Disclosing President Trump’s Tax Returns – An Unconventional Idea

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This post originally appeared on the Forbes PT site on February 21, 2017.

We welcome guest bloggers Bryan Camp and Victor Thuronyi. Professor Camp has been our guest before and posted, inter alia, a very popular three part series on Eight Tax Myths – Lessons for Tax Week. Post 1 can be found here, Post II can be found here and Post III can be found here. Professor Camp is the George H. Mahon Professor of Law at Texas Tech. Mr. Thuronyi writes for PT for the first time. Mr. Thuronyi practiced tax law, served in the U.S. Treasury Department, and taught tax law before joining the International Monetary Fund in 1991 where he worked until retirement in 2014 as lead counsel (taxation). He has worked on tax reform in many countries and is the author of Comparative Tax Law (2003) and other writings on tax law.

 Whether you want to see President Trump’s returns or not, the controversy points out to me a couple of things we have gotten right that we ought to celebrate. After abuses of information at the IRS by President Nixon in an attempt by him to make life difficult for his enemies, Congress significantly tightened the disclosure laws in 1976. That legislation has worked. The legislation has worked in part because of the laws enacted but also in part because of the culture it has created at the IRS regarding taxpayer information. Despite a lot of curiosity about President Trump’s returns starting months before his election, the returns have not surfaced. He had no legal duty to disclose them even though precedent of many recent presidential candidates created a cultural expectation of disclosure. I celebrate the success of Congress and the IRS in protecting the returns.

 Recently, Democrats on the Ways and Means Committee tried to use the power of their committee to make public President Trump’s personal income tax returns. This effort failed because they had insufficient votes. Professors Camp and Thuronyi suggest an alternative path to the disclosure of the returns to the Ways and Means Committee or one of the other tax writing committees of Congress. Their approach looks at a little used subsection of the laws governing tax disclosure. Although President Trump did not have a legal duty to disclose his returns and the disclosure laws protect them from disclosure in most circumstances, there may be a way to make them public and one such possibility is the subject of this post. Keith

Lots of folks want to see Donald Trump’s tax returns. Conventional wisdom is that the returns cannot be disclosed unless he consents. That conventional wisdom is based on the general rule contained in 26 U.S.C. §6103(a). The general rule forbids IRS employees (and some folks who receive information from IRS employees) from disclosing “return information.” That is a term of art that means more than just tax returns but basically means anything in the IRS files.

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Section 6103 is a really complex statute, mostly because of the exceptions to the general rule. The exceptions are found in subsections (c) through (o). These exceptions balance a taxpayer’s privacy with the needs of government officers and employees to do their jobs. So the exceptions to the general rule can get quite gnarly.

Several commentators have begun to explore some of the lesser known exceptions to the general rule of nondisclosure. George Yin has a nice op-ed piece that explains one exception to the general rule in §6103: Congress can ask for Trump’s returns. Andy Grewal also explores this idea in a well done post over at the Yale regulation blog. Both posts are worth reading.

Both George and Andy focus on the power of certain Congressional committees and staff to ask for tax returns as part of their oversight function. That power is found in §6103(f)(1) through (f)(4). Democrats have acted on the ideas in George and Andy’s blogs. Stephen Ohlemacher from the AP reports that Democrats on the House Ways and Means Committee tried to get the Committee to ask for Trump’s returns, but were outvoted by Committee Republicans.

The Unconventional Idea

But what if the returns were dumped on the Committee’s lap by an IRS employee without the Committee having made a request? That could happen under the very last paragraph in subsection (f).

Section §6103(f)(5) is a whistleblower exception to the general rule of non-disclosure. It permits disclosure of tax returns to one of the tax-writing committees by “any person who otherwise has or had access to any return or return information under this section” when that person believes that “such return or return information may relate to possible misconduct, maladministration, or taxpayer abuse.”

The plain language of this provision suggests that an IRS employee who otherwise has authorized access to Trump’s tax returns could blow the whistle on Trump if that employee believes Trump’s tax returns related to “possible misconduct” or “possible maladministration.”

