Recently released Donald Trump tax documents underscore his skill at averting tax liability, a topic Justin Miller explored in the Fall 2016 issue of The American Prospect magazine. This story originally posted on September 20, 2016.

When Mitt Romney released his tax returns in 2012, the average American got a rare inside look at how the wealthiest avoid taxes. Americans learned how private equity and hedge fund managers get huge tax breaks, such as the carried-interest loophole that allows ordinary income to be treated as capital gains.

Now, Donald Trump has created an uproar by being the first presidential candidate since Richard Nixon to refuse to release his tax returns. He claims, implausibly, that he can't do so because he is under an IRS audit. Many speculate that there's a different reason—Romney has even blasted him, saying his returns would show a “bombshell of unusual size.”

One thing is certain. If Trump's full tax returns are ever released, the country would get an up-close look at how Trump's empire sits upon a real-estate tax racket, composed of a princely pile of tax breaks, loopholes, and deferrals that make wealthy real-estate developers even wealthier by eliminating most of their taxes. For Trump, it's a point of pride: “I fight like hell to pay as little as possible,” he said in August 2015.

Take property taxes. Trump often employs a tricky two-step. In the 1990s, he bought 147 acres in Westchester County and built a pristine 18-hole golf course, complete with a 101-foot-tall waterfall and a $20 million-plus, 75,000-square-foot clubhouse. In his financial disclosure report filed with the Federal Election Commission this year, Trump valued the golf course and palatial clubhouse at more than $50 million and said he made $10.3 million from it last year and early this year.

However, when it came time to pay property taxes, he claimed that the property and clubhouse was worth just $1.36 million—a 97 percent cut from his FEC disclosure figure. Right before an ABC News investigative report was set to highlight the discrepancy, Trump’s lawyers bumped up the valuation to $9 million. That’s still far short of the at least $14.3 million the city assessor estimated it at. On top of that, in 2008, Trump even got a 55 percent valuation reduction—from $38 million to $16 million.

Nicolai Schäfer/Wikimedia Commons Trump’s deal with New York City in 1980 to build the Grand Hyatt Hotel, left, required him and his partners to return a portion of the profits to the city. However, as the ABC News investigation found, when the city audited Trump in 1989, it discovered that his team had understated total profits by more than $5 million—thus bilking the city out of almost $3 million.

He's a repeat offender. As a USA Today investigation found, Trump’s companies have been involved in more than 100 lawsuits or other battles over unpaid taxes or how much he owes.

Trump's deal with New York City in 1980 to build the Grand Hyatt Hotel required him and his partners to return a portion of the profits to the city. However, as the ABC News investigation found, when the city audited Trump in 1989, it discovered that his team had understated total profits by more than $5 million—thus bilking the city out of almost $3 million. “This wasn't just a good business deal,” the city auditor who reviewed the deal said. “This wasn't just business thinking. This was manipulation. ... It was an example of extraordinary flim-flammery.” All told, The New York Times found that Trump has used his political connections to secure nearly $900 million in tax breaks, grants, and subsidies to build up his real-estate empire in New York City.

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In Chicago, home to the 92-story Trump Tower, he paid high-powered lawyers to navigate Cook County's notoriously complicated assessment laws, which allowed him to pay different amounts for the condo units at the top, the hotel rooms in the middle, and the retail, common areas, and parking on the ground and below-grade floors. Trump hired no less than Ed Burke, head of the Chicago City Council, as his attorney. According to a WGN TV news report, Burke used his political connections at the county assessor’s office to get the ground-floor assessment level lowered by 70 percent in just four years—between 2009 and 2012—and reduced Trump’s property tax bill by just over $14 million, according to a Chicago Sun-Times investigation. The Cook County Assessor’s Office has pushed back on both reports, contending that the lowered property valuations were a result of an appeals process that is available to all, and that Burke did not rely on his political status but, rather, on “facts and figures.” The Assessor’s Office states that the lowered assessments coincided with the worst years of the housing crash, which kept many Trump Tower condos unsold and the retail space undeveloped. As the market has recovered, assessment levels for the Tower have increased, the office says.

