancing knowledge of Sater and would not recognize him if he were sitting in the room.
Sater controlled an investment firm named Bayrock, with offices in Trump Tower, and sought to develop branded Trump Tower luxury buildings in Moscow and other cities. Court papers show his salary in 2006 was $7 million, but it alleges that was a pittance compared to his real income.
Sater then moved into the Trump Organization offices. He carried a business card, issued by the Trump Organization, identifying him as a “senior adviser” to Trump.
The tax fraud lawsuit included 212 pages of documents, among them a flow chart that the plantiff claims showed how the scheme worked. The lawsuit alleges the tax fraud scheme as simple, telling the judge “there need be no fear of complexity, for there is none.”
The four developments were all handled as partnerships. Partnerships are not taxed and are rarely audited because the profits are supposed to be reported as going to the partners personally. The lawsuit says the profits simply were not reported when Sater and others took their partnership profits and other income from the deals.
The state tax fraud lawsuit is known as a qui tam case in which citizens file as private attorneys general on behalf of the government. In effect Lerner and Oberlander are acting as prosecutors in the alleged tax fraud.
Eric Schneiderman, the New York State attorney general, learned of the case soon after it was filed in state court last August and declined to intervene. His office confirmed that stance Thursday after the lawsuit was unsealed.
The suit says Sater and other defendants owe at least $7 million in New York state income taxes, a sum that would be tripled if they prevail.
If the federal government were to intervene the federal taxes would come to about $35 million.
New York state tax law closely aligns with federal tax law in defining income, deductions, and taxes due.
The case was unsealed after Sater filed an action in Israel against a rabbi who says he was cheated in a $40 million stock swindle. That was enough to persuade a federal judge to unseal another lawsuit against Sater, Bayrock, and others earlier in July. And in turn that disclosure prompted the state Supreme Court (trial court) judge in Manhattan to unseal the tax evasion lawsuit.
Sater secretly pleaded guilty to the stock swindle in 1998. The $40 million fleeced from investors went to him, the Genovese and Gambino crime families and others.
In 1998 Sater pleaded guilty in federal court, but the plea was kept secret. Sater was sentenced in secret in 2009 to probation and a $25,000 fine with no jail time and no requirement to make restitution.
That was an extraordinarily light sentence, especially given Sater’s violent past. In 1991 he admitted to shoving the broken stem of a margarita glass into a man’s face and was sentenced to two years.
Court papers, testimony by Trump and a book by one of Sater’s confederates—The Scorpion and the Frog, “The True Story of One Man’s Fraudulent Rise and Fall on the Wall Street of the Nineties”—all tell how after his arrest Sater became an operative for the Central Intelligence Agency, supposedly buying missiles on their way to terrorists, which may explain the light sentence.
As to Trump, every president starting with Richard Nixon and major party candidate since has made public some or all of their tax returns. He has not, even as Hillary Clinton has released her complete tax returns going back more than three decades.
Trump has explained his refusal to make his income tax returns public by claiming that the ones he has filed for 2012 and since are under routine audit. Mark Everson, a former commissioner of Internal Revenue has said there is no reason to hold the returns back, even assuming they are being audited.
He has offered no explanation for not releasing his returns for 2011 and earlier, years on which he has said the audits are closed.
Documents made public by the New Jersey Casino Control Commission show that despite living a lavish lifestyle, Trump did not pay income taxes in 1978, 1979, 1992, and 1994. He also paid no income taxes in 1984, by far his most lucrative year in his career to that point, according to state and city tax tribunal proceedings I reported on previously.