The Trump Organization Indictment
In July of 2021, the state of New York returned an indictment against the Trump Organization, Trump Payroll Corporation, and the Trump Organization’s CFO, Allen Weisselberg. The allegations include fifteen counts of white collar criminal activity relating to employee payments and benefits. The state of New York is accusing the Trump Organization and Weisselberg of structuring certain employee benefits for the purpose of evading state and federal taxes.
This article is not meant to take any position on the criminal charges. There is far too much information that is unavailable at this stage of the litigation. This article will lay out the criminal allegations present in New York’s indictment, provide insight into the elements of the offenses, and review the factual basis for the charges.
The indictment is lengthy and contains 15 counts of alleged criminal conduct. The individual counts are not factually unique. There is one underlying tax scheme that gives rise to every count within the indictment. The individual counts are merely different ways for New York to charge the same conduct. This is a common strategy in white collar criminal cases as it allows the state to attack the conduct from multiple angles with varying elements of proof. This gives New York the best chance to secure a conviction.
Given the layout of the indictment, the easiest way to digest this information is to start with the underlying facts that form the basis for all 15 counts. Then we will highlight different penal code sections involved in the indictment pointing out the changes in New York’s burden of proof. Finally, we will provide an overall impression on the case and the elements that are likely to provide a defensive theory.
The Factual Basis
Under count 1, the indictment lays out the facts giving rise to the various criminal charges. The factual narrative is broken down into four categories: 1) organizational structure, 2) failure to declare employee benefits, 3) declaring employee compensation as contract labor, and 4) falsified documents within the organization.
The indictment starts by laying out the corporate structure of the Trump Organization and the duties of the organization and Weisselberg within that structure. The Trump Organization is the employer of Weisselberg and has a duty to report Weisselberg’s compensation to federal and state tax authorities. The organization was required to withhold FICA taxes (social security and Medicare) and income tax from employee paychecks under federal law. Trump Payroll is included in the indictment as this corporation is solely responsible for issuing paychecks and federal tax forms for Trump Organization employees, including Weisselberg.
Weisselberg was the CFO of the Trump Organization and is managed by the Trump Corporation. In this role, Weisselberg had authority over the Trump Organization’s internal financial policies. As we will discuss later, knowledge and intent are two key elements under all counts in the indictment. Weisselberg’s role within the organization, and duties therein, make him the easiest target for conviction. For that reason, Weisselberg is the only individual named in the indictment.
The First Arm of the Scheme – Failure to Declare Employee Benefits
New York alleges the organization executed a scheme from 2005-2021 to pay Weisselberg and other employees “off the books.” None of the “off the books” compensation was reported to the federal government or local tax authorities as required. The goal of the scheme was two-fold: 1) slash the tax burden on individual employees, including Weisselberg, and 2) lower the payroll tax burden on the organization itself through non-payment of FICA and federal income tax.
According to the indictment, Weisselberg was able to save over $1.76 million dollars by not classifying personal benefits as compensation.
The “off the books” benefits are a central component of every count in the indictment. Under count 1, New York lists the following benefits that fall under this arm of the scheme:
- Trump Corporation paid for Weisselberg’s home in New York from 2005-2021
- Trump Corporation paid for Weisselberg’s utilities and garage expenses at the home
- Trump Corporation paid for Weisselberg’s private school tuition
- Trump Corporation paid for yearly leases on two Mercedes Benz vehicles for Weisselberg and his wife
- Trump Corporation issued checks that were cashed for Weisselberg’s personal use
- Trump Corporation paid for other personal expenses including home furnishings
- Trump Corporation provided similar benefits to other employees
The unreported home benefits totaled $1,174,018 from 2005-2017. The car payments totaled $196,245. Unreported cash benefits totaled $29,600.
The Second Arm of the Scheme – Declaring Employee Compensation as Contract Labor
The second part of the alleged scheme involves end of year bonuses for Weisselberg and other employees. At the end of each year, these employees would receive bonuses from the Trump Organization. These bonuses were included in Weisselberg’s employment contract. Under federal and state law, these bonuses would normally be included in the employee’s W-2 as employee compensation.
The Trump Organization classified these payments as non-employee compensation (what we know as contract labor under IRS Form 1099). This allowed the organization to circumvent the requirement to withhold FICA and payroll taxes. The Trump Organization cut Weisselberg’s bonus checks from subsidiaries of the organization. New York believes the organization used subsidiary accounts to make it appear the bonuses related to work outside of the normal course of employment.