The Wall Street Journal uncovered that in 2005, Trump won a nearly $40 million federal income tax deduction simply by pledging not to build houses on one of his New Jersey golf courses, taking advantage of tax law that allows property owners to impose permanent conservation measures in exchange for charitable tax deductions. He’s used similar tax breaks at his Mar-a-Lago Club in Palm Beach, Florida, his Seven Springs estate in Westchester County, New York, and on a coastal California golf driving range. In New Jersey, Trump gets tax breaks simply for having goats and hay production on his golf courses.

These tactics are commonplace among the elite class of wealthy developers who can afford to hire an army of tax lawyers to exploit obscure tax breaks and do battle over property tax bills. But manipulating property valuations or utilizing odd deductions to limit tax burdens are merely ancillary tactics for real-estate moguls.

The real scandal is in the federal tax code, which is so far tilted in favor of real-estate development that it essentially amounts to an elaborate racket for the country's wealthiest real-estate barons.

The federal tax code favors income from capital gains over income from salaries and wages by taxing at a much lower rate. This creates a perverse incentive to pursue intricate tax schemes that allow you to translate ordinary income into capital gains income—and there's arguably no better way to do that than investing in real estate.

“The Declaration of Independence may tell us that all men are created equal, but the government definitely favors us real estate investors!” boasts the Trump University book entitled “Commercial Real Estate Investing 101.”

Nearly all real-estate operations are run through tax-friendly limited liability corporations. With a standard corporate structure, the government levies taxes twice—on the corporation’s own profits and on employees’ incomes. Not so with LLCs, which pass through all profits to the owners as income, to be taxed once. All told, Trump has at least 240 LLCs, including the flagship Trump Organization, and a web of others set up for individual real-estate properties.

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So how would a big-time real-estate developer like Donald Trump manage to whittle down his income tax bill to nothing? Well, it's not that hard. Those who satisfy the IRS's threshold for being a “real estate professional”—which likely includes Trump—are allowed to write off an unlimited amount of paper losses against other income. And the tax code offers a bonanza of so-called losses for developers to write off.

Real-estate developers, like Trump, often take out big loans to finance their investments. “I'm the king of debt. I'm great with debt. Nobody knows debt better than me,” Trump said in a June interview. Indeed, a New York Times investigation found that Trump-owned companies hold at least $650 million in debt—more than twice the amount that could be surmised from his public filings.

Congress allows all interest paid on investments to be deducted. So all interest Trump pays on that debt can be deducted each year against the money he rakes in from his Trump ties, furniture, TV appearances, licensing deals, and so on. Based on that estimated level of $650 million in debt, using an average interest rate of 4 percent, Trump's interest deductions would be worth $26 million a year.

Then comes an even more powerful tax advantage for real-estate developers. Congress also allows developers to deduct the supposed depreciation of their property values over the course of 27 to 40 years, depending on the property type, despite the fact that real estate generally increases in value over time.

Consider his $150 million purchase of the National Doral Miami golf resort in 2012, which he secured with the help of a $125 million loan from Deutsche Bank. Over a 39-year depreciation period for commercial real estate, Trump is able to deduct about $3.85 million a year, even though his own money backs just 17 percent of the property value (and even though the true value of the resort is increasing).

AP Photo, File New York Times journalist David Cay Johnston found that in 1978, while living a lavish lifestyle in Manhattan, Donald Trump paid no income tax. Here, Trump, along with New York Governor Hugh Carey, New York City Mayor Ed Koch, and Urban Development Corporation Executive Vice President Robert T. Dormer unveil plans for the New York Hyatt Hotel/Convention facility on June 28, 1978.

It would only take seven years for Trump to write off his entire cash investment in the resort—and write it off almost another five times through the full 39-year schedule.

Suppose Trump has $2 billion in property purchases and capital investments (that's a modest 20 percent share of Trump's purported $10 billion in assets), and it has all depreciated over the course of 39 years. Trump then would be able to write off a heaping $50 million in depreciation deductions each year.

Trump claims that NBC paid him $65 million a year in 2011 and 2012 for his reality TV show Celebrity Apprentice. Taking him for his word (NBC says that figure is dramatically inflated), the federal income tax owed on that would nominally be almost $23 million. With all his real-estate depreciation and interest deductions, he’d likely pay no income tax.

“When you put together depreciation on buildings, and do it with borrowed money, you get a negative tax rate. You just can't help it,” says Robert McIntyre, director of the tax fairness group Citizens for Tax Justice.

