Donald Trump signed off on a controversial business deal that was designed to deprive the US Government of tens of millions of dollars in tax, the Daily Telegraph can disclose.
The billionaire approved a US$50 million investment in a company - only for the deal to be rewritten several weeks later as a "loan".
Experts say that the effect of this move was to skirt vast tax liabilities, and court papers seen by the Telegraph allege that the deal amounted to fraud.
Independent tax accountants and lawyers said that the documents Trump signed - copies of which were obtained by the Telegraph as part of a three-month investigation - contained "red flags" indicating that the deal was irregular.
But the Republican presumptive presidential nominee signed none the less.
Bob McIntyre, director of the US-based Citizens for Tax Justice campaign group, said the disclosures raised serious questions about Trump's judgment as well as that of his advisers.
Trump's tax affairs have come under scrutiny in recent weeks when he broke with US political convention and refused to disclose his tax returns before this November's election.
The tycoon, who revealed last week that he had earned more than US$500 million in the last year, has boasted of how he pays as little tax "as possible".
Jack Blum, chairman of the Tax Justice Network, said Trump was a "poster child" for tax avoidance property schemes, which ultimately harm the middle-income American.
The allegations centre on Trump's business alliance with Bayrock Group, the property company that was building Trump SoHo, his prized New York building, as well as two other projects to which he had licensed his name.
In 2007 Bayrock struck a deal with FL Group, an Icelandic company that had agreed to invest US$50 million in four of Bayrock's subsidiary partnerships.
However, the deal was later relabelled as a loan.
In New York, the sale of a stake in a partnership would make the existing partners liable to pay more than 40 per cent in tax on their "gain", based on the highest tax rate.
However, if the investment is classified as a loan no tax would be payable.
Former employees of Bayrock have alleged in a case against the company that the deal was intended fraudulently to evade US$20 million in tax through a disguised sale of partnership interests.
They also claim the participants mislabelled the sale as a loan in order to avoid paying a further estimated US$80 million taxes on the projected profits from the real estate.
The Telegraph has obtained copies of the letters Trump signed for both the original version in April 2007, and the new form as a "loan", in May 2007.
He and his lawyers were sent copies of the relevant paperwork, including the final loan agreement.
Representatives of FL and Bayrock met Trump in his office, a source said.
Alan Garten, Trump's lawyer, claimed that the billionaire "had nothing to do with that transaction" and by signing the letters was simply acknowledging the deal as a "limited partner".
"He was not signing off on the deal," he insisted.
But copies of the final agreement reveal that the deal required Trump's approval as a key player in Bayrock's investments.
He had a 15 per cent stake in Trump SoHo.
The final letter he signed in May 2007 also explicitly asked him to "indicate your consent to the Transaction as evidenced by the Transaction Documents by counter-executing and returning to the undersigned a copy of this letter".
Independent experts who have reviewed copies of the final agreement said the documents appear to be an equity investment disguised as a loan in order to avoid tax payments on the profit FL was expecting to receive.
Howard Abrams, professor of law and director of tax at the University of San Diego, said: "Converting the original equity into debt improved their tax position dramatically. However, they have changed the labels, but they didn't really change the economics at all. It's not a loan - it's really equity. I don't think they would survive a challenge [by the Internal Revenue Service (IRS)]."
A source at FL Group, which went bankrupt in the Icelandic banking crisis in 2008, separately stated that "whether it was structured as a loan or an equity investment we were always buying an interest in certain projects".
The deal was negotiated on Bayrock's side by Felix Sater, a Russian-born businessman who was convicted of helping lead one of the biggest stock fraud heists of Wall Street of the era.
Emails contained in a legal complaint by former employees including Jody Kriss, Bayrock's then finance director, reveal heated exchanges between Sater and Julius Schwarz, the firm's executive vice president, in which Schwarz indicates concerns about their tax liabilities as the deal was being finalised in April 2007.
Under the current arrangement the partners were liable to be hit with a US$20 million tax bill, according to figures in Kriss's complaint.
Separately, FL would be liable for tax on its expected income of around US$143 million from the four property schemes.
"How dare you," Schwarz wrote in a email reply to Sater's demand that the deal be finalised.
"Do you realise that we are talking about loosing [sic] 50 cents on the dollar? I have been working my ass off to get us there."
Experts said that the matter would usually be one for the IRS, who could audit, or re-audit, the deal and attempt to recover any tax that should have been paid. In such cases the IRS can pursue fraud charges if there is sufficient evidence of intentional wrongdoing.
However, the Telegraph understands that Trump would not be held directly responsible for any wrongdoing.
Do you realise that we are talking about loosing [sic] 50 cents on the dollar? I have been working my ass off to get us there
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He was not a recipient of the payments from FL, and any tax liability on the US$50 million would rest with Bayrock Group's formal partners.
The tax professionals added that saying they acted on legal advice would probably shield them from potential criminal charges.
But Trump could be deposed if the IRS decided to take action, according to a former tax prosecutor.
The mogul's lawyer said the tax implications of the deal were not relevant to Trump because he was not a "party" to the transaction.
Bayrock described the allegations in the legal complaint by Kriss as "baseless".
The company said the deal was "vetted and approved by outside accountants and tax counsel". It claimed that the deal's "tax treatment" was subject to an "extensive field audit ... conducted over many months" by the IRS, which "concluded that it was entirely appropriate".