How some companies play “quickly and freely” with advantages for managers
Allen Weisselberg, center, CFO of the Trump Organization, leaves New York 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 tax crimes on Thursday. Experts say illegal practices alleged by the government may be more common among certain types of businesses.
The indictment says the Trump Organization and Weisselberg circumvented IRS rules by failing to report so-called “employee benefits,” a form of employee compensation.
Senior leaders received undeclared rent-free apartments, tuition at private schools, vehicle leases and bonuses, according to the indictment.
These “official” executive benefits are more likely to occur at 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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While employee benefits are considered taxable income, the IRS allows employees to exclude certain benefits from income, such as health insurance, dependent assistance, education reimbursements, employee discounts and more.
Depending on the benefit in kind, there may be rules to ensure that a company does not favor executives over core employees.
Some companies also offer lifestyle benefits, such as vehicles, country club or gym memberships, cell phones, or expense accounts, which may or may not be taxable.
Executives can even spend time on a private jet for personal vacations, which is taxable, said Eric Pierre, a chartered accountant based in Austin, Texas, and owner of Pierre Accounting.
There are cases where companies are “adjusting” employee benefits for executives, making sure they won’t pay taxes on the benefit, he said.
The indictment alleges that the Trump Organization covered the benefits of Weisselberg and other executives without declaring the benefits as wages, tracked in a second set of internal books.
“These guys were playing fast and free with the rules,” Muhammad said.
Public organizations, such as the Fortune 500 companies, have filed files with the Securities and Exchange Commission, making it easier to verify a company’s disclosures for executive compensation, Pierre said.
“There is a lot of scrutiny and eyes on this information,” Muhammad said.
Additionally, state-owned companies are advised by dozens of human resource professionals and legal advisers to recheck employee benefits, he said.
“Obviously, investors don’t want to hear about a public company that is running up against the IRS,” Muhammad said.
However, with private companies, like the Trump Organization, there is less public information.
“I don’t mean it’s the wild and wild west,” Muhammad said. “But there is a lot of room for people to take liberties with the way they treat things like benefits.”
There may also be internal interpretations of how to tax these benefits. Some companies may claim that they are following “the spirit of IRS rules” without obeying the code line by line, he said.
Of course, there are many reputable companies like hedge funds or private investment firms that are less likely to engage in these practices, Muhammad said.
When it comes to benefits or “up to par” compensation, it is always best to rely on the advice of a tax professional.
“And you may need to get a second opinion,” Pierre said.
Benefits are a specialized area of practice, he added. Not all CPAs or firms have experience with this type of compensation.
While there are good practices for tracking benefits, companies should periodically review their benefits to stay in compliance, Muhammad said.
“You don’t usually see it progressing to the point where people go to jail,” he said. “But the [company’s] reputational risk is what is at stake. “