About That Trump University Fine – There’s A Huge Catch; You And I Will Pay It

By Wendy Gittleson on November 20, 2016 11:25 pm ·

After Trump’s latest Twitter rant over the performance protest, or rather, polite urging of Mike Pence, the true big story of the day had some daylight, but not near enough. Trump, who claims he never settles lawsuits, did just that on Saturday when he agreed to pay $25 million in the Trump University fraud suits. While that might seem like a bit of justice served, it was revealed on Sunday that it will be the taxpayers who will pick up the bill.

To be fair, it’s not Trump’s fault. It’s the fault of the US tax code, which, as usual, favors the wealthy – you know, the people who can afford to pay $25 million in lawsuit settlements.

Of course, the real cost to Mr. Trump is after tax, not before it. And most business settlements are fully tax deductible. The only part that arguably may not be here is the $1 million in penalties. But barring express non-deductibility commitments, many penalties can be deducted, too. In general, fines and penalties paid to the government are not deductible. Section 162(f) of the tax code prohibits deducting ‘‘any fine or similar penalty paid to a government for the violation of any law.’’

Despite punitive sounding names, though, some fines and penalties are considered remedial and deductible. That allows some flexibility. Companies often deduct ‘compensatory penalties,’ a maneuver affirmed in a recent Circuit Court ruling. Some defendants insist that their settlement agreement confirms that the payments are not penalties and are remedial. Conversely, some government entities insist on the reverse. Explicit provisions about taxes in settlement agreements are becoming more common.

Source: Forbes

Yes, that is tax code, but there are exceptions which the Justice Department can enforce. For example, Credit Suisse was forbidden from writing off its fine of $2.6 billion for tax evasion.

This all brings us back to the fact that we still don’t have access to Donald Trump’s tax returns. He doesn’t pay taxes at all and in fact, one year, he reported a near billion dollar loss.

Trump supporters paint him in a passive light. After all, it’s not his fault the tax code is so easy for the wealthy to manipulate. The fact is, though, it’s wealthy people like him who have been writing the tax laws for decades. That’s why they are able to pay far less, as a percentage of income, than most Americans.

If you expect this will get better with Trump in office, let’s hope you’re not holding your breath. Trump was caught just last week promising a restaurant full of wealthy people that he would be lowering their taxes. Of course, he didn’t need to be caught on a hot mic. Analysts have already figured out that Trump’s tax plan will benefit the wealthy, and only the wealthy, all while putting the country deeper and deeper into debt.

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