Independent tax accountants and lawyers said that the documents Mr Trump signed – copies of which were obtained by this newspaper as part of a three-month investigation – contained “red flags” indicating the deal was irregular.

But the Republican presumptive presidential nominee signed nonetheless.

Bob McIntyre, director of the US-based Citizens for Tax Justice campaign group, said the disclosures raised serious questions about Mr Trump’s judgment as well as that of his advisers.

Mr Trump’s tax affairs have come under scrutiny in recent weeks when he broke with US political convention and refused to disclose his tax returns before this November’s presidential election.

The outspoken tycoon – who revealed last week that he had earned more than $500 million in the last year – has previously boasted of how he pays as little tax “as possible”.

Jack Blum, chairman of the Tax Justice Network and a financial crime attorney, said Mr Trump was a “poster child” for tax avoidance property schemes, which ultimately harm the middle-income American. 

The allegations centre on Mr Trump’s business alliance with Bayrock Group, the property company that was building Trump SoHo, the mogul’s prized New York building  – as well as two other projects to which he had licensed his name.

In 2007 Bayrock struck a deal with FL Group, an Icelandic company that had agreed to invest $50 million in four of Bayrock’s subsidiary partnerships. However, the deal was later relabeled as a loan.

In New York, the sale of a stake in a partnership would make the existing partners liable to pay more than 40 per cent in tax on their ‘gain’, based on the highest tax rate.

However, if the investment is classified as a loan no tax would be payable.

Former employees of Bayrock have alleged in a case against the company that the deal was intended to fraudulently evade some $20 million in tax through a disguised sale of partnership interests.

They also claim the participants mislabeled the sale as a loan in order to avoid paying a further estimated $80 million taxes on the projected profits from the real estate.

The Telegraph has obtained copies of the letters Mr Trump signed for both the original version, and the new form as a “loan”. He and his lawyers were sent copies of the relevant paperwork, including the final loan agreement.

Alan Garten, Mr Trump’s lawyer, claimed that the billionaire “had nothing to do with that transaction” and by signing the letters was simply acknowledging the deal as a “limited partner”.

“He was not signing off on the deal,” he insisted.

But copies of the final agreement, seen by the Telegraph, reveal that deal required Mr Trump’s approval because he was a key player in Bayrock’s investments. He had a 15 per cent stake in Trump SoHo.

Independent experts who have reviewed copies of the final agreement have said the documents appear to be an equity investment disguised as a loan in order to avoid tax payments on the profit FL was expecting to receive. 

Howard Abrams, professor of law and director of tax at the University of San Diego, said: “Converting the original equity into debt improved their tax position dramatically. However they have changed the labels, but they didn’t really change the economics at all.

“It’s not a loan – it’s really equity. I don’t think they would survive a challenge [by the Internal Revenue Service (IRS)].”

Experts said that the matter would usually be one for the IRS, who could audit, or re-audit, the deal and attempt to recover any tax that should have been paid. In such cases the IRS can subsequently pursue fraud charges if there is sufficient evidence of intentional wrongdoing.

A former federal prosecutor in the Department of Justice’s tax division, said that if action were taken by the IRS it could see Mr Trump deposed in court. 

A source at FL Group – which went bankrupt in the Icelandic banking crisis in 2008 – separately stated that “whether it was structured as a loan or an equity investment we were always buying an interest in certain projects.”

Mr Trump’s lawyer said the tax implications of the deal were not relevant to Mr Trump because he was not  a “party” to the transaction.  “Our interests are protecting our rights,” he said.

Bayrock described the allegations in the legal complaint by Jody Kriss, its former finance director, as “baseless”.

The company said the deal was “vetted and approved by outside accountants and tax counsel”. It claimed that the deal’s “tax treatment” was subject to an “extensive field audit … conducted over many months” by the IRS, which “concluded that it was entirely appropriate”.

However it refused to provide proof of the audit or answer a series of questions about what information had been made available to officials.  Following publication, Bayrock said its reason for not providing “further comment” about the audit was that the former finance director’s allegations about the FL deal are “a matter of ongoing litigation”.

Frederick Oberlander, the tax lawyer who has represented Mr Kriss in his complaint against the company, said: “Being audited only means they didn’t catch anything. It doesn’t mean there isn’t anything to catch.”

Inside story of the $50m deal signed off by Trump

Even by Donald Trump’s standards it had been a busy week.

It began with the finale of season six of The Apprentice, his famed show, and continued in a style that was trademark Trump.

settled a bitter legal fight with a Florida local council, agreeing to shorten the pole of a massively oversized American flag at his Palm Beach resort (but then raised the ground to keep it at the same height).  He used a media interview to reignite a feud with a television presenter who had labelled him a “snake-oil salesman” over his handling of the Miss USA pageant.