Again, without access to Trump's full tax returns, these exercises are pure speculation. But as renowned tax expert and Pulitzer Prize–winning New York Times journalist David Cay Johnston outlines in his new book, The Making of Donald Trump, the tax returns that have been uncovered show him paying nothing. By digging through casino regulatory reports, Johnston found that in 1978, while living a lavish lifestyle in Manhattan, Donald Trump paid no income tax. By utilizing the tax perks for real-estate developers, he was able to file a negative income of more than $400,000. The next year, he reported a negative income of $3.4 million, also paying no income taxes.

Johnston found that Trump also reported a negative income in 1984, though he was forced to pay state and city back taxes after an audit several years later found that he could not substantiate many of his massive deductions. Reports on Trump's financials by the New Jersey Division of Gaming Enforcement also showed that Trump paid no income taxes in 1991 and 1993—in fact, his losses were so large that he was apparently able to apply them to future tax seasons, likely meaning he paid no income tax for several more years.

Claiming a negative income not only saves money, but creates an investment opportunity.

For instance, a $23 million income tax break from his years on Celebrity Apprentice, Johnston explains, would have essentially amounted to an interest-free loan from the government, which Trump could turn around and invest in a new real-estate partnership for, say, 20 years. With a 10 percent annual net return, Trump could pay off that tax bill in the future after having netted about $130 million. Year after year, he could do the same thing: invest that tax break and reap the rewards while deferring any tax payments far off into the future.

Of course, not everyone can write off unlimited amounts of paper losses—like depreciation of buildings or interest on a loan—against traditional income. No, that’s reserved almost wholly for a narrow class of real-estate “professionals.”

It wasn't always that way. Before 1986, those in the upper tax brackets commonly became passive investors in real-estate partnerships as a tax shelter because everyone was allowed to write off real-estate losses against their regular income. Doctors, dentists, and lawyers loved it because it was an easy way to dramatically lower their tax burden; real-estate developers loved it because it provided a steady stream of investment. But using real-estate investment as a tax shelter led to an artificial surge in the market, resulting in lots of unnecessary development, and produced outcries of tax unfairness.

The landmark Tax Reform Act of 1986 closed those tax shelters by strictly limiting the amount of deductions passive investors in real estate could take against real income. Seemingly, it was a blow to the real-estate industry, as it not only cut off the spigot of eager investors, but it also spread out the depreciation schedules that Reagan had drastically shortened a few years earlier. Trump said in his book The Art of the Deal that he thought the law would be a “disaster for the country, since it eliminates the incentives to invest and build.”

Wally Gobetz/Creative Commons

But as things turned out, the change was a bonanza for real-estate insiders. In the early 1990s, Congress enacted a special carve-out that largely allows only those who qualify as “real estate professionals”—characterized as spending 750 hours a year in real-estate businesses and rentals in which one materially participates—to take unlimited deductions against other income. Dentists and doctors could no longer use real estate to avoid income tax, but real-estate tycoons like Trump who had millions in income flowing from other business ventures could.

The huge pools of depreciation that real-estate investors can write off are theoretically supposed to be recaptured and taxed once the property is sold. But there’s a huge loophole that often keeps that from happening: the “like-kind” exchange. The Trump University commercial real-estate book approvingly describes it as “like an IRA account on baseball steroids.”

When a real-estate developer wants to sell a property, they are required to pay a capital gains tax on any profit. But developers can use an obscure tax provision called a 1031 like-kind exchange, named for its section in the tax code, to keep that profit from being recognized by the IRS. This provision was originally intended to exempt small family farmers from capital gains taxation when replacing or upgrading assets like livestock or property. Over the past 100 years though, the provision has been expanded and co-opted by wealthy individuals like art collectors and commercial real-estate developers. The IRS recognizes all U.S. real-estate property as “like-kind,” which gives developers tremendous latitude to trade up for more profitable properties, while at the same time avoiding capital gains taxes on whatever profits are made from selling the old property. Just swap comparable properties—and both owners magically avoid the tax.

“It's become a very well-oiled, lucrative machine for deferring taxation on gains of assets,” especially for rich real-estate developers, explains Lily Batchelder, a former tax policy aide to President Barack Obama and to Democrats on the Senate Finance Committee.

