New York Attorney General Letitia James complaint against former President Donald Trump, Donald Trump Jr., Eric Trump, Ivanka Trump, Allen Wesselberg, Jeffrey McConney and ten organizations, including the Trump Organization, are not primarily focused on taxes. Basically, it’s about Trump getting benefits like favorable loan terms and insurance provisions by allegedly misrepresenting his net worth.

The “acts of fraud and misrepresentation” cited in the complaint were presented in the form of an annual financial statement prepared by top 30 accounting firm Mazars, which dismissed the Trump Organization as a client and said that Donald Trump’s financial statements for years past from June 30, 2011 to 2020, unreliable. Mazars collected, and did not review or verify, the statements, so responsibility for the alleged misrepresentation rests with the individuals named in the complaint.

The CEO alleges that Trump and others lied to Mazar about property valuations, thereby inflating Trump’s net worth. Such things will not result in an understatement of taxes. The taxation issue I’m writing about comes into play with conservation easements. During his presidential campaign, Donald Trump’s campaign submitted a 93-page list of 4,844 charitable donations totaling $102 million. At the very top of the list was $63,825,000 in various retained easements.

Easement Contribution Deductions

Generally, you don’t get a charitable deduction for giving away less than your entire interest in the property. There are exceptions to this rule. The most notable is Code Section 170(h) Qualified Conservation Easement. Instead of a full share or a residual interest in the property, you can donate a “restriction (in perpetuity) on the use of the real property.” This is commonly referred to as an easement. There are other requirements, most notably that the gift must be properly to the organization and must be for one of a variety of conservation purposes.

When you grant an easement, you get a deduction for the value of the easement. There is not much buying and selling of easements. So how do you rate an easement? Regulation 1.170A-14 takes care of this:

In the absence of significant market sales data that can be used as a meaningful or valid comparison, generally (but not necessarily in all cases) the fair market value of a perpetual conservation easement is equal to the difference between the fair market value of the encumbered property before the easement was imposed and the fair market value of the encumbered property. the value of the encumbered property after the restriction is imposed.

The value of “to” is the most controversial. There is a mini-industry of syndicated conservation easements that is based on fantasy valuations. I have written a lot about the problem. If you overstate the previous value of the property, you can lower your tax liability by increasing your charitable deductions. This is the income tax issue in the appeal.

Here are the parts of the complaint that discuss conservation easements.

Seven springs

According to the complaint, Seven Springs is a parcel of real estate consisting of approximately 212 acres in the towns of Bedford, New Castle and North Castle in Westchester County, New York. The complaint names the owner of Seven Springs LLC, a subsidiary of the Trump Organization.

The complaint notes that property appraisals in 2000 and 2006 were $25 million and $30 million, respectively. The 2011-2014 financial status reports range from $261 million to $291 million. According to the complainant, the grant of the easement was an admission that the development plans which supported such values ​​were not feasible.

Six lots in New Castle were appraised at $700,000 each. A 2013 filing valued similar lots in Bedford at $23 million. When asked to explain the discrepancy, Eric Trump invoked his Fifth Amendment privilege. According to the complaint, Eric was aware of the City of Bedford’s building restrictions.

In the end, they decided to grant the conservation easement, which was based on an appraisal of $56.5 million — well below the $261 million to $291 million in reports. According to the complaint, that was still an overestimate because it omitted known restrictions on the property and contained an overly optimistic sale schedule.

For what it’s worth, the Seven Springs story has invaded Washington Post October 9, 2020. I interviewed one expert named in the Post article, Timothy Lindstrom, a lawyer who works on conservation easements. He did not take the assessment negatively, only noted that it could have been clearer.

Given what else is going on in the world of conservation easement taxes, there probably isn’t much of a tax problem here. It seems that when it comes to this issue, the Trump Organization may be more careful with the IRS than they are with Deutsche Bank.


Any tax issues surrounding conservation easements at Mar-a-Lago are old and cold. Concerns about easements and restrictions on Mar-a-Lago stem from the fact that they were ignored in the valuations used in the financial statements.

The Trump Organization and Mr. Trump knew that Mar-a-Lago was subject to numerous onerous restrictions and restrictions agreed to and signed by Mr. Trump that precluded any use of the property as anything other than a club, precluded residential subdivision of the property, and required significant expenditures for compliance, among other restrictions. Despite ​​​​full knowledge and awareness of these facts, the Trump Organization assessed Mar-a-Lago every year from 2011 to 2021 under the false premise that these restrictions did not exist. For these reasons and a number of others, all valuations for this property were false and misleading.