The statute does not say whose misconduct or whose maladministration the returns must relate to. An employee’s concern could be that Trump’s extensive business holdings and his well-documented refusal to divest himself of business relationships will create (or has already created) misconduct and maladministration on his part. For example, all of the profits from Trump’s businesses still accrue to his benefit. That means when the federal government leases an entire floor of Trump Tower for $1.5 million, Trump is directly benefitting from that decision.   Or, for example, Trump might sign an executive order barring immigration from certain countries but he might exclude from that order immigration from countries where he or his businesses own property and businesses.

The Problems with the Idea

However, while §6103(f)(5) is a possible avenue for an IRS employee to blow the whistle on Trump, two obstacles make it a tricky one. First, despite the statute’s broad language, the history of its enactment suggests that the language may refer only to the misconduct or maladministration by the IRS or its employees. Second, only an IRS employee who has proper access to return information is permitted to disclose.

  1. Legislative History

Congress enacted §6103(f)(5) in 1998 as part of the IRS Restructuring and Reform Act of 1998 (“RRA”). RRA originated in the House as H.R. 2676 but the provision now codified in §6103(f)(5) was not in the House version. It came from the Senate Finance Committee’s version. You can find all the documents and history of the bill here.

The Senate Finance Committee proposed creating a whistle-blower exception to the general rule of §6103(a). The proposal would have made the exception part of §6103(f)(1) and the proposed statutory language read as follows:

‘‘(B) WHISTLEBLOWER INFORMATION.—Any person who otherwise has or had access to any return or return information under this section may disclose such return or return information to a chairman of a committee referred to in subparagraph (A) or the chief of staff of the Joint Committee of Taxation only if—

(i) the disclosure is for the purpose of alleging an incident of employee misconduct or taxpayer abuse, and

(ii) the chairman of the committee to11 which the disclosure is made (or either chairman in the case of disclosure to the chief of staff) gives prior written approval for the disclosure.’’

The Senate Finance Committee Report explains that “it is appropriate to have the opportunity to receive tax return information directly from whistleblowers.” (p. 105).

Notice, however, how the language chosen by the Senate tax writers limited the authority to blow the whistle. Disclosure was authorized only “for the purpose of alleging an incident of employee misconduct or taxpayer abuse.” The Senate Finance Committee report refers specifically to “IRS employee or taxpayer abuse.”

The Conference Committee expanded the limiting language to the language that became the law. Under the expanded language, disclosure is authorized if the IRS employee making the disclosure believes that the return is related to “possible misconduct, maladministration, or taxpayer abuse.” The expansion, however, seems to stop short of expanding the idea of whose improper conduct is at issue. Under the Senate version, the improper conduct was explicitly linked to IRS employee misconduct or taxpayer abuse. The revised language expanded the kind of improper conduct to include “maladministration.” But whether the revised language expanded the idea to misconduct or maladministration by a government employee other than an IRS employee is unclear. Arguably, however, if the misconduct is relevant to misconduct of the sort that a Congressional committee might investigate, then the broad language of the statute could cover it.

2. Whistleblower Must Have Access

Even if one reads §6103(f)(5) as authorizing an IRS employee to blow the whistle on a non-IRS government employee, one large obstacle remains. Section 6103(f)(5) only applies when the IRS employee making the disclosure has authorized “access” to the return. This would mean that only the relatively narrow group of IRS employees who are authorized to view the returns for audit or other purposes would be eligible whistleblowers. That brings us back to Trump’s claim that he is under audit.  If he is telling the truth about that, then there are certainly some IRS employees who have legitimate access to at least the returns being audited.

In addition, any other person, such as an employee of a state taxing agency, who has properly received the returns from the IRS pursuant to the exceptions listed in §6103(a)(3) would also have proper access. We do not explore the legal position for this group, however, since it would involve delving into potential state law prohibitions on their action.

