According to the former president’s tax returns, he made loans to his adult children Ivanka, Donald Trump Jr. and Eric, and reported receiving interest on those loans.
Trump declared a total of $50,715 in interest paid to him by his older children in 2017, 2018 and 2019, and $46,320 in 2020, according to his returns.
The staff of the Joint Committee on Taxation in their report last week said the interest income raised the “question of whether the loans were bona fide arm’s length transactions, or whether the transfers were disguised gifts that could trigger gift tax and disallowance of interest deductions by the related borrowers.”
Bruce Dubinsky, a forensic accountant and certified fraud examiner, said it could be an estate planning technique.
It’s the IRS’ position that as long as it is a bona fide loan, it is respected as a loan, Dubinsky said. So, each year, Trump is able to decide to forgive a certain amount of the loan tax-free, i.e., not expect it to be repaid. Dubinsky says that means the taxpayer, Trump, owes no gift taxes on the forgiven amount, and the recipients, his children, do not pay income taxes on it.
The gift limit before the giver can be taxed was $15,000 per year per person, so Trump and the first lady could have forgiven up to a total of $30,000 in loans to a child annually without gift or income tax implications, Dubinsky said.
“It is an estate planning technique that is widely used by wealthy taxpayers,” Dubinsky said. “The whole technique hinges on the taxpayer’s intent when first making the loan in that they must intend for it to be a legally binding loan, and there can’t be an agreement up front that the loan will be fully forgiven in the future.”