In The New York Times, Caroline Fredrickson, the president of the American Constitution Society, declared that freshman congresswoman Alexandria Ocasio-Cortez â€œwon the Cohen hearing.â€œ Instead of grandiose political posturing, Ocasio-Cortez used her time to ask a series of sharp, succinct questions of Michael Cohen, former lawyer and fixer to President Donald Trump, that uncovered leads for further investigation into his potentially illegal financial practicesâ€”including tax fraud that may have helped him skimp on local property taxes.
Citing a 2016 report in The Washington Post, which found dramatic discrepancies between what Trump reported his golf courses were worth to the Federal Election Commission and what his lawyers pushed them to be valued for tax purposes, Ocasio-Cortez asked Cohen whether the president â€œwas interested in reducingâ€� his local tax bill and, if so, how he did that.
â€œYes,â€� Cohen responded, adding: â€œWhat you do is you deflate the value of the asset, and then you put in a request to the tax department for a deduction.â€�
The freshman representativeâ€™s pointed inquiry laid the groundwork for obtaining Trumpâ€™s federal tax returns, long sought by critics and reporters working to investigate a litany of alleged illegal activities. Cohenâ€™s answers pointed to ways that Trump may have finessed the value of his properties on financial statements to suit his purposes. If Cohen is telling the truth, then Trump is allegedly playing both sides of the coinâ€”understating his propertiesâ€™ values for tax or insurance purposes, while boosting their worth for other claims.
â€œFundamentally, this is a question of Trumpâ€™s attitude toward taxes,â€� says Steve Rosenthal, senior fellow for the Urbanâ€“Brookings Tax Policy Center. â€œDoes he believe that taxes are a shared responsibility? Or does he believe that taxes are a game of hide and seek?â€�
During the hearing, Ocasio-Cortez cited the groundbreaking investigation by The New York Times outlining how a great deal of Trumpâ€™s wealth came â€œthrough dubious tax schemes he participated in during the 1990s, including instances of outright fraud.â€� Cohen said that he believed that it would be helpful for the House Oversight Committee to obtain the presidentâ€™s state and federal tax returns to address these alleged discrepancies.
Property tax valuations are public, and reporters have alighted on Trumpâ€™s battles with assessors; historically he has challenged the value of almost all of his properties. In January of last year, while president, Trump sued the Palm Beach County Property Appraiserâ€”for the fifth year in a rowâ€”claiming the office overcharged him tax by mis-assessing the value of his 131-acre golf course in Jupiter, Florida. In December, Palm Beach County finally relented, retroactively reducing the assessed value for the golf course for each disputed year.
In 2017, the property appraiser assessed the golf courseâ€™s value at $19.7 million, a number that the president disputed as too high in court. Yet Trumpâ€™s financial disclosures for 2017 list the value as â€œover $50 million.â€�
â€œCohen suggested that Trump was selective in his evaluation approach,â€� Rosenthal says. â€œIt was high for some purposes, like insurance purposes, so he could get a higher insured amount in case [he] wanted to file a claim, say.Â Or other circumstances, in terms of being on the Fortune 50 rich guys, maybe then he has a very generous view of his assets.â€�
Property tax assessments are supposed to follow whatâ€™s called the armâ€™s length principle in transfer pricing. The true value of the property is that at which a reasonable buyer would be willing to part with it and an interested buyer would be willing to purchase it, neither one compelled to do either. Courts routinely use this standard for settling disputes over property valuations, Rosenthal says. Thereâ€™s an internal tension in Trumpâ€™s practice in claiming a high valuation with one hand and a lower valuation with the other.
Departing too high from this standard could result in income-tax or insurance fraud, while departing too low from this standard could mean property tax or estate tax violations. There are a variety of civil penalties attached to property tax violations, although criminal penalties tend to require a proof of criminal intent (mens rea). Thereâ€™s no federal law governing the alleged practice of manipulating property valuations across multiple jurisdictions, according to Rosenthal.
Another exchange between Cohen and his interlocutor about how Trump values his real-estate assets was to the point. â€œTo your knowledge, did the president ever provide inflated assets to an insurance company?â€� Ocasio-Cortez asked. â€œYes,â€� Cohen answered, which opens the president up to accusations of insurance fraud.
Insurance fraud can take many forms in the corporate real-estate world, according to James Quiggle, director of communications for the Coalition Against Insurance Fraud, a consumer watch-dog organization. Before a company takes out a comprehensive general liability policy, for example, an insurance company will conduct a premium audit in order to set the policyâ€™s limits. A bad actor could supply doctored figures on sales, staff, value, and other factors to jack up policy limits or lowball premiums.
Cohen told Ocasio-Cortez that Trumpâ€™s tax returns could help to reveal whether the president has committed insurance fraud. This information could take several forms. For example, fudging the size of staff or payroll at a given propertyâ€”perhaps by claiming some number of employees through a shell companyâ€”could lower premiums for workersâ€™ compensation policies. Tax returns could reveal a discrepancy if insurance policy costs were claimed as a business write-off and the scam could be compounded if insurance policy costs were inflated. Insurance companies would be loathe to reveal details about these policies, which arenâ€™t public; so this kind of insurance fraud would be a dare to the IRS (or the House Oversight Committee) to catch Trump in the act.
â€œThe [comprehensive general liability] policy is where so much of the action is in terms of insurance coverage on commercial properties,â€� Quiggle says.
One of the key ways Cohenâ€™s testimony jeopardizes the Trump presidency has to do with the fodder it provides for local investigations, some of which, the former lawyer said, are already underway. A clearer understanding of Trumpâ€™s real-estate practices may not emerge unless and until his personal tax returns can be inspected. But thereâ€™s evidence to suggest that Trump tailors his asset valuations to his benefit.
â€œIt reminds me of a song, [Creedence Clearwater Revivalâ€™s] â€˜Fortunate Son,â€™â€� Rosenthal says. â€œâ€™Some folks are born, silver spoon in hand/ Lord, donâ€™t they help themselves, oh/ But when the tax man comes to the door/ Lord, the house looks like a rummage sale.â€