Congress has enacted a number of statutes that make willful violation of the disclosure rules a crime. First up is §7213 which imposes a fine up to $5,000, and up to five years imprisonment for any willful violation of §6103. See e.g. United States v. Richey, 924 F.2d 857 (9th Cir. 1991).   In the criminal context, however, the Supreme Court has instructed that a good-faith misunderstanding of the law or a good-faith belief that one is not violating the law negates willfulness, whether or not the claimed belief or misunderstanding is objectively reasonable. Cheek v. U.S. 498 U.S. 192 (1991).

Second, 18 U.S.C. § 1030(a)(2) makes the unauthorized access of government computers a felony. This provision includes the unauthorized access of returns or return information in government computer files.

Third, in the RRA, Congress created 26 U.S.C. §7213A to specifically make the unauthorized inspection of returns or return information, whether in paper or computer files, a misdemeanor. See Pub. L. No. 105-206, 112 Stat. 711 (1998).

Conclusion

We have never before had a President so vulnerable to conflicts of interest and, at the same time, so callous about his governing duties and so careless of the law. This potent combination requires checks, it requires balances. Checks and balances are what have enabled this country to thrive for over 200 years. A review of Trump’s tax returns is but a small part of what is necessary to check on his behavior. If the Congress does not have the political will to use its powers, there remains a possibility that a whistleblower from the IRS or a State agency could force the issue.

 

Comments

  1. Lavar Taylor says:

    As Justice Louis Brandeis said: “Sunshine is the best disinfectant.”

    That is true for all public office holders, regardless of their political views.

  2. Charles Markham says:

    Of course, whether or not Trump is or is not under examination in one sense is not relevant, as according to the IRM his return will automatically be examined as apparently under IRS policy found at IRM 4.2.1.11 (04-23-2014)
    Processing Returns and Accounts of the President and Vice President
    The individual income tax returns for the President and Vice President are subject to mandatory examinations and cannot be surveyed.
    Thus, he will be able to claim he’s being examined as long as he is President.

    Also see IRM 3.28.3.2. which controls the special handling of the tax returns. I would note also: IRM 3.28..3.2.1 (5) which states: The tax returns of both the President and Vice President are permanent records under the Records Control Schedules (Doc 12990, RCS 8, Item 12) approved by the Archivist of the United States.

  3. (my same comment as at Forbes, since it might get different responses here)
    Section 6103(f)(5) should be better know, as a possibly crucial angle for whistleblowers whose claim is rejected by the IRS as not worth investigating. An accountant whose company has cheated on its taxes cannot force the IRS to collect the taxes— that is sensible, and Tax Court has ruled that. It seems, though, that he could send the returns to Congress, and if the claim was meritorious, Congress could put pressure on the IRS to explain why it didn’t pursue it. Alas, this angle has no relevance for New York State ex rel. Eric Rasmusen v. Citigroup (http://www.rasmusen.org/citigroup/) since I don’t have Citigroup’s tax returns.

  4. Can someone tell me where on Form 1040 I find Russian income or expenses?

    The Washington Post, for example, reports this afternoon that Maine Senator Susan Collins, “A Republican member of the Senate Intelligence Committee says she is open to requesting President Trump’s tax returns as part of the panel’s ongoing investigation into Russia’s alleged meddling in the 2016 elections . . .Democrats say that Trump’s tax returns would reveal any business dealings he or his companies have in Russia.”

    As Forbes contributor Robert W. Wood wrote last August, “Connections? These would not be apparent unless complete tax returns and schedules were released, and perhaps not even then.”

    The New York Times in an editorial last month opined that the tax returns would “identify the sources of his income and debt, helping to answer questions about his links to businessmen, banks and governments in places like Russia and the Middle East, and putting a spotlight on potential conflicts of interest.”

    Oh, really? How? Would some Forbes blogger please ask the NYT editor for the name of his tax preparer, and then ask the preparer where to look for such sources and links?

    While the objectives of the TaxJazz website and educational efforts are laudable, the first step should be to educate journalists about what can and cannot be found on a tax return. Foreign tax credits, maybe — but if there is no income, just a few billion dollars in unsecured offshore loans, there will be no clue. And if Schedule E’s second