It Helps if You Actually Read the Indictment

There is a lot to unpack from the indictments Thursday of Allen Weisselberg and the Trump Organization. As I always say, remember that an indictment is not proof of guilt. That is why there are pre-trial motions and ultimately a trial on the merits.

At this stage of the proceedings, you can expect a lot of posturing. Remember that none of what the lawyers and political pundits say is relevant to the proceedings. In particular, you should disregard “whataboutism.” If I’m a line of 20 speeding cars and I’m the one who gets pulled over, it is no defense to go in front of a judge and say “others were speeding too.” It is also no defense to say that I’m a Democrat and the arresting officer was a Republican. The correct, and only, defense is that I was not speeding.

Much of the initial defense and media focus is on the treatment of “fringe benefits.” The argument is that this a gray area in the tax code and a great many businesses reward their most valued employees in the same way. Therefore, the defendants here are being singled out for doing what a lot of others are also doing.

If these fringe benefits are, in fact a gray area, would you, as a large organization want to take the chance (over a period of more than 10 years) that you and your employees could be criminally liable?

Assuming that you wanted to avoid potential liability, there is a mechanism in place to protect yourself. It is to request a private letter ruling (PLR) from the IRS. These letters are issued all the time and offer specific protection to the individual or company requesting them. Most non-lawyers have not even heard of PLRs, mostly because they get little media attention and appear to be tediously dull and boring. Naturally, I enjoy reading them.

Weisselberg and the Trump Organization did not go the PLR route to protect themselves.

Back to the title of this article, it helps if you actually read the indictment. The most clearly illegal conduct, if proven, has nothing to do with fringe benefits. I’ll focus on just one of those allegations here.

Weisselberg was obviously a long-term employee of the Trump Organization. So, whether you include or exclude some of the fringe benefits, we know that he received a wage statement (W-2) that reflected his earnings during the year.  However, he also received checks as a NON-employee from Mar-a-Lago and other Trump organizations. In other words, he, as an employee of the Trump Organization, simultaneously claimed he was an independent contractor as far as Mar-a-Lago was concerned. As a non-employee, the money he received from Mar-a-Lago was reported on tax form 1099.

Why was it beneficial for Weisselberg to simultaneously be an employee and an independent contractor? The answer has to do with a special tax benefit available to independent contractors that is not available to employees. As an independent contractor, he was able to contribute to a KEOUGH plan, which is a tax-deferred pension plan.

Thus, in one pocket Weisselberg was collecting benefits associated with employment, and in another pocket he was collecting benefits for being an independent contractor. You can’t do both for the same organization.

As next steps, you can expect a number of preliminary motions from the defense. It would also not be surprising the see additional charges against Weisselberg (and perhaps other defendants) coming from the grand jury.

Regardless, this process will unfold over a series of months, not weeks.