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Trump Win Likely Suspends Presidential Tax Return Disclosures

Posted on November 11, 2016 by Foster, Emily


With Donald Trump's victory and a Republican-controlled Congress, don't expect presidential tax return disclosures, campaign transparency legislation, or greater insight into Trump's business dealings, income tax rate, or payroll taxes, some tax professionals say.

No law requires the president to release tax returns, but the tradition that Richard Nixon originated in 1973 and has been "almost unbroken" except for Gerald Ford will be suspended at least temporarily and maybe permanently, said Joseph J. Thorndike, director of Tax Analysts' Tax History Project, which has published online the tax returns of presidents dating back more than 40 years (taxhistory.org/www/website.nsf/Web/PresidentialTaxReturns).

Although the president's returns are subject to a mandatory audit every year, those audits are not public, Thorndike said. "I don't see any reason to expect that Trump will release his returns as president given that he didn't release them as a candidate and given that his principal excuse for that was the audit, and he's going to be under audit as a president," he added.

Steven M. Rosenthal of the Urban-Brookings Tax Policy Center agreed that Trump is likely to maintain his campaign position on his tax returns and refer the public to his financial disclosures, which he will still be required to file as president. "I would expect more of the same excuses from Mr. Trump," he told Tax Analysts.

Regarding legislation on the disclosure of presidential candidates' tax returns, with Trump as president and Republicans in control, "I just don't see the politics of that lining up," Thorndike said.

President's Mandatory Audit

The president's and vice president's returns are subject to mandatory examinations under Internal Revenue Manual section

The IRM states that those returns "should be processed similar to the examination of an employee return per IRM [section] 4.2.6," with a few exceptions. The IRS's procedures require expeditious processing and special handling and monitoring of the president's and vice president's returns. The IRM states that "the returns must be assigned within 10 business days of receipt in the group," kept in an orange folder, and under lock and key when the examiner is away from the work area.

According to Rosenthal, presidents have traditionally disclosed their tax returns voluntarily "just so the public can be confident that the IRS is auditing fairly and is not under any pressure to let issues go by."

But now that Trump will be president, he will again be audited every year, so if he wants to use his excuse of being under audit and not release his returns like other presidents, then he will likely take that same position, Rosenthal said.

Philip Hackney of the Louisiana State University Law Center said, "Given that we already think [the president] needs to be audited, . . . the public should have access to [the returns] as well, particularly in the case of Trump where there were at least some suggestions that he might have paid zero percent tax" and engaged in questionable transactions.

'Opaque' Financial Disclosures

Trump might also echo his campaign position that he files a required financial disclosure report of more than 100 pages that is publicly available and, according to him, a better representation of his financial condition than his tax return, Rosenthal said.

But the financial disclosure forms are opaque, according to Rosenthal, who noted that they are difficult to interpret with entities owning different entities and no clear reporting of the entities' income from operations. "There's no bottom line as to how much money [Trump] actually makes," he said. Trump's financial disclosure report is "completely indecipherable, and I can decipher an awful lot, but I couldn't figure that one out," Rosenthal said.

Hackney emphasized that the tax return and the financial disclosure form are "two very different, distinct things," adding that the latter allows Trump to suggest he is wealthier than he might be, as well as wealthier than he might suggest on his tax return.

Trump's tax returns could also show his willingness to push issues and the law's limits more than the required financial disclosures do, according to Hackney.

The financial disclosure report lacks information on Trump's business dealings, he said. For Hillary Clinton and the Clinton Foundation, "at least we had information disclosures regarding the type of work she was doing with different companies and businesses," Hackney said.

With Trump dealing with "folks all over the world, whether in Russia or [somewhere] else," the public should know whether he may have "reasons to adopt policies that might be in his personal interest, and he certainly did that with the Trump Foundation," Hackney argued, adding that whether Trump's business dealings create issues in the future could depend on whether he divests himself of them.

Campaign Transparency Legislation

The office of Senate Finance Committee ranking minority member Ron Wyden, D-Ore., said November 8 that the senator planned to push for passage of his bill, the Presidential Tax Transparency Act (S. 3348), during the lame-duck session of Congress.

Wyden's bill would require a presidential candidate from a major political party to release his or her tax returns within 15 days of becoming the nominee at the party's national convention, otherwise the Treasury secretary would hand over the documents to the Federal Election Commission as public records.

"Given that the precedent is now broken, if we expect to see presidential tax returns . . . Congress should pass legislation mandating that all major-party presidential nominees should release their tax returns," said Sheila Krumholz of the Center for Responsive Politics.

But the election results have changed the landscape for the lame-duck Congress, leading to less reason for Republicans to make deals and a greater challenge to pass legislation that Republicans would otherwise not be inclined to pass.

Hackney said he worries that during this and past elections the release of presidential candidates' tax returns has become such a partisan issue, noting Republican nominee Mitt Romney's initial resistance and adding that Republicans generally have tended to resist because they believed they didn't have to release their returns.

"It strikes me as good democratic policy to require the president of the United States to disclose his returns, given the significant office that he is taking on," according to Hackney.

Krumholz said, "To ensure public accountability, we must have confidence that the candidates are trustworthy. We need to rest assured that they are not hiding evidence of lies or fraud -- including whether they are cheating on their taxes."

What About Payroll Taxes?

"How do we feel about a president that's earning lots of compensation but not putting down much salary income presumably because he's running it through a management company and not paying himself a salary" -- the so-called Gingrich-Edwards loophole, Rosenthal asked.

In an October 16 blog post, he wrote, "Donald Trump may not only have used aggressive tax planning to reduce his income tax bill to zero, he may also have avoided paying any Social Security and Medicare payroll tax on a substantial amount of his income."

In a November 2 New York Times op-ed, Fred T. Goldberg Jr. of Skadden, Arps, Slate, Meagher & Flom LLP and Michael J. Graetz of Columbia Law School echoed Rosenthal's viewpoint when they wrote that by declaring only "$14,222 in total salary on his 2015 financial disclosure form . . . . we believe [Trump] avoided paying millions of dollars of Medicare taxes that should have gone to support senior citizens and their families." They also suggested that Trump "may even have shortchanged Social Security by declaring salary and self-employment income below the limit on Social Security taxes ($118,500 in 2015)" and avoided the 3.8 percent Medicare tax on net passive investment income through his aggressive use of business losses.

According to Goldberg and Graetz, without Trump's tax returns it's unclear how much payroll taxes he paid, "but absent any evidence to the contrary, the inescapable conclusion is that Mr. Trump has failed to pay millions of dollars in Medicare taxes."

As president, Trump will receive a Form W-2 for his salary, and he could be paying payroll taxes for the first time, Rosenthal said.

Jonathan Curry contributed to this article.