Donald Trump tried to call out Warren Buffett. He probably didn’t expect this response.

By Max Ehrenfreund for the Washington Post.

In Sunday night’s town hall debate, Donald Trump deflected questions about his taxes by claiming that Hillary Clinton’s wealthy supporters had also avoided taxes by exploiting the law. He mentioned several, including Warren Buffett, by name.

Buffett responded with a statement on Monday, saying that Trump was incorrect. The octogenarian billionaire wrote that he had never taken advantage of the rule that Trump might have used to avoid paying tax on nearly $1 billion in income, according to several pages from one of his tax returns that were disclosed recently.

Anderson Cooper, one of the moderators, asked Trump whether he had used a $916 million loss that he reportedly claimed on the tax return from 1995 to reduce his taxes. “Of course I do. Of course I do, and so do all of her donors, or most of her donors,” Trump said.

It is unclear how Trump lost that much money, or if he used loopholes in the tax code to generate a legal loss on paper.

[Trump personally lobbied Congress to give real estate developers bigger tax breaks]

In any case, since Trump was able to claim that he was $916 million poorer, the Internal Revenue Service would not have forced him to pay taxes on any income for at least 15 years until he had made up that loss. A loss that is counted against future income is sometimes called a “carry forward.”

Trump said that such maneuvers were common, mentioning several wealthy donors supporting his Democratic rival.

“Many of her friends took bigger deductions,” the Republican nominee said. “Warren Buffett took a massive deduction.”

It was not clear what deduction of Buffett’s Trump meant, but Buffett’s statement Monday made clear he had never counted losses from past years against his personal income.

“I have paid federal income tax every year since 1944, when I was 13. (Though, being a slow starter, I owed only $7 in tax that year,)” Buffett wrote. “I have copies of all 72 of my returns and none uses a carryforward.”

In principle, experts on taxation say it makes sense for authorities to give taxpayers a break for past losses. How much entrepreneurs or businesses pay in taxes should depend on their average income over several years. They should not be penalized if they work in volatile industries that produce major gains one year and punishing losses the next.

Cherry Coke: Warren Buffett’s kryptonite. (Nati Harnik/AP Photo) Warren Buffett. (Nati Harnik/AP)
There are several reasons that Buffett might never have used a carry forward, although he did not provide any details in his statement. It is possible that Buffett, renowned for his acumen as an investor, simply has never lost enough money in one year.

Also, as a shareholder in his corporation, Berkshire Hathaway, Buffet would not be able to count any losses against his personal income because his assets are in a different legal category than Trump’s.

Trump and his allies have implied that there was nothing out of the ordinary about his $916 million loss. Yet the contrast with Buffett is a reminder that the benefits Trump claimed might well have been unavailable to most taxpayers — although, without more information from his returns, it is impossible to know which provisions of the tax code he exploited and how much money they saved him.

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As a real estate developer, Trump probably owned his properties through legal entities that would have allowed him to claim losses against his personal income, rather than against corporate income.

In 1995, Trump was recovering from a few difficult years in which he was forced to put several of his properties in bankruptcy and surrender many of his assets to his creditors. Some experts have suggested that Trump could have exploited a loophole in bankruptcy law dating to 1980, which could have allowed him to write down a major loss on his return and essentially claim double the benefits from having his debts canceled.

Congress closed that loophole in 2002.

There is no evidence that any of Trump’s tax maneuvers were illegal. Unlike other presidential nominees, however, he has declined to release his complete tax returns, citing a continuing audit.

“I have been audited by the IRS multiple times and am currently being audited. I have no problem in releasing my tax information while under audit,” Buffett wrote. “Neither would Mr. Trump — at least he would have no legal problem.”