Representative Alexandria Ocasio-Cortez listens
Representative Alexandria Ocasio-Cortez listens as the lawyer Michael Cohen appears before the U.S. Congress to answer questions. Alex Brandon/AP

Alexandria Ocasio-Cortez grilled Michael Cohen on the real estate dealings of Donald Trump. Cohen’s replies may open access to Trump's elusive tax returns.

In The New York Times, Caroline Fredrickson, the president of the American Constitution Society, declared that freshman congresswoman Alexandria Ocasio-Cortez “won the Cohen hearing.“ Instead of grandiose political posturing, Ocasio-Cortez used her time to ask a series of sharp, succinct questions of Michael Cohen, former lawyer and fixer to President Donald Trump, that uncovered leads for further investigation into his potentially illegal financial practices—including tax fraud that may have helped him skimp on local property taxes.

Citing a 2016 report in The Washington Post, which found dramatic discrepancies between what Trump reported his golf courses were worth to the Federal Election Commission and what his lawyers pushed them to be valued for tax purposes, Ocasio-Cortez asked Cohen whether the president “was interested in reducing” his local tax bill and, if so, how he did that.

“Yes,” Cohen responded, adding: “What you do is you deflate the value of the asset, and then you put in a request to the tax department for a deduction.”

The freshman representative’s pointed inquiry laid the groundwork for obtaining Trump’s federal tax returns, long sought by critics and reporters working to investigate a litany of alleged illegal activities. Cohen’s answers pointed to ways that Trump may have finessed the value of his properties on financial statements to suit his purposes. If Cohen is telling the truth, then Trump is allegedly playing both sides of the coin—understating his properties’ values for tax or insurance purposes, while boosting their worth for other claims.

“Fundamentally, this is a question of Trump’s attitude toward taxes,” says Steve Rosenthal, senior fellow for the Urban–Brookings Tax Policy Center. “Does he believe that taxes are a shared responsibility? Or does he believe that taxes are a game of hide and seek?”

During the hearing, Ocasio-Cortez cited the groundbreaking investigation by The New York Times outlining how a great deal of Trump’s wealth came “through dubious tax schemes he participated in during the 1990s, including instances of outright fraud.” Cohen said that he believed that it would be helpful for the House Oversight Committee to obtain the president’s state and federal tax returns to address these alleged discrepancies.

Property tax valuations are public, and reporters have alighted on Trump’s battles with assessors; historically he has challenged the value of almost all of his properties. In January of last year, while president, Trump sued the Palm Beach County Property Appraiser—for the fifth year in a row—claiming the office overcharged him tax by mis-assessing the value of his 131-acre golf course in Jupiter, Florida. In December, Palm Beach County finally relented, retroactively reducing the assessed value for the golf course for each disputed year.

In 2017, the property appraiser assessed the golf course’s value at $19.7 million, a number that the president disputed as too high in court. Yet Trump’s financial disclosures for 2017 list the value as “over $50 million.”

“Cohen suggested that Trump was selective in his evaluation approach,” Rosenthal says. “It was high for some purposes, like insurance purposes, so he could get a higher insured amount in case [he] wanted to file a claim, say.  Or other circumstances, in terms of being on the Fortune 50 rich guys, maybe then he has a very generous view of his assets.”

Property tax assessments are supposed to follow what’s called the arm’s length principle in transfer pricing. The true value of the property is that at which a reasonable buyer would be willing to part with it and an interested buyer would be willing to purchase it, neither one compelled to do either. Courts routinely use this standard for settling disputes over property valuations, Rosenthal says. There’s an internal tension in Trump’s practice in claiming a high valuation with one hand and a lower valuation with the other.

Departing too high from this standard could result in income-tax or insurance fraud, while departing too low from this standard could mean property tax or estate tax violations. There are a variety of civil penalties attached to property tax violations, although criminal penalties tend to require a proof of criminal intent (mens rea). There’s no federal law governing the alleged practice of manipulating property valuations across multiple jurisdictions, according to Rosenthal.

Another exchange between Cohen and his interlocutor about how Trump values his real-estate assets was to the point. “To your knowledge, did the president ever provide inflated assets to an insurance company?” Ocasio-Cortez asked. “Yes,” Cohen answered, which opens the president up to accusations of insurance fraud.

Insurance fraud can take many forms in the corporate real-estate world, according to James Quiggle, director of communications for the Coalition Against Insurance Fraud, a consumer watch-dog organization. Before a company takes out a comprehensive general liability policy, for example, an insurance company will conduct a premium audit in order to set the policy’s limits. A bad actor could supply doctored figures on sales, staff, value, and other factors to jack up policy limits or lowball premiums.

Cohen told Ocasio-Cortez that Trump’s tax returns could help to reveal whether the president has committed insurance fraud. This information could take several forms. For example, fudging the size of staff or payroll at a given property—perhaps by claiming some number of employees through a shell company—could lower premiums for workers’ compensation policies. Tax returns could reveal a discrepancy if insurance policy costs were claimed as a business write-off and the scam could be compounded if insurance policy costs were inflated. Insurance companies would be loathe to reveal details about these policies, which aren’t public; so this kind of insurance fraud would be a dare to the IRS (or the House Oversight Committee) to catch Trump in the act.

“The [comprehensive general liability] policy is where so much of the action is in terms of insurance coverage on commercial properties,” Quiggle says.

One of the key ways Cohen’s testimony jeopardizes the Trump presidency has to do with the fodder it provides for local investigations, some of which, the former lawyer said, are already underway. A clearer understanding of Trump’s real-estate practices may not emerge unless and until his personal tax returns can be inspected. But there’s evidence to suggest that Trump tailors his asset valuations to his benefit.

“It reminds me of a song, [Creedence Clearwater Revival’s] ‘Fortunate Son,’” Rosenthal says. “’Some folks are born, silver spoon in hand/ Lord, don’t they help themselves, oh/ But when the tax man comes to the door/ Lord, the house looks like a rummage sale.”

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