Bloomberg Law
Free Newsletter Sign Up
Login
BROWSE
Bloomberg Law
Welcome
Login
Advanced Search Go
Free Newsletter Sign Up

Easement Tax Break Emerges in Trump Fraud Case Brought by NY AG

Sept. 22, 2022, 8:45 AM

One of the pillars of the multibillion-dollar fraud lawsuit unveiled Wednesday against Donald Trump focused on a fairly common tax break that New York officials said lowered his tax bills by millions: conservation easements.

Such easements involve donating property development rights in order to preserve the property in exchange for a tax break. In her sweeping 222-page civil lawsuit, New York Attorney General Letitia James accused Trump and his company of illegally inflating the valuations of multiple properties to increase tax deductions.

The easement donations play only a part in the overall lawsuit, which alleges that Trump, his adult children, and the Trump Organization overvalued assets by billions of dollars. The allegedly inflated financial statements were used to get favorable loans and beneficial insurance policy terms, officials assert.

A Trump lawyer claimed the lawsuit was motivated by politics, and the former president dismissed it on his social media network as part of an ongoing “witch hunt” by James, the Democratic attorney general.

The easement claims to be litigated involve some of Trump’s most familiar properties.

Questioning Appraisals

The complaint alleges that one easement tax deduction was tied to a 212-acre property called Seven Springs in Westchester County, NY, and used an inflated appraisal submitted to the IRS that ultimately reduced Trump’s tax liability by $3.5 million.

Another involves the Trump National Golf Club in Los Angeles. For that, officials contend, Trump fraudulently claimed a $25 million appraisal by using a draft report on development costs rather than the final one and by failing to account for cost savings to the Trump Organization.

The easement, in this case, restricted development on a driving range at the golf course.

According to the lawsuit, a tax lawyer for Trump suggested the easement could be seen as a pathway to a tax break without having to sacrifice anything in return.

In January of 2015, the lawyer, Sheri Dillon, allegedly wrote to a Trump Organization lawyer that the easement “is tantamount to the US taxpayers paying Donald Trump to keep his driving range and use it for exactly what he is already using it for—and some could argue that as long as he is operating the golf course, he would continue to keep the driving range—effectively, the US taxpayers are paying him to do what he would already do anyway.”

‘False Premise’

The attorney general’s lawsuit also raised questions about the impact of conservation easement restrictions for perhaps Trump’s most famous property—the Mar-a-Lago Club. It said Trump and other defendants overvalued the Palm Beach, Fla., property in annual financial condition statements by neglecting the ways in which the restrictions had reduced its value.

The club was valued as high as $739 million based on the “false premise” that it could be developed and sold for residential use, when Trump had actually signed deeds donating his residential development rights and placing restrictions on the property, according to the complaint. The lawsuit alleges the club should have been valued nearer to $75 million.

The lawsuit asks a court to disgorge all the financial benefits the defendants got through the fraudulent scheme, which the state currently estimates to be worth $250 million, and to bar Trump and the other defendants from various forms of business activity in New York either permanently or for a designated time.

In a statement after the suit was unveiled, Trump lawyer Alina Habba said: “It is abundantly clear that the Attorney General’s Office has exceeded its statutory authority by prying into transactions where absolutely no wrongdoing has taken place.”

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com; Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editor responsible for this story: Bernie Kohn at bkohn@bloomberglaw.com, John P. Martin at jmartin@bloombergindustry.com