New York Times report outlines method by which Trump avoided paying tax – a maneuver Clinton voted to outlaw in 2004, contrary to earlier Trump statements

Donald Trump’s claim during the presidential debates that Hillary Clinton failed as a senator to close tax loopholes he exploited has been proved at least partially false.

The New York Times reported on Monday that the Republican candidate had avoided paying potentially hundreds of millions of dollars in taxes through a “sleight of hand” that worried even his own lawyers.

Trump in effect traded debt relief for virtually worthless “partnership equity” to swerve past any tax liability in the early 90s, according to documents obtained by the paper.

The manoeuvre came under the scrutiny of Congress in 2004 – and Clinton, then a New York senator, was among those who successfully voted to outlaw it.

Yet in the second presidential debate on 9 October, Trump claimed that the Democratic nominee had missed her chance to close loopholes that he had merely used as anyone else would.

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“She complains that Donald Trump took advantage of the tax code,” he said. “Well, why didn’t she change it? Why didn’t you change it when you were a senator? The reason you didn’t is that all your friends take the same advantage that I do. And I do.

“You have provisions in the tax code that, frankly, we could change. But you wouldn’t change it, because all of these people gave you the money so you can take negative ads on Donald Trump.”

It is a theme that the brash billionaire has also been hammering at rallies on the campaign trail. Trump has refused to release his tax returns, breaking a tradition followed by every Republican and Democratic presidential candidate for more than 40 years.

The New York Times said his “partnership equity” tactic was virtually the same as a tax manoeuvre already outlawed, but differed in minor details. Trump’s own lawyers reportedly advised him that the Internal Revenue Service (IRS) would probably find it improper if he were audited.

The paper said the manoeuvre may offer a clue as to how Trump posted a one-year loss of $916m in 1995, possibly enabling him to avoid paying federal income taxes for 18 years.

The property tycoon was able to cancel a debt of hundreds of millions of dollars as his casino empire in Atlantic City went bust. Cancelled debt usually is treated as taxable income, meaning Trump would have owed the IRS money on debt that his creditors forgave. But the loophole saved him from potential ruin.

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Hope Hicks, Trump’s spokeswoman, told the paper that its reporting “suggests either a fundamental misunderstanding or an intentional misreading of the law”. She said Trump did not think taxpayers “should file returns that resolve all doubt in favor of the IRS”.

Clinton campaign spokesperson Christina Reynolds said on Tuesday: “In the wake of a blockbuster report showing that even Trump’s own lawyers thought the IRS would likely find the ‘legally dubious’ scheme he used to avoid taxes was against the law, the Trump campaign still refuses to release his tax returns. While breaking a precedent running for 40 years, Trump has clung to the excuse that he is under audit, despite no proof that he is and no prohibition for releasing returns under audit.

“Given that Trump was required to file his 2015 taxes recently, he has no reason to withhold it since it is too soon for him to possibly be under audit for those year. There’s no excuse left for Trump – if he’s not still using these ‘dubious’ schemes to avoid paying taxes, he needs to prove it with his most recent tax returns.”

