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Allen Weisselberg, Center, Chief Financial Officer of the Trump Organization, is leaving New York City Criminal Court on July 1, 2021.
David Dee Delgado | Bloomberg | Getty Images
The Trump organization and its chief financial officer Allen Weisselberg pleaded not guilty to the tax crimes on Thursday. Experts say the illegal practices claimed by the government may be more common among certain types of businesses.
The indictment states that the Trump Organization and Weisselberg circumvented IRS rules by failing to report so-called “fringe benefits,” a form of employee compensation.
According to the indictment, top executives were given unreported rent-free apartments, private schooling, vehicle leasing and bonuses.
These “off the books” perks for executives are more likely to come from private companies like the Trump Organization, said certified financial planner Sharif Muhammad, founder and CEO of Unlimited Financial Services in Somerset, New Jersey.
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Rules for fringe benefits
While fringe benefits are considered taxable income, the IRS allows employees to exclude certain perks from income, such as:
Depending on the fringe benefit, there may be rules to ensure that a company does not favor executives over ordinary employees.
Some companies also offer lifestyle perks such as vehicles, country club or gym memberships, cell phones, or expense accounts that may or may not be taxable.
Executives can even get time on a private jet for private vacations that are taxable, said Eric Pierre, an Austin, Texas-based auditor and owner of Pierre Accounting.
There are some instances where companies “hold up” executive fringe benefits to ensure they don’t pay out-of-pocket tax on the perk, he said.
The indictment alleges that the Trump organization covered fringe benefits for Weißelberg and other executives without reporting the perks as wages, which is tracked by a second set of internal books.
“These guys played with the rules quickly and easily,” said Muhammad.
Private vs. public companies
Public organizations like Fortune 500 companies have filed with the Securities and Exchange Commission, making it easier to review a company’s disclosures for executive compensation, Pierre said.
“This information is being examined very carefully and monitored,” said Mohammed.
Additionally, listed companies are being advised by numerous human resources professionals and legal advisors to review the fringe benefit packages, he said.
Obviously, investors don’t want to hear about a publicly traded company clashing with the IRS. “
Sharif Muhammad
Founder and CEO of Unlimited Financial Services
“Apparently investors don’t want to hear about a public company getting into conflict with the IRS,” said Mohammed.
However, there is less public information available with private companies like the Trump Organization.
“I don’t want to say it’s the wild, wild west,” said Mohammed. “But there is a lot of room for people to take liberties in how they treat things like fringe benefits.”
There may also be internal interpretations of how these benefits are to be taxed. Some companies could argue that they are “following the spirit of the IRS rules” without following the code line by line, he said.
Of course, there are many reputable firms like hedge funds or private investment companies that are less involved in these practices, said Muhammad.
Advice for companies
When it comes to fringe benefits or “real” compensation, it is always best to rely on the advice of a tax professional.
“And you may need to get a second opinion,” said Pierre.
Fringe benefits are a specialty of the practice, he added. Not every CPA or company has experience with this type of compensation.
While there are best practices for tracking fringe benefits, companies need to periodically review their perks in order to comply, Muhammad said.
“You don’t usually see things going so far that people go to jail,” he said. “But the [company’s] The reputational risk is at stake. “
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