For example, a developer could trade a new development on the edge of town for a high-rise luxury apartment building downtown and avoid taxes so long as certain technical criteria are met. A whole cottage industry of brokers has cropped up to facilitate these deals. The broker finds a buyer for a property and receives the cash payment, then uses that money to buy a property that the original seller finds fitting as a replacement. Cash never changes hands between the buyer and seller. “It's almost like online dating: Find two people who match so they can defer taxation,” Batchelder says.

A real-estate investor can make these exchanges again and again, like a game of leap frog with property, all while avoiding capital gains taxes otherwise owed.

The like-kind exchange is a critical tool for building up wealth while avoiding taxation. And if a developer passes their property on to an heir upon death, all capital gains will be wiped out thanks to a massive loophole in the estate tax. The developer will have completely avoided any sort of taxation on what could easily be hundreds of millions made in capital gains over a lifetime. As one law professor described it to Vanity Fair, “The trick in real estate is to keep all the balls in the air as best you can, until you die.”

Without his federal tax returns, it's unclear whether Trump has relied on like-kind exchanges. He tends to hold onto properties for longer than most investors while profiting off lucrative licensing deals that plaster his name on the building, a strategy that doesn't clearly lend itself to using like-kind exchanges. Still, tax experts say they'd be surprised if he's never made a 1031 exchange.

If the time does actually come where a real-estate partnership decides to sell a property once and for all, the partnership is supposed to report the profit from those years of tax breaks on interest and depreciation as something called a 1231 gain, which is taxed at a 25 percent capital gains rate. In 2005, this type of real-estate income totaled about $180 billion. However, there is longstanding concern that real-estate investors are evading billions of dollars in federal taxes by either not reporting the profit or misreporting it as a long-term capital gain, which is taxed at a lower 15 percent rate.

Jerry Curnutt, a former tax specialist investigating investment partnerships for the IRS, has been sounding the alarm on this type of tax evasion for years, which David Cay Johnston first reported on for The New York Times back in 2007. Curnutt won awards at the IRS for finding new ways to single out partnerships that were evading taxes.

While it's easy for real-estate investors to evade these taxes, Curnutt said it's just as easy for the IRS to detect it

, by directing IRS auditing resources to 1231 gains and focusing only on real-estate partnerships that have just sold or traded property, since that's when all the profit finally shows.

As of 2013, there were about 1.67 million real-estate partnerships, involving roughly seven million partners, according to IRS reports. The IRS is only able to audit a tiny percentage of real-estate partnerships in any given year. But Curnutt's research has found that most of the cheating occurs among a small slice of real-estate partnerships that have a small circle—three to six—of investors. For reasons unknown, the IRS still has not adopted Curnutt's auditing method. Meanwhile, the conservative crusade against the IRS has led to a depleted operating budget and, therefore, precious few resources are allocated to complex auditing techniques like those required to keep tabs on the real-estate industry.

After retiring from the IRS in 2000, Curnutt reached out to the states, including New York, where much of the tax evasion takes place, to help identify it. Only Pennsylvania took him up on his offer. Over the course of six years, Curnutt helped the state assess $49 million in taxes on unreported gains against real-estate partnerships, and also helped the tax department build a case involving $700 million in unreported income.

It's estimated that in peak years, real-estate investors in New York could be evading as much as $700 million in state taxes and as much as $40 million in local taxes from New York City. Reformers allege that governors like Andrew Cuomo have hesitated to implement such auditing techniques because it would expose rampant tax evasion in the real-estate industry, which is also one of the most prolific contributors to state politicians like Cuomo.

While the tax-avoidance in real estate thrives on blinding complexity, tax experts have a few core ideas for real-estate reform that would reduce real-estate favoritism while greatly increasing federal tax revenue: adjust real-estate depreciation schedules to better match economic realities; scale back interest deductions to limit the incentives for debt financing; limit real-estate like-kind exchanges; give the IRS adequate resources to stop real-estate tax avoidance.

In his last few budget proposals, President Obama has proposed dramatic reforms to like-kind exchanges. He wants to limit the total amount a taxpayer could defer to just $1 million—a change that the Treasury Department estimates would bring in almost $20 billion in tax revenue over ten years. That's more than what could be brought in by closing the carried-interest loophole, which is the primary tax-reform goal for progressives.

