Although the House Ways & Means Committee has the right to review Trump’s tax returns, those returns should not be released to the public. Doing so is yet another unfortunate step in politicizing taxes, which in turn, perpetuates misunderstanding of and hostility to tax law.
In 2016 when Trump announced he would not be releasing his tax returns because he was under IRS audit, I wrote a column supporting him. His returns are complicated and the IRS lacked the resources to competently audit his returns. If those returns were made public, high-powered tax practitioners supporting his opponents could identify issues that the IRS missed and use them to harass Trump. This would have interfered with Trump’s taxpayer rights.
However, six years later, the issue surrounding Trump’s tax returns is whether he abused the powers of the presidency to coerce the IRS into accepting his aggressive tax return positions.
The IRS examination to which Trump referred in 2016 should have concluded by now. Furthermore, after obtaining copies of Trump’s tax returns for certain years, the New York Times published a series of articles discussing potential abuses, most of which were identified by the IRS in its examination of Trump’s 2012 returns. The amounts involved are reportedly substantial.
When an IRS examination results in an additional tax assessment that is disputed by the taxpayer, the normal course of action is to negotiate a settlement with the IRS Appellate Division. When large amounts are involved, taxpayers frequently appeal in order to try to negotiate a lower assessment.
Most knowledgeable tax practitioners who have read the New York Times’ articles believe that the tax positions taken by Trump, as described by the New York Times, have a remote chance of prevailing in the courts.
Given that Trump may only have a faint chance of prevailing, it is unlikely that the Appellate Division would agree to a settlement, leaving Trump with two options — filing a petition with the Tax Court or paying the tax. Since Tax Court filings are public records, we would know whether Trump filed a petition. To date Trump has not done so. Because of the magnitude of the amounts involved, it appears unlikely that Trump would have paid the additional taxes.
Thus, the examination apparently remains unsettled after an unusually long period of time. This is one of the reasons why the House Ways & Means Committee asked for copies of Mr. Trump’s returns. The House Ways & Means and Senate Finance Committees are statutorily granted access to individual tax returns without having to show a reason for needing them. Trump litigated this issue and lost.
There currently are no statutory parameters addressing IRS oversight of a president’s tax return filings. The existing rules governing the examination of a president’s tax returns are merely an IRS policy matter set forth in the Internal Revenue Manual, which is the handbook for IRS employees.
The House Ways & Means Committee investigated whether Trump inappropriately used the powers of the presidency to his advantage when dealing with the IRS on personal matters. As a result of that investigation, the House passed H.R. 9640, the Presidential Tax Filing and Audit Transparency Act of 2022 which establishes statutory parameters for IRS enforcement of the federal tax laws against a president. Since 60 votes are needed to pass in the Senate, this bill will likely never become law.
The House Ways & Means Committee should have stopped there. But they could not resist politicizing the situation by releasing Trump’s tax returns and raising tantalizing questions about potentially abusive tax issues in those returns. Instead of publicly releasing the returns, those questions raised should have been privately referred to the IRS for resolution.
Furthermore, the statute is subject to varying interpretations, so it is not clear whether the House Ways & Means Committee is authorized to release individual tax return information to the public without the approval of the taxpayer involved.
The House Ways & Means Committee undoubtedly believes that releasing Trump’s returns and exposing potential tax return issues supports their position by citing real-life examples of abuse. But one has to wonder whether this is ad hominem behavior because it diverts attention from the real issue of appropriate presidential behavior to attacking Trump personally for the positions taken in his tax returns.
Finally, this sets bad precedent that could be followed in the future either for revenge or for partisan purposes of making a sitting president look bad. The inevitable result is that Americans will become more frustrated with our tax system.
Jim de Bree is a semi-retired CPA who resides in Valencia.
