Experts say the tax code is indeed riddled with tricky ways to dodge taxes through sophisticated uses of trusts, partnerships, S corporations and so forth. Because Trump refuses to release his tax records, no one can know for sure which strategies he has used to determine his tax burden.
But they also say that one tax rule Trump may have used — the “net operating loss carryforward” — is not a loophole. In fact, they say, it is a commonly used accounting tool that evens out gains and losses to impose taxes more fairly.
Here’s the definition: When a business taxpayer has negative income, that loss can be used to get a refund for past taxes paid or get carried forward to reduce future tax bills. Under current law, you can carry back two years and carry forward for 20.
While Congress has shifted the number of carryover years from time to time, the basic idea is an old one. Congress has been allowing net operating loss — NOL — credits since 1918.
“NOLs are a very ordinary part of the U.S. tax code and tax codes throughout the world,” said Kyle Pomerleau, director of federal projects at the Tax Foundation, a nonpartisan think tank. The purpose is to “adjust for the somewhat arbitrary decision to tax income over a 365-day period between January and December.”
Using a Jan. 1 start date to calculate taxes “may work for some businesses whose profit and loss cycle line up in the calendar year, but it may not work for businesses with much longer cycles,” he said.
The Tax Foundation offers this example:
So if a NOL carryover is not a “loophole,” then what is?
Annette Nellen, director of San Jose State University’s graduate tax program, said a real estate loophole appears when a tax law is so poorly …