In the context of brewing negotiations over a mega tax-reform bill in 2014, the former House Ways and Means Committee chair, Republican David Camp, went even further, proposing to do away entirely with like-kind exchanges. A complete elimination could bring in an estimated $40 billion in tax revenue over ten years. The former Senate Finance Committee chair, Democrat Max Baucus, supported eliminating the exchanges just for real estate.

Reformers also recommend revising depreciation schedules for real estate. “If you want to have income tax,” Batchelder explains, “then depreciation should mirror the economic decline of value in assets as closely as possible. It'll never be perfect, but right now the code very intentionally allows taxpayers to depreciate much more quickly than economic reality shows. You could slow down the depreciation schedule to better mimic that.”

Robert McIntyre contends that allowing developers to finance real-estate investments mostly with debt while allowing them to write off depreciation on the full value of the property is insane. Depreciation deductions, he argues, should be limited to the percentage of the property that is financed with the developer's own equity.

TonyTheTiger/Wikimedia Commons

Republicans have started pushing a policy shift that would limit or get rid of interest deductions on investment and instead allow investors to expense the cost of a new investment right off the bat. They argue that this would do more to spur spending on capital while weeding out businesses that rely heavily on debt financing—including highly leveraged developers like Trump.

The Donald, of course, wants to keep his interest deductions. But he also wants immediate expensing of investment when that serves. That's a combination that even the most conservative tax policy advisers balk at. “If you want to create a recipe for an abusive tax shelter, take those elements and bake for 15 minutes,” Douglas Holtz-Eakin of the American Action Forum, a conservative economic advocacy group, told The New York Times.

“The combination of expensing and interest deductions allows businesses to profit from the tax law—not by making productive investments but simply by arbitraging two provisions of the revenue code,” Steven M. Rosenthal, senior fellow at the Tax Policy Center, wrote in response to Trump's plan.

And while Trump received plaudits for pledging to close the carried-interest loophole, his tax plan offers an even more favorable end-run: a 15 percent tax rate for all corporate and business income, including “pass-through entities” like real-estate LLCs. The capital gains rate for profit on sale of assets is 20 percent.

For decades, the real-estate industry has been a formidable force both in Washington, D.C., and in local municipal politics. According to the Center for Responsive Politics, in 2014, the industry spent more than $95 million on federal lobbying, more than triple what it spent in 1998. In 2012, the industry gave $162 million to candidates, committees, and outside groups; $75 million went to congressional races—nearly $35 million of that going into incumbents’ coffers. In 2014, the average congressional Democrat received just under $55,000 from the industry. The average congressional Republican took in more than $65,000.

Many of these reform proposals have run up against fierce resistance. The Real Estate Like-Kind Exchange Coalition has launched an aggressive lobbying campaign to help protect the exchange provision while Congress crafts a massive tax bill that likely won’t see the light of day until at least 2017. Much like they argued that limiting passive investor breaks in 1986 would spell doom for the business, the real-estate industry argues that the provision is an essential underpinning to economic growth—especially in commercial real-estate development.

Members include industry power players like the Real Estate Roundtable, the National Association of Realtors, and the Federation of Exchange Accommodators, which is the trade association for like-kind brokers. The Federation spent $500,000 in 2015 alone lobbying Congress and the Treasury Department to stop like-kind exchange reforms.

Dan Rostenkowski, the Democratic chair for the House Ways and Means Committee from 1981 to 1994, was reportedly once so fed up with the brazen tax welfare for real estate that he threatened to make the whole sector tax-exempt, which actually would have increased investors' tax bills since they'd no longer be able to write off unlimited losses against traditional income.

Tax fairness has been put back in the public eye in recent years, aided by rampant corporate inversion practices by popular American companies like Apple and the spotlight on wealth inequality perpetuated by policies like the carried-interest loophole. But there remains a feverishly anti-tax political environment in Washington, D.C., that, thanks to Grover Norquist and his ilk, makes anything perceived as a tax increase a non-starter.

“Not a chance, not in today's landscape,” says Rosenthal of the Tax Policy Center. “A majority of Congress believes any tax change is a job killer. We're ruled by sloganeers. I don't see that changing in the near term.”

But forcing Trump to disclose his taxes would not only be salutary for the 2016 campaign. It would shed greater light on the single-most abusive industry when it comes to tax favoritism, and help shift the political equation in the direction of reform.

This article has been updated to include a response from the Cook County Assessor's Office and to more accurately describe the layout of and assessment process for Trump Tower.