New York state tax authorities are investigating after the New York Times reported that Donald Trump engaged in “dubious tax schemes during the 1990s, including instances of outright fraud”, as he and his siblings took control of a real estate empire built by Fred C Trump, the president’s late father.

“The tax department is reviewing the allegations in the NYT article and is vigorously pursuing all appropriate avenues of investigation,” the New York state taxation authority told the Washington Post.

In a blockbuster investigative report built on interviews with the elder Trump’s former employees and more than 100,000 pages of documents including tens of thousands of pages of confidential records, the New York Times unfolds the story of how Trump “received the equivalent today of at least $413m from his father’s real estate empire, starting when he was a toddler and continuing to this day”.

Little of the information had previously come to light. Its publication, which was subject to blanket denials by a lawyer for the president and by the White House but which was not refuted in detail, fundamentally alters the visible facts establishing the centerpoint of Trump’s identity: his wealth.

However, Trump himself hit back on Wednesday morning with a bizarre tweet.

“The Failing New York Times did something I have never seen done before. They used the concept of “time value of money” in doing a very old, boring and often told hit piece on me. Added up, this means that 97% of their stories on me are bad. Never recovered from bad election call!” he wrote.

The investigation drew on Fred Trump’s tax documents but did not unearth the president’s personal tax filings, which Donald Trump has refused to disclose.

The story of a nine-figure inheritance contradicts Trump’s portrayal of himself, going back more than 40 years, as a self-made man. He has characterized his father’s real estate empire as a “tiny” concern and said he only ever took a $1m loan from his father, which he paid back with interest.

I got peanuts. My father didn’t leave a great fortune … I built this empire and I did it by myself Donald Trump

“I got peanuts,” Trump told one interviewer. “My father didn’t leave a great fortune. It was Brooklyn and Queens real estate. I built this empire and I did it by myself. Nobody did it for me.”

In fact, the Times reported, Trump was the beneficiary of “295 streams of revenue that Fred Trump created over five decades to enrich his son”. That largesse made Donald Trump a millionaire by the age of eight, the report says.

Fred Trump was one of the most prolific real estate developers of his time, erecting apartment buildings and row houses in the outer boroughs of New York City – mostly Brooklyn and Queens – in the explosion of residential construction that followed the second world war. His ruthless landlord practices were the subject of a protest song, Old Man Trump, by the folk singer Woody Guthrie, a longtime Brooklyn resident.

In defiance of the mountain of tax returns, incorporation and loan documents, the press secretary, Sarah Sanders, released a statement on Tuesday evening that said Fred Trump “has been gone for nearly 20 years” and described the New York Times report as “misleading”.

“Many decades ago the IRS reviewed and signed off on these transactions,” Sanders said.

But as damaging as the revelation of his massive inheritance might be to the myth Trump has carefully maintained, the documentation in the New York Times report of alleged tax fraud by Trump – which, if true, could still be subject to civil fines – might represent the greater hazard to the president.

In one dramatic example, the New York Times reported that Trump and his siblings paid only $52.2m in taxes on more than $1bn in wealth transferred to them by their parents. That is an approximately 5% tax payment at a time when gifts and inheritances were taxed at 55%. The alleged sleight of hand was achieved, the New York Times reports, by the systemic undervaluation of assets and properties.

A lawyer for Donald Trump, Charles Harder, denied that his client had a role in devising a tax strategy for his father’s inheritance and disputed the assertion that the president had committed tax fraud.

“Should the Times state or imply that President Trump participated in fraud, tax evasion or any other crime, it will be exposing itself to substantial liability and damages for defamation,” Harder said in a statement.

“The New York Times’s allegations of fraud and tax evasion are 100% false, and highly defamatory,” the lawyer continued. “There was no fraud or tax evasion by anyone. The facts upon which the Times bases its false allegations are extremely inaccurate.”

The New York Times investigation documents two dramatic moments in the chain of wealth passing from father to son. In 1997, Donald Trump and his siblings took ownership of their father’s empire, netting the current president tens of millions of dollars instantly, the report said.

Weeks earlier, Trump had published The Art of the Comeback, explaining how he had recovered after his casino interests collapsed.

“I learned a lot about myself during these hard times,” he wrote. “I learned about handling pressure. I was able to home in, buckle down, get back to the basics, and make things work. I worked much harder, I focused, and I got myself out of a box.”

What Trump’s book does not mention was the method by which he made a bond payment on a troubled casino in Atlantic City, New Jersey. His father, the New York Times reported, sent to the casino “a trusted bookkeeper” with a check for $3.35m. The emissary bought $3.35m in chips and left without placing a bet. The same day, Trump Sr wrote another check, for $150,000, to the casino in question.

“It was an illegal $3.5m loan under New Jersey gaming laws, resulting in a $65,000 civil penalty,” the New York Times notes.

Then, in 2003, Donald Trump told his siblings they should sell the assets that fed their respective fortunes: the pieces of their father’s empire. The deal closed in 2004 for $737.9m, the paper reported.

But the banks financing the purchase valued the empire on sale at nearly $1bn, according to the New York Times.

“In other words,” the report said, “Donald Trump, master dealmaker, sold his father’s empire for hundreds of millions less than it was worth.”