Mr. Trump’s records indicate that there was an attached statement that explained the net operating loss being carried forward. “That’s so tantalizing,” Mr. Holtz-Eakin said. “I’d love to see that statement.”
Mr. Trump, of course, is free to release it. It would probably answer many questions about the source of the losses. It would also help explain whether these were legitimate business losses or “accounting gimmicks and abusive tax shelters,” as Mr. Rosenthal put it.
There are a number of accounting tactics that Mr. Trump might have used to generate such a huge loss, some of them considered highly aggressive and of dubious legitimacy, accounting experts said.
Given the dire state of Mr. Trump’s businesses at the time, he might have been able to record write-downs of assets under a doctrine known as “abandonment,” an aggressive accounting tactic used when an investor walks away from a worthless or nearly worthless asset and writes off the entire capital investment in the property.
There is also the question of Mr. Trump’s debt. Mr. Trump personally guaranteed $832 million of debt related to his casinos and other assets. Under tax code provisions available to real estate developers, he could take the full amount as a deduction even if he didn’t invest a dime of his own money.
Ordinarily, that deduction would be recaptured when the debt was forgiven or the underlying assets sold. If the debt were forgiven, Mr. Trump would have to report that as income. But there are various exceptions. If Mr. Trump was insolvent at the time — if his debts exceeded his assets — he might have avoided having to report the forgiveness of debt as income. Of course, if that was the case, it further undermines his claims to being an astute businessman.
There are other provisions, too, that might have allowed Mr. Trump to deduct the loans but never have to report them as income.
Real estate developers are also uniquely able to realize losses as soon as they occur, but defer gains, often indefinitely, through such tactics as like-kind exchanges. “It’s heads Trump wins, and tails the government loses,” Mr. Knoll said.