But in between the high drama manoeuvres, he managed to carve out time to attend, behind closed doors, to a particular business matter that had been on his mind.

Bayrock Group, the multi-million dollar property development firm to which he had lent his name for projects, had struck a $50 million deal to partner with an Icelandic investment company.

The projects included the Trump SoHo, Mr Trump’s prized hotel and apartment complex in New York.  Mr Trump had a 15 per cent stake, and a further 3 per cent went to Ivanka and Donald Jr, his children.

Mr Trump was their star partner, and it was written into the agreement between Bayrock and FL, the Icelandic company, that his consent would be needed for the deal to go ahead.

Bayrock, which was housed in Trump Tower, sent copies of paperwork to Mr Trump’s lawyers as the deal progressed. And when representatives of FL visited New York, Bayrock’s executives brought them to Mr Trump’s penthouse office to meet the real estate mogul, a source said.

When the consent letters finally came, Mr Trump seemed only too happy to sign on the dotted line.

On Thursday April 26 2007 – four days after the Apprentice finale – he spoke to his chief legal officer Jason Greenblatt, an experienced property and corporate lawyer, about signing the papers – which he did that night.

At the same time, however, intense final negotiations were ongoing between Bayrock and FL. Their representatives had met in London, where Bayrock’s “man in the room” was Felix Sater, a Russian-born businessman who spent a period in prison in the Nineties for stabbing a man with a broken margarita glass. He was then convicted of helping lead one of the biggest stock fraud heists of Wall Street of the era, involving New York mafia families.

Sater was panicking and wanted to close the deal.

He rang Julius Schwarz, Bayrock’s executive vice president and general counsel, demanding to know what was taking so long.

But Schwarz was caught up in frantic emails circulating in New York about the tax that would have to be paid as a result of the deal.

Under the current deal the partners were liable to be hit with a $20 million tax bill, according to figures in court papers filed by former employees, including the then finance director Jody Kriss. Separately, FL would be liable for tax on its expected income of around $143 million (£99 million) from the four property schemes.

Emails seen by this newspaper appear to capture the concern among key players at Bayrock about their tax liabilities.

“HOW DARE YOU,”  Mr Schwarz wrote in a email reply to Sater’s demand that the deal be finalised. “DO YOU REALIZE THAT WE ARE TALKING ABOUT LOOSING [sic] 50 CENTS ON THE DOLLAR? I HAVE BEEN WORKING MY ASS OFF TO GET US THERE.

He added: “REMEMBER I AM DOING THIS, TRYING TO FIX CHANGES BEING MADE TO THE DOCUMENTS AT LIGHT SPEED BY OUR LAWYERS WHO ARE SCREWING SOME THINGS UP, BEGGING EVERYONE FOR CONSENTS, DEALING WITH EGOS AND DOCUMENTS…”

One of the consents, of course, was that of Mr Trump, who had signed that evening. But the sands were shifting – quickly.

Intent on resolving the tax problem, a solution was engineered by Bayrock, FL and their lawyers that, court papers allege, amounted to fraud.

The complex restructure, Mr Kriss’ complaint claims, evaded $20 million of tax on the initial $50 million buy-in by FL and was designed to shun a further $80 million of tax payments on the projected profits – which never materialised.

Copies of correspondence seen by this newspaper show how an FL lawyer put forward “as a tentative suggestion” that rather than FL buying a “preferred equity interest” in Bayrock, the company instead make a “participating loan”.

If the money from FL were presented as the company giving  Bayrock a loan, FL’s income on the profits from the deal could be termed as “interest” which would not be taxable.

The loan, would be “respected as “debt” for tax purposes” a Bayrock lawyer wrote, citing a proposal by his FL counterpart, in an email included in Mr Kriss’s legal complaint.

In other words the deal could be relabeled as a loan, but keep the economic effects of an equity investment. And yet it wouldn’t be taxed as an equity investment because the Internal Revenue Service would not tax a debt.

Had tax been payable, because FL was a foreign company, Bayrock would have been responsible for “withholding” the relevant portion from FL’s share of the profits in order to pay it to the IRS.  Lawyers therefore advised that FL set up a US subsidiary – a shell company in Delaware – thereby further alleviating Bayrock’s responsibilities.

In order to add a feature to the “loan” which would “give it legs for tax purposes”, lawyers recommended creating a time frame by which Bayrock should “repay” the debt. They set it at 15 years.

Bayrock appeared to welcome the suggestions and immediately set about revising the paperwork accordingly.

On 30 April Mr Kriss, the firm’s finance director, asked Mr Schwarz whether the money should be treated as an equity investment or a loan. He wrote: “Is FL coming in as equity or debt?”

Mr Schwarz replied: “Call it equity but for tax purposes its debt. Otherwise we write a huge check to the IRS. As a 49 per cent equity partner they are still equity. There is no other way around it.”

The “contribution agreement” quickly became a “loan agreement”.

This loan agreement was sent to the Trump Organisation along with a revised consent letter for Mr Trump to sign in May 2007. An email to Mr Trump’s then general counsel stated that the letter reflected “the revised structure of Bayrock’s recap[italisation].”

Court papers allege that the deal as it was finally structured was fraudulent in several ways. In addition to masking the equity as debt, the former Bayrock employees have alleged that the deal also involved a “disguised sale of partnership interests”.

Independent experts who reviewed the deal documents for the Telegraph identified “red flags”  indicating these two practices – which, once discovered, would generally lead to the IRS claiming back unpaid tax.

An accountant, who did not want to be named for fear of being sued by Mr Trump, said it should have been clear from reviewing the documents that were sent to the Trump Organisation that something was amiss.

Looking over the details of the loan agreement he said: “[FL Group] contributed $50 million and then they had rights to get the distribution of their $50 million back first, and then they got 49 per cent of the income as a partner, and then at the end of the 15 years they’re bought out. This is equity – this isn’t a debt.”

Howard Abrams, a law professor at the University of San Diego, said: “It’s not a loan – it’s really equity. I don’t think they would survive a challenge [by the IRS].”

But on 17 May, 24 hours after receiving the new consent letter, Mr Trump once again signed on the dotted line.

In an interview with The Telegraph, Alan Garten, Mr Trump’s general counsel, refused to say whether the presidential candidate’s lawyers identified flaws in the agreement.

Instead Mr Garten said Mr Trump was simply “acknowledging” the deal, not giving his consent, and that the form of an agreement between Bayrock and another company was none of his business, as long as it did not affect him directly.

That position appears at odds with the wording on the revised consent letter – dated May 16 –which requested “that you indicate your consent to the Transaction as evidenced by the Transaction Documents by counterexecuting and returning to the undersigned a copy of this letter at your earliest convenience.”

Provisions in the Loan Agreement also indicate that Mr Trump’s signed approval was one of the elements that Bayrock had to secure in order to complete the deal.

Other parties with interests in the deal similar to the Trump Organization questioned the details of the agreement.

A lawyer for CBRE, which like Mr Trump had interests in one of the four projects, asked searching questions about the structure of the deal while discussions were ongoing, including questioning the introduction of a loan “for tax reasons”.

CBRE eventually agreed to sign after being told that Mr Trump had done so.

Richard Lerner, a lawyer and colleague of Frederick Oberlander, a tax lawyer who drew up the court complaint for Mr Kriss said:  ” The lawyer  looked at the same documents as Trump’s team of the best and the brightest, and she spotted the problem – the equity investment being disguised as a loan. And she called them out. Trump didn’t even apply a smell test.”

Experts consulted by the Telegraph said that if the IRS were to carry out audits that concluded that the deal was equity and a disguised sale, Mr Trump would not be held directly responsible.

He was not a recipient of the payments from FL, and any tax liability on the $50 million would rest with Bayrock Group’s formal partners – although the tax professionals said that saying they acted on legal advice would likely to shield them from any potential criminal charges.

Mr Trump, however, could be deposed if the IRS decided to take action, according to a former tax prosecutor.

Mr Oberlander said that Mr Trump signing off on the deal also raised serious questions about his judgement and whether he was a suitable candidate for the presidency.

“I cannot yet say if Trump has any legal responsibility,” Mr Oberlander said. “But as a citizen of the US, I worry about living under a president who could be so negligent, or perhaps even wilfully blind.”

Mr Oberlander and another lawyer, Richard Lerner, are now facing the threat of contempt charges brought by Sater for allegedly disseminating information revealing that he began collaborating with the FBI following his fraud conviction.  Sater’s lawyers have said they would bring charges if federal prosecutors, who are considering the case, declined to do so.

Mr Sater’s lawyer claimed last week that the complaint against Bayrock amounted to “extortion”.

Whether or not the deal was legal or deprived the Treasury of funds to which it was entitled, the experts consulted by the Telegraph agreed that something was wrong – and that that much was apparent from the documents.

Jack Blum, chairman of the Tax Justice Network and a prominent financial crime and tax lawyer, said this deal was emblematic of an industry that had made mastery of tax avoidance – at a cost for the middle income American.

“My feeling is this whole arena of real estate taxation ought to be cleaned up. Because there is no rational reason for the tax that the rest of us pay; for the rest of us to subsidise  these real estate deals,” he said.

“This is how people who are very wealthy don’t pay tax. This is how this system can operate, relieving them of the tax burden without anybody out there in what I would call the civilian world understanding what happened.”

“If you dig through all these real estate deals of Trump’s, I’m sure you’ll see that he took advantage of it again and again.

“He is a poster child for this industry”.