5 ways Donald Trump's tax returns could spook voters

Donald Trump's undisclosed tax returns roared back this week as a hot campaign topic. If the presumptive Republican presidential nominee ever does release his tax filings, opponents say, the results might be politically embarrassing for him.

In at least five areas, possibly ranging from his business dealings to his tax bill's size, this disclosure could hurt him at the polls. While his voters in the Republican primaries have shrugged off his withholding the tax returns -- and applauded his many inflammatory opinions -- the broader electorate in November may prove to be less forgiving.

The topic resurfaced when Trump said on Wednesday, in an interview with the Associated Press, that he would unveil his returns only after an IRS audit of them was completed, which might not occur until after the election. He said voters had "nothing to learn" from his tax forms. That's doubtful.

Hillary Clinton, his likely Democratic opponent in the fall, and Mitt Romney, the 2012 GOP nominee, immediately criticized him for foot-dragging and asked what he had to hide. The issue has been percolating throughout the primary season, as other candidates, including Clinton, released their filings. Presidential nominees over the past four decades have routinely revealed their tax information.

Whether the billionaire developer will actually make his tax documents public before Election Day, however, is anyone's guess.

Here are five things that could come to light should Trump eventually divulge his returns. Admittedly, this is speculation, in the absence of the documents. While voters have no reason to believe Trump is concealing anything, they're operating in the dark. A Trump campaign spokeswoman didn't return a request for comment. Romney and other critics have floated possible scenarios of what the records could show:

1. Clever "1 percent" tax dodges. Trump wears his wealth as a badge of honor, and his core supporters view his financial status as evidence he's a canny businessman who can drive the hard bargains needed to restore America's greatness. And Trump has no qualms about admitting that he uses tax strategies to lower his tax bill. Last summer, he said on CBS' "Face the Nation" that "I fight like hell to pay as little as possible."

Nevertheless, would the details of how he does this play as well with the wide-ranging November electorate he needs to win over? Should it emerge that Trump pays little or nothing to the government, the average taxpayer surely wouldn't be pleased. The privileges enjoyed by the top 1 percent of the population have stoked a lot of resentment among people whose wages haven't grown in years.

For instance, what if the returns show that Trump has used tax havens popular among the well-heeled set? An advocacy group called the Tax Justice Network says $21 trillion is stashed offshore in various places like the Cayman Islands. Of course, it's doubtful anyone would admit to such maneuvers on an IRS form. But federal challenges to reported income, derived from information someone else provided, could show up as late payments and penalties.

Other stratagems, often used by big-time real estate operators, revolve around taking out loans secured by property assets. Trump owns, or has partial equity interest in, many residential, hotel and office buildings. He could use loans based on them as income, and loans are not taxed.

Another tax advantage he enjoys that disclosure could sour for him politically: According to his filing with the Federal Election Commission (FEC), he has 240 property-owning vehicles called limited liability corporations (LLCs). These provide income to their owners at a lower tax rate than do conventional corporations, which the IRS taxes twice -- first at the company level and then on the income it furnishes owners.

An LLC also allows owners to take depreciation deductions on property, writing down the technically reduced value of holdings. This move is an accounting ploy that ignores the reality that real estate usually gains value on the open market.

2. He's not as rich as he claims. Certainly, no IRS form will show someone's assets. Trump claims a $10 billion net worth, although Forbes magazine puts it at $4.5 billion.

That said, there's evidence that Trump overstates his income. After comparing his FEC-reported income and the personal balance sheet the candidate released, Fortune magazine in March concluded that he likely had just a third of the $362 million in 2014 income that he claimed. The magazine's Sean Tully wrote that Trump had reported revenue as income. But income is what's left over after all expenses, like salaries and maintenance, are subtracted from revenue.

During the primaries, Trump said his campaign was largely self-financed; he has spent around $40 million from his own pocket. But the general election will run at least $1 billion for each side. So now Trump wants to tap other people's money, a tactic he has perfected as a real estate magnate. Recently, he "took steps to appropriate much of the Republican National Committee's financial and political infrastructure for his presidential campaign," The New York Times reported.

This may be a sign of reasonable thrift, or it could indicate his financial limits. Billionaire publisher Michael Bloomberg paid 100 percent of his three successful runs for New York City mayor from his own fortune, a $650 million outlay. While Bloomberg ranks much higher on the Forbes rich list (No. 8, at $38 billion) than does Trump (No. 121 at $4.5 billion), remember that Trump puts his worth at $10 billion. At that higher level, he could more easily afford to continue writing checks, assuming he has the wealth he says he does.

3. Questionable business income. Trump's operations span the globe and often are partnerships with folks in cultures where official corruption is the norm. What if something embarrassing emerges, or at least something that his opponents could make seem unsavory? They don't have to prove that he did anything wrong, merely that his judgment was faulty.

The Trump business that draws the most fire is his ill-fated Trump University. Former students have filed suit, charging that the real estate course was a scam that taught them little and cost them a lot. Fortunately for Trump, the trial date is after the election. The program ended in 2011, but depending on how many years of taxes Trump might release, a picture of how lucrative it was for him might materialize.

4. His tax residency. Part of Trump's plan to gain the White House is to win major states outside the usual GOP regions. Both he and Clinton reside in New York, a prime electoral-vote prize, which typically goes to the Democrats. Trump, who all but sealed his nomination with strong wins in New York and other Northeastern states, wants to change that, saying: "I think we could win New York State. I really believe we can win this state. And if we win New York State, the election is over."

Trump, though, spends a lot of time at his Florida mansion, Mar-a-Lago. The top state tax rate in New York is 8.8 percent; Florida has no income tax. If it develops that Trump is an official Florida resident, he won't help his cause in New York or elsewhere in the highly taxed Northeast.

5. His charitable giving. Trump's website styles him as an "ardent philanthropist." He talks about his generosity to organizations for veterans and the disabled. His Trump Foundation draws a lot of funding from others, and Trump says he personally has donated $102 million to charities over the past five years. His tax returns would indicate whether this is true or not, and whether he has indeed been a benefactor to the disabled and veterans.

In addition, the returns could show he's a financial supporter of organizations that conservative Republicans loathe. His former GOP competitor, Ted Cruz, wondered whether Trump is masking donations to "liberal groups like Planned Parenthood."

Trump, like other Republican candidates, wishes for less onerous taxes and a simpler tax law. Cruz once called for whittling down the tax code so that people need only a postcard to file on. If Trump is pressured into revealing his returns, with all their potential revelations, he may wish that had been the case long ago.

  • Larry Light

    Larry Light is a veteran financial editor and reporter who has worked for the Wall Street Journal, Forbes, Business Week, Money, AdviceIQ and Newsday.