Trump National Golf Club Los Angeles

TNGC LA had geological concerns about a plan to develop 16 lots that would house a driving range and putting green. Given the difficulties, the Trump Organization ultimately decided to donate a conservation easement that would allow it to continue to be used as a landfill. The lots were valued, along with the others, at $2.5 million each when the financial statement was compiled. When Trump’s tax advisor Sherry Dillon brought in appraisers to look at the property for the easement deduction, they came back with a value in the $1.7 million range.

Trump himself has argued that parcels subject to the easement are in a more prestigious zip code than other parcels and should have a “zip code premium”. It turned out that it was not so. Appraisers ended up lowering the estimate even further to $20.5 million. Revised estimates of development costs threatened to fall even further. Trump insisted on raising the estimate. As a result, it amounted to 25 million dollars.

The complaint notes several problems with the $25 million estimate, but doesn’t say how much they add up to, other than a benefit to the golf course in the continued availability of the driving range, which the complaint says overstates the value of the $500,000 donation. It should be noted that a valuation can be quite far along before it is subject to material or gross misrepresentation penalties for income tax purposes. Thresholds are 150% for substantial and 200% for gross.

There was a press conference to announce the donation. Dylan advised against a press conference.

“Remind him that the higher the value and the more he makes from it, he’s telling the world how big a tax deduction he’s taking for it. In this case, it’s tantamount to US taxpayers paying Donald Trump to keep his driving range and use it for exactly what he already uses it for – and some might argue that as long as he runs the golf course, he will continue to maintain reach – essentially US taxpayers are paying him to do something he would have done anyway, and perhaps not the best use of taxpayer dollars. Bottom line – the more publicity it gets, the more caution we invite. It may spark a renewed interest in the issue.”

There, Dillon asked one of the staff lawyers to remind Trump that maintaining the easements on the golf property is controversial. That didn’t stop the press conference.

In the context of what’s happening with conservation easements, there doesn’t seem to be anything that’s really exciting from a tax perspective. The allegations in the complaint do not appear to amount to gross misrepresentation. This is nothing like the shenanigans going on with syndicated conservation easements, where property held for a very short time will be marked up tenfold or more.

As with Seven Springs, we can see that the Trump Organization is more cautious about what goes into Donald’s tax deduction than what goes to Mazars for the financial statement.


The complaint was interesting for someone like me. It reminded me of my youth, before I focused solely on taxes. I audited the financial statements of a real estate partnership. I just became a partner and it was the biggest deal I’ve ever worked on. We performed a procedure called an analytical review to further scrutinize costs and revenues that were far from expected. Because we didn’t have a prior year, we used the working papers of a much larger firm that made the forecasts that were used to sell the partnership interest.

There were many significant deviations that indicated to the network that the forecast was underestimating costs. When we discussed our bewilderment with someone at the management company, they said, “Oh. You’re using these hard XYZ numbers. They’re for bankers and investors. Here’s the real budget.” It didn’t end well for the general partners and some of their employees.

It is this kind of conduct that the complaint describes at length. Trump’s interesting response in an interview with Sean Hannity, where Hannity throws balls and then catches them for “the 45th president.”

He tells us that the banks have their own lawyers and they are not relying on the values ​​of the Trump Organization. There’s a “disclaimer right up front that basically says: Find your own people. You do it at your own risk.” It would be great to know what he means. If that was the opinion at the opening of the financial statement, then Mazars disclaimed responsibility.

There’s a lot going on here, but at least on the surface it doesn’t seem like much to the IRS. This is not the same as what happens with syndicated conservation easements.

On the other hand, Sen. Ron Wyden of Oregon doesn’t seem to see it that way.

A different kind

It seems that Senator Wyden is a little less calm than I am. He let go the following statement in response to the AG’s report.

Attorney General James presented substantial evidence of violations of federal tax law. This alleged behavior could land the typical American in prison for years, and it is imperative that the IRS fully investigate these issues.

Every day, prosecutors file cases involving a fraction of the fraud alleged here, and the federal government can’t help but report that only ordinary people are held accountable while people like Donald Trump break the law with impunity.

I am particularly concerned about Donald Trump’s alleged abuse of the conservation easement program, which was the focus of an extensive report by the Finance Committee. This underscores the need to get our bipartisan bill to reform the syndicated conservation easement program across the finish line.

The Finance Committee has written to Trump’s accounting firm, Mazars, regarding this matter, and we intend to fully investigate the role of other intermediaries involved in preparing the allegedly false reports.

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