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Published: Nov 01, 2016 6 min read

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Donald Trump, president and chief executive of Trump Organization Inc. and 2016 Republican presidential candidate, center, attends a media tour of the Trump International Hotel Washington DC in Washington, D.C., U.S., on Monday, March 21, 2016.
Donald Trump, president and chief executive of Trump Organization Inc. and 2016 Republican presidential candidate, center, attends a media tour of the Trump International Hotel Washington DC in Washington, D.C., U.S., on Monday, March 21, 2016.
Drew Angerer—Bloomberg via Getty Images

In early October, The New York Times reported that GOP presidential nominee Donald Trump had declared a stunning $916 million loss on his taxes back in 1995. The Times noted that such a sizable loss could have allowed the real estate developer to avoid paying any federal income tax for up to 18 years.

As you would expect, Democratic nominee Hillary Clinton seized on the report to criticize Trump for poor management skills and a refusal to pay his fair share of taxes. Still, tax experts were quick to point out that the huge loss wasn't necessarily evidence there was anything unusual about Trump's returns — other than the amount of money involved. After all, each year more than a million small business owners claim losses on their returns in order to offset future income.

But with just a week to go before the election, the Times is now reporting that Trump may not have lost that $916 million in the usual way — or at least not in the manner that most reporters, tax experts, and voters had assumed.

Instead, the loss appears to have been shared between him and a number of investors in his Atlantic City casinos. While the details are complicated and many are still not known, the report appears to change the "it's only the size that's different" interpretation of Trump's tax planning.

As the Times noted:

The notion that Trump may have been doing something different than reporting losses directly out of his own pocket doesn't come completely out of left field.

A few tax experts began to float theories that a more complicated and aggressive strategy might have been at play. It has always been well-known that in the early 1990s Trump's business empire faced dire financial trouble, and that in order to keep him afloat his investors had forgiven millions in debt that his casinos and other businesses racked up.

Was it possible, tax specialists speculated, that the big losses borne by Trump investors were the same ones that showed up on his 1995 tax return?

The tax law is supposed to prevent this. While business owners can claim business losses as write offs, debts forgiven by creditors are supposed to count as income. Nonetheless, at various times — for reasons sometimes chalked up to sloppy writing — the tax code has offered ways to do this. Hence, theories that Trump, or his tax advisers, had somehow devised a way to claim large business losses tied to debts that had been forgiven without reporting offsetting income that would have reduced his staggering loss.

On Monday, however, came the first definitive bits of evidence that this is what Trump actually did. The Times described and linked to documents that appear to show that during the early 1990s Trump indeed used a strategy of swapping partnership interests to his creditors in exchange for having his businesses debts forgiven, eliminating the need for him to report this relief as income.

There are still plenty of unknowns. The Times cited a number of experts who argue this tactic was questionable at the time Trump used it; Congress explicitly banned it in 2004. Meanwhile, Trump was audited in 1993, after he began using the strategy. It is not publicly known whether the IRS challenged Trump's interpretation of the law or accepted it.

Whatever the legality and merits, however, one thing is clear. Unlike counting past business losses against future profits, Trump's tax move is not simply a grander version of the kind of write-offs mom-and-pop businesses routinely take.

Does it matter?

While Trump still refuses to release his tax returns to the public, breaking with decades of tradition, he hasn't exactly shied way from the idea that he is willing to play the tax system to the hilt. After the original report was published, he tweeted: "I know our complex tax laws better than anyone who has ever run for president and am the only one who can fix them."

In the end voters will decide.

And for Trump, the tax issue boils down to a simple question:

Which narrative comes across better to the voting public: an investor who somehow managed to lose nearly $1 billion one year but fairly utilized the same set of tax laws available to mom-and-pop businesses? Or a shrewd real estate developer who may have used aggressive tactics to make his loss look bigger than it actually was to shrewdly avoid paying taxes.