Falsified Documents Within the Trump Organization
New York alleges various false documents in this case. First, New York notes the inconsistent internal reporting of the payments. At times, the Trump Organization would track the personal benefits as compensation to ensure the employees were not exceeding their contractual terms. On other occasions, the internal reporter would fail to log the payments at all. New York believes these inconsistencies were willful attempts to disguise the payments.
The second set of documents include the tax forms filed to the IRS and the state tax authority. New York alleges these documents are false.
Elemental Breakdown of Counts in the Indictment
The indictment is broken down into fifteen counts. Each count carries its own unique elements of proof, alleged defendants, and punishment. This section will lay out the criminal statute, the elements of the offense, and the potential punishment for each named defendant.
Count 1 – Engaging in a Scheme to Defraud in the First Degree
Under this count, New York has accused the Trump Organization and Weisselberg of engaging in a scheme to defraud the IRS and the New York Department of Finance. New York must prove the following elements under this charge:
- The defendants engaged in a scheme that constituted an ongoing course of conduct
- The defendants acted with an intent to defraud
- The fraud included more than one person as a victim
- The scheme resulted in the defendants obtaining property
- The property was obtained by false pretenses, false representations, or false promises
- The property obtained was valued over $1,000
Under this statute, New York must prove the defendants, acting with the intent to defraud, organized a scheme to fraudulently obtain property from multiple victims. An example will help to clarify the elements of proof.
If a taxpayer develops a plan with his banker to move assets to the Cayman Islands, executes that plan every year, and the purpose of that plan was to avoid paying state and local taxes, he has likely met every element of the statute. The taxpayer would have engaged in a scheme that constituted an ongoing course of conduct. His intent would have been to defraud the tax agencies. The scheme resulted in the taxpayer holding onto money that belonged to the tax agencies. The value would be over $1,000 and multiple agencies would be victims of the scheme.
New York is alleging that the organization’s failure to report various benefits and the misclassification of bonuses was an ongoing scheme with the intent to defraud the IRS and the state of New York. The statute is wordy and contains multiple elements. But when broken down, it is not overly complicated. Most elements are simple – defendant’s obtained property valued over $1,000, more than one victim, and defendant engaged in a scheme of conduct over a continuous period. Others are more subjective, and thus, more difficult to prove – the intent to defraud and the use of fraudulent representations to obtain the property. The intent elements are common to all white-collar criminal cases. They require the government to prove the defendants took these steps for the purpose of defrauding the named victims. The intent to defraud will be an ongoing theme throughout these articles and will likely be the place where a defensive theory can emerge.
Punishment under this count carries a maximum sentence of four years in a state jail.
Count 2 – Conspiracy in the Fourth Degree
The second count is a classic conspiracy charge. Under this Count, New York must prove the following elements:
- Two or more persons agreed to commit an offense
- The parties intended for a crime to be performed
- One or more members of the conspiracy performed an overt act
- The overt act was in furtherance of the conspiracy
Conspiracy statutes are designed to penalize groups of persons that are caught in the early stages of criminal activity. Under conspiracy law, it is not enough to plan a criminal action. The parties must take steps to effectuate their purpose (overt acts) before a criminal violation exists. For example, let’s assume that a taxpayer and his accountant agree to underreport income to the IRS. In furtherance of that agreement, the taxpayer begins moving money from his main company to subsidiary companies. The intent of the agreement is to underreport income from the main company. In this case, the taxpayer and the accountant have engaged in a conspiracy to commit tax fraud. Two people agreed to commit an offense, both intended for the crime to occur, an overt act was committed by one of the members, and that act furthered the goal of the conspiracy (tax fraud). Even though the parties have not submitted a return to the IRS with a false statement, their agreement and accompanying overt acts are enough to meet the elements.
In the indictment, New York alleges the defendants, along with an unindicted co-conspirator, agreed to implement a compensation scheme with the goal of underreporting Weisselberg’s income. They list various overt acts that furthered the criminal goal:
- Trump Corporation entered into a lease for Weisselberg
- Trump Corporation underreported Weisselberg’s taxes from 2009-2017
- Weisselberg deposited a refund check in each of those years
In short, New York is alleging the Trump Organization and Weisselberg agreed to underreport income by siphoning compensation into personal benefits. The parties then effectuated that plan when the Trump Organization entered into Weisselberg’s personal lease for his home, filed false returns in 2009-2017, and Weisselberg collected refund checks from the IRS.
Conspiracy in the fourth degree carries a maximum sentence of 4 years in a state jail.
Count 3 – Grand Larceny in the Second Degree
New York has alleged Weisselberg (no organizations are included as defendants) stole money from the IRS. The grand larceny statute in New York encompasses actions where a defendant obtains property of another through false pretenses or misrepresentations. New York alleges the defendants stole property belonging to the IRS in an amount exceeding $50,000 (the loss amount effects the degree of punishment).
Second degree grand larceny carries a maximum punishment of fifteen years in a state jail.
Counts 4-7 – Criminal Tax Fraud in the Third Degree/Fourth Degree
In counts 4-7, New York charged the Trump Organization, Trump Payroll, and Weisselberg with defrauding the state by filing a false return for state income tax. Under these counts, New York must prove the defendants knowingly filed a false tax return with the intent to evade a tax due and owing. All four counts fall under the same criminal statute with each count representing a separate state tax return filed from 2014-2017.
The degree of the offense is determined by the tax loss – counts 4-6 (2014-2016 tax years) are third degree allegations as they involved a tax loss of more than $10,000. Count 7 (2016 tax year) is a fourth degree offense as the tax loss is between $3,000 and $10,000.
Criminal tax fraud in the third degree carries a maximum sentence of seven years in a state jail.
Criminal tax fraud in the fourth degree carries a maximum sentence of four years in a state jail.
Counts 8 – 11 – Offering a False Statement for Filing in the First Degree
These counts accuse Weisselberg of filing a false state tax return with the intent to defraud the state of New York. Offering a false statement requires the state to prove the following elements:
- The tax form contained a false statement
- Weisselberg knew the state tax form contained a false statement
- With the intent to defraud, Weisselberg presented the tax form to a state official
- Weisselberg knew the form would be filed with a public office
These elements encompass classic tax fraud at both the federal and state levels. Again, the counts are separated by the separate state tax filings from 2014-2017. Each tax form filed is a separate count.
This offense carries a sentence of up to four years in a state jail.
Counts 12-14 – Falsifying Business Records in the First Degree
Under these counts, New York indicted the Trump Organization, Trump Payroll, and Weisselberg for falsifying Trump Organization business records with the intent to defraud the IRS. These counts refer to false statements made in the IRS W-2 forms and the Trump Organization’s internal tax statements. New York must prove the following elements under these counts:
- A false entry was made into the business records of an enterprise
- Those false entries were contained in the W-2 or Tax Statement forms
- The defendants had the intent to defraud
These counts are similar to counts 4-11. However, these counts target the alleged falsity in the W-2 forms and tax statements within the Trump Organization. Counts 4-11 deal with false state tax forms.
This offense carries a sentence of up to four years in a state jail.
Count 15 – Falsifying Business Records in the First Degree
Count 15 involves the same penal code section as Counts 12-14. However, the allegations are different. Where counts 12-14 involve creating false entries, this count involves the destruction or alteration of business records within the Trump Organization. New York will have to prove the following elements:
- The defendants altered, erased, or destroyed an entry in the Donald J. Trump General Ledger
- The defendants did this action with the intent to defraud
This offense carries a sentence of up to 4 years in a state jail.
The indictment against Weisselberg and the Trump Organization involves multiple counts relating to one narrative. New York is alleging the defendants committed various white collar crimes when they 1) failed to classify personal benefits as compensation and 2) reported bonus payments as contractor pay.
All of these offenses are going to require the state of New York to prove two distinct facts: 1) the payments should have been reported as employee compensation and 2) if so, the defendants set up this tax structure with the intent to defraud the IRS and the state of New York. The first fact should not be a huge hurdle assuming New York’s recitation of the facts are accurate. If an employer pays for an employee’s personal debts, the payments should be included as income to the employee.
The intent elements are potentially more difficult to prove. This is true in every criminal tax case. It is one thing to show the defendants’ tax plan was wrong under the law. It is a much tougher task to show the defendants structured these payments with the intent to defraud the government. To meet this threshold, the government will have to show the parties knew of the correct filing procedure and willfully chose to file the falsity. This area allows the defendants to propose different interpretations of the tax rules as a defense to the intent elements.
In part two of this article, we will look at the common defenses to criminal tax crimes and the legal areas that are likely to provide the foundation for a defense in this case.