To avoid tax, Trump may have used a loophole Hillary voted to close in 2002 [View all]

[muriel_volestrangler]

This loophole was the subject of a 2001 Supreme Court case, Gitlitz v. Commissioner, in which the IRS argued the relevant tax law could not have possibly meant what it appeared to say, which was that business owners could in some cases deduct losses they had not actually borne.

After the IRS lost that case, the loophole was closed by the Job Creation and Worker Assistance Act of 2002, a bill that then Sen. Hillary Clinton voted for and President George W. Bush signed. But that law only stopped taxpayers from using the loophole going forward; they were still allowed to benefit from tax losses they had booked through it in prior years, such as 1995.
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In the situation described by Sheppard, the S Corporation's massive business losses would have passed through to Trump as personal losses. The offsetting debt forgiveness enjoyed by the S Corporation would not have passed through to Trump as taxable personal income because it was excluded from the S Corporation's taxable income. In total, Trump would have harvested a huge loss that exceeded his initial investment in and prior profits from the S Corporation.

"But wait!" I hope you are saying. "Wouldn't that put Trump afoul of the rule that his tax losses from the S Corporation can't exceed what he invested in it in the first place plus the prior profits?"

Yes, it would — except that, before the 2002 loophole fix, the debt forgiveness enjoyed by the S Corporation would have passed through to Trump for the purposes of calculating the amount of profit the S Corporation had earned on his behalf, even though the same debt forgiveness did not pass through as actual taxable profit to him.

http://uk.businessinsider.com/why-did-trump-pay-so-little-tax-2016-10?r=US&IR=T

Complicated, so not easy to summarise here. But the end result is: Trump probably used a controversial loophole to stiff the USA; when the legality of this was definitively decided, lawmakers, including Senator Clinton, changed the law to stop that. So who do you want as president, the slime who took the money, or the lawmaker who made sure people have to pay their fair share in the future?