CHICAGO — New York’s attorney general is trying to answer one of the most perplexing questions surrounding the troubled financing of the Trump International Hotel and Tower in Chicago: whether President Donald Trump failed to pay taxes on a $100 million loan deal related to the project.
According to a court filing, Trump’s lender on a high-interest $150 million loan on the Chicago property, Fortress Credit Corp., made a 2012 deal to accept a $48 million payoff in essence, forgiving more than $102 million in debt.
New York Attorney General Letitia James included the allegation in the Monday filing as she seeks to compel the Trump Organization, and the president’s son, Eric, to provide records and testimony regarding the organization’s tax maneuvering on four properties. In addition to the Chicago tower, the attorney general sought records on a Westchester County (New York) estate, the 40 Wall Street tower in Manhattan, and a Trump golf course in Los Angeles.
James’ investigation began with the early 2019 testimony that former Trump lawyer and fixer Michael Cohen gave to Congress, alleging his former employer had a long-standing practice of grossly undervaluing properties for tax purposes, and grossly overvaluing them when seeking to borrow money. James’ office is one of several government investigative agencies seeking Trump’s tax returns and business records.
The question cited in the court filing centers on whether the more than $100 million loan forgiveness involving the Trump Chicago project should have been declared as taxable income, the state’s lawyers wrote.
“The forgiveness of a portion of the debt may have been a taxable event to the borrower,” authorities wrote in the memorandum of law.
The financing of Trump’s Chicago tower has attracted significant scrutiny from investigators and journalists probing the president’s financial history since he launched his bid for the White House in 2015.
Most of the attention has been focused on why Deutsche Bank lent more than $600 million in construction loans to the project after Trump had defaulted on hundreds of millions of dollars in unrelated loans from the German lender. But there also have been questions surrounding how Trump handled the loan forgiveness deal with Fortress Credit, a New York hedge fund that made the original “mezzanine” loan in 2004.
In Monday’s filing, the attorney general’s office revealed that, since 2009, Trump had omitted the Chicago tower from his statement of financial condition when seeking financing from other lenders. Authorities have asked for an explanation for the omission but say they have not received an answer from the Trump Organization.
While digging for answers, authorities said they discovered that Trump owed $150 million to Fortress by 2012. Fortress accepted just $48 million to pay off the loan in March 2012, forgiving more than $100 million of the debt.
A Fortress spokesman declined to comment on the deal.
When a lender forgives a loan, the borrower is likely responsible for reporting that money as taxable income, tax experts said. In this case, Trump and one of the limited liability corporations he formed to hold the Chicago assets, 401 Mezz Venture LLC, did not declare the money as income, according to the New York attorney general.
“Here, 401 Mezz deferred recognizing as income the amount of the debt forgiven by Fortress,” the attorney general’s lawyer’s wrote in Monday’s court filing.
A spokesman for James’ office declined to elaborate on the source of that information. He also declined to say whether Cohen had provided investigators with relevant records as part of his cooperation with federal prosecutors after his 2018 arrest and plea deal for crimes related to covering up sexual relationships Trump allegedly had with porn actress Stormy Daniels and former Playboy Playmate Karen McDougal.
According to Monday’s filing, when the attorney general asked about the Chicago loan in April 2020, Trump Organization officials first said they would make chief financial officer Allen Weisselberg available to answer questions, but the company then stopped cooperating.
“Mr. Weisselberg did not, however, have personal knowledge and the Trump Organization subsequently refused to produce documents to confirm basic facts,” authorities wrote in the filing.
Unless the Trump Organization had declared business insolvency or bankruptcy around the Chicago deal, of which there is no public record, it is highly likely the company does owe taxes on the forgiven $100 million, said Daniel Shaviro, a tax law professor at New York University Law School.
“I don’t see how this could avoid being taxable income. … I can’t imagine how it wouldn’t have cost him tens of millions of dollars,” Shaviro said. “It’s baffling that he can’t provide, or won’t provide, information. It should be the easiest thing in the world to do.”
While previously reporting on the 2012 loan forgiveness, several news organizations have raised questions about another unexplained financial transaction related to Trump’s Chicago holdings that same year. Trump’s annual federal financial disclosure statements report that he owes at least $50 million to a corporation he controls called Chicago Unit Acquisition LLC. The federal disclosures state that the debt was incurred in 2012, the same year as Fortress forgave the $100 million in debt.
The Trump Organization did not respond to a request for comment. While campaigning for the White House in early 2016, Trump told The New York Times that Chicago Unit Acquisition was used to “purchase” a loan related to the Chicago property back from a group of banks who held his debt. But he declined to explain why the LLC had no assets other than saying, “we don’t assess any value to it because we don’t care.”
Trump’s claim that he purchased the loan back from banks contradicts the assertions by the New York attorney general that the loan was forgiven by his lenders.
The Fortress loan pooled money from other investors, including at least two other hedge funds, the Tribune reported in October 2004.
The original investors in the Fortress loan included Grove Capital LLP, the hedge fund controlled by George Soros. The involvement of the progressive billionaire may be seen as ironic in hindsight, given that Soros is a frequent target of Trump’s most ardent conservative supporters. Another reported early investor was the real estate arm of Cerberus Capital Management, another New York hedge fund. Trump later appointed Cerberus co-chief executive Stephen Feinberg to chair the President’s Intelligence Advisory Board.
It is unclear who else invested money in the loan, but the deal was made at a time when Trump was having difficulty borrowing money from traditional banks because of the number of times he had defaulted on large loans.
Democratic U.S. Rep. Raja Krishnamoorthi of Schaumburg, who has had a front-row seat to battles over access to Trump’s tax and business records from his perch on both the House Oversight and Intelligence committees, said he sees three major concerns with the New York allegations.
First, “if the president of the United States is not paying taxes on forgiven debt, the average taxpayer may be asking, ‘Why should I?’ ”
Second, Krishnamoorthi questioned the regulatory oversight of the loan, given that $100 million allegedly was forgiven, and the IRS apparently was not made aware of the development.
But his biggest concern is the counterintelligence issues raised by the allegations.
“The moment I saw this particular issue, it raised in my mind: Who knows the truth of this particular transaction? Does one of our foreign adversaries? Because if they do, and you and I do not, they can use that as leverage. That’s what the Russians call kompromat,” Krishnamoorthi said. “There’s always that lurking suspicion about who is actually behind this, and what did they get in return for the forgiveness? They don’t do this as charity … and that further raises the question of what do Donald Trump and the Trump Organization owe to these people?”
