President Trump’s solicitous posture toward Russian President Vladimir Putin, in Helsinki and elsewhere, is helping to keep alive interest in his income tax returns: Does he have some hidden financial connection to the Kremlin? Unlike his waffling on policy positions and factual matters, he has consistently refused to release his returns, contrary to the practice of every president since Jimmy Carter. Still, this is a poorly understood area of the law. Here are five common misconceptions about the president’s tax returns and the public’s ability to review them.
In a recent New York Times op-ed bemoaning Congress’s acquiescence to the president, Republican Charlie Sykes urged legislators to stop being “constitutional potted plants” and take action, such as passing legislation “requiring the release of the tax returns of presidential candidates.” Following Trump’s widely panned performance in Helsinki, Senate Minority Leader Charles Schumer (D-N.Y.) called on Congress to force the sitting president to release his tax returns, because the returns “would be so important” in determining whether Putin has compromising information about Trump .
But new legislation, which would probably require a supermajority to overcome a Senate filibuster and a presidential veto, is not needed. Existing law — specifically, 26 USC §6103(f)(1) and (4)(A) — already authorizes the House Ways and Means Committee, the Senate Finance Committee and the Joint Committee on Taxation to obtain any of the president’s returns from the IRS without his consent, carry out an investigation and release the information to Congress for potential disclosure to the public, as long as there is a legitimate purpose. The Ways and Means Committee exercised this authority in 2014 when it obtained and disclosed the return information of 51 taxpayers in connection with its investigation of alleged IRS “targeting” of conservative groups.
This authority was established in 1924 in part because of congressional worries about conflicts of interest involving executive branch officials, such as Andrew Mellon, who retained many business interests while serving as treasury secretary. Trump’s possible conflicts and recent hard-to-explain statements could likewise justify congressional investigation and potential disclosure. Any of the tax committees may take the action unilaterally without the agreement of the rest of Congress, the passage of new laws or the filing of any lawsuits.
After Helsinki, outgoing Rep. Mark Sanford (R-S.C.) called for the release of Trump’s tax returns to determine whether the Kremlin has some type of leverage over him, noting in a CNN interview that “tax returns tell a lot of things that the financial disclosure requirements” for federal candidates don’t. Last month, Bloomberg Opinion editor and Trump biographer Tim O’Brien wrote, “I suspect that Trump is hesitant” to make his returns public “because they would reveal, among other things, sensitive information about his business activities, conflicts of interest and financial pressures.”
But while tax returns require documentation to support some line items, they ordinarily do not contain anything close to the level of detail sometimes found in a complex business contract or a financial disclosure. Even if the president or any of his enterprises previously engaged in business with Russian interests — say, borrowing large amounts of money from Russian creditors to build a golf resort — his returns may not clearly spell out the connection. (At any rate, Eric Trump has already reportedly said that Trump businesses “don’t rely on American banks. We have all the funding we need out of Russia.”) In addition, President Trump’s interests are dispersed among many different business arrangements, and each of those returns may provide only a partial picture of presidential involvement. They might offer useful clues but not a clear picture.
In 2016, then-Washington Post reporter Chris Cillizza wrote: “Tax returns are tough to fudge; they nail down exactly how much you make in a year. . . . It would be hard for Trump to argue his way out of a yearly salary that doesn’t befit a billionaire.” The same year, Jeff Nesbit wrote in U.S. News & World Report that “unless Trump releases his tax returns, there’s no way to verify his claims” about his wealth.
But Trump’s income is almost surely from his businesses — not from any salary received — and his businesses probably take advantage of tax provisions that reduce his taxable income to a mere fraction of his true earnings. The New York Times reported that Trump claimed a tax loss of almost $1 billion in 1995, giving him “a tax deduction so substantial it could have allowed him to legally avoid paying any federal income taxes for up to 18 years.” So even if Trump’s personal and business returns were to reveal a very modest income and tax liability, he could still plausibly claim he is very rich because of his ownership stake in his companies.
Of course, discovering that he paid little in taxes might hurt him in other ways, such as offending Americans who pay the same or greater amounts despite not being nearly as wealthy as he claims to be. It may also provoke questions about the fairness of the 2017 tax law and a proposed capital gains tax cut heavily tilted in favor of the rich.
New York’s Department of Taxation and Finance has initiated an investigation of the Trump Foundation, and some see it as a way to disclose the president’s tax returns. According to the Associated Press, New York Gov. Andrew Cuomo (D) says he’ll authorize the release of Trump’s state returns if the attorney general asks. He’s been encouraged by activists like Zephyr Teachout, a Fordham University associate law professor and candidate for state attorney general, who says “not having Donald Trump’s tax returns is a national security issue.”
It’s true that the law — 26 USC §6103(d) — allows the IRS to disclose federal tax information to state tax officials to the extent necessary to aid in their administration of state tax laws. But in general, state officials have no ability to release the federal information to the public. If permitted by state law, local officials may disclose state tax information to the public, but that disclosure may not contain the same information as a federal tax disclosure. If a state investigation leads to a federal or state proceeding involving Trump’s tax liability, federal tax information may be disclosed, but only to the extent that it is relevant to the issues in the proceeding. Special counsel Robert Mueller’s ability to disclose any federal tax information he obtained would be similarly restricted — and also subject to the terms of his appointment.
Campaigning in February 2016, Trump tweeted: “Tax experts throughout the media agree that no sane person would give their tax returns during an audit. After the audit, no problem!” During a Republican primary debate just days later, he said, “I’m being audited now for two or three years, so I can’t” release the returns “until the audit is finished, obviously.” During his first debate with Hillary Clinton in September 2016, he said, “As soon as the audit’s finished, it will be released.” He’s pointed to an audit over and over to explain why he has not released his returns.
His decision may be sound from the standpoint of his tax attorneys, but there’s no prohibition in the law that would bar his voluntary disclosure while an audit is pending. And an audit actually gives the congressional tax committees another reason to obtain and review the returns — to ensure that the IRS is treating him fairly and not preferentially.