Was Trump’s Hush Money Cover-up Also Tax Evasion?

If it was, that could mean a felony indictment

Photos and image courtesy of Salon

Within all the GOP bluster and outrage over Trump likely being indicted in Manhattan lies a core yet dangerous accusation: that District Attorney Alvin Bragg is somehow prosecuting Trump for political reasons only, and that the hush money payment and the falsification of business records are just, in the words of Rep. Jim Jordan (R-OH), a “bookkeeping error.”

This morning while I was thinking about the case and the possible charges that might be brought, I couldn’t help but think of the crime that finally brought down another mob boss, Al Capone. It was tax fraud.

Like Capone, Trump can’t seem to help himself when it comes to cheating on his taxes. We already saw that with the guilty verdict against the Trump Organization, which kept two sets of books so that it could pay side benefits to key employees in the form of apartments, cars and tuition, saving the company payroll taxes due on that income. 

So I asked myself, what if we looked at the Stormy Daniels payment through the lens of tax fraud? Could there be a case that Alvin Bragg could make? Indulge me a bit as we explore that possibility.

Background on the payments made by and to Michael Cohen

It’s useful in setting the context of all this to remember that the crime being investigated was serious enough to send Trump’s one-time fixer, Michael Cohen, to jail for it. So as an initial matter, it would actually be quite odd, and frankly unjust, for Cohen to serve time but for the person who ordered him to make the payments to skate free.

The federal government’s sentencing memorandum for Cohen laid out the facts of the Stormy Daniels payments and the way it was reimbursed. And it’s this series of facts that got me thinking, “This sure sounds like tax fraud.” Here’s how it all went down.

To make the hush money payment to Daniels, Cohen first sets up a shell company, Essential Consultants LLC, and uses his Home Equity Line of Credit to deposit $131,000 into a bank account he opened in that name. Then the next day, he wires $130,000 to Daniels’s attorney, falsely indicating that the wire was for a “retainer.”

After the election, Cohen seeks reimbursement from the Trump Organization for the $130K along with $50K in “technical services” for a total of $180K. But here’s the thing: If Cohen just gets paid back $180K, he will owe taxes on that. To make sure he comes out even, the Trump Org “grosses up” the amount owed to double that amount, or $360K, then for good measure throws in a $60K bonus, for a total of $420,000 to be paid in monthly installments of $35K over the course of a year.

So, it now seems clear that Cohen and Trump are trying to hide the payment under a “retainer” and be reimbursed as if he did actual legal work for the Trump Organization. As the government noted in its papers,

At the instruction of an executive for the Company, Cohen sent monthly invoices to the Company for these $35,000 payments, falsely indicating that the invoices were being sent pursuant to a “retainer agreement.” The Company then falsely accounted for these payments as “legal expenses.” In fact, no such retainer agreement existed and these payments were not “legal expenses”—Cohen provided negligible legal services to Individual-1 or the Company in 2017—but were reimbursement payments. Cohen then received the $420,000 during the course of 2017.

Just to be clear here, “Individual-1” is Donald Trump. He’s right there in the government’s pleadings. He wasn’t federally charged at the time because, well, then Attorney General Barr made sure of it.

Why this looks like tax evasion to me

If you’re a company paying for legal services, you get to deduct that expense against your income so that you owe fewer taxes. And that’s what the Trump Organization did here. 

Who benefited? Donald Trump, for sure. Not only were his own taxes lower as a result, but instead of having to pay hush money out of post-tax personal dollars, he was effectively able to deduct that hush money as a business expense by falsely labeling it as a legal expense, and not a personal payout or campaign contribution.

While hush money payments are not illegal, if you use your own company to pay them and then deduct it as a legal expense, that’s potentially a crime. Actually, and importantly, it’s potentially two crimes: falsification of business records and tax evasion. And this could wind up mattering here, as I’ll explain below.

The crime of Falsification of Business Records

Article 175 of New York’s penal code describes the crime of falsifying business records. It comes in two flavors. It can be committed in the second degree, which is a misdemeanor, or in the first degree, which is a felony.

There is strong reason to believe that Trump, and whoever else was in on this within the Trump Organization, is at least guilty of falsifying records in the second degree. That’s because if someone, with intent to defraud, “makes or causes a false entry in the business records of an enterprise,” then they have violated that part of the statute. It seems pretty clear that was what happened here, though intent will still need to be proven by witnesses and the documents.

So the question becomes, is Trump also guilty of a felony in the first degree? It turns out, if you commit second degree falsification in order to commit a different crime, or to conceal the fact of that crime, that bumps it up to a felony. Here’s the precise language to look at:

An individual “is guilty of falsifying business records in the first degree when he commits the crime of falsifying business records in the second degree, and when his intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof.” N.Y. Penal Code § 175.10. (Emphases mine.)

In other words, if Trump conspired with Cohen to label it all a “legal expense” with the intent to commit another crime, like tax evasion, or to help conceal that tax evasion, that is a felony under New York law.

There has been much nerdy debate in legal circles about whether Trump’s intent to commit the federal crime of election campaign fraud can serve as the other “crime” for purposes of ratcheting up a state misdemeanor to a felony here. But less attention has been paid to the idea that the other “crime” could also be something as basic as tax fraud, which is a state offense, too. After all, why call it “legal expenses” if not to 1) take advantage of that juicy expense reduction and 2) help cover your tax evading tracks?

All this is to say, District Attorney Bragg may have many angles of approach on this case, which are not being discussed in the media, perhaps for lack of creative thinking. But assuming Bragg has got good folks advising him and looking at this closely, then there may well be a tax fraud element to it.

This would certainly help with the narrative. Seen in this light, it’s not a “bookkeeping error.” It’s deliberate tax evasion. People who purposely cheat on their taxes go to jail for it, and the American public accepts that as a legitimate use of law enforcement. In fact, when it’s hard to nail a mob boss for his other crimes because his capos won’t rat him out, it’s often the shady bookkeeping that nails the bad guys in the end. The jury in the most recent Bragg prosecution understood this well and very quickly found the Trump Organization guilty.

Trump paid off Stormy Daniels to keep quiet, which wasn’t illegal by itself to do. But when he decided to hide the payment by calling it a legal expense instead of a campaign expense, then also took the benefit of that expense on his tax returns, that stepped way over the line. His company, at his direction, effectively took a write-off of nearly half a million bucks for a hush money payoff that should have come out of Trump’s post-tax, personal funds.

The Manhattan DA’s office regularly prosecutes defendants who lie and falsify business records, and it just won a big case against the Trump Organization on tax fraud. It shouldn’t matter if you’re an ordinary citizen or a former president; if you cheat on your taxes, you could and should be prosecuted for it, plain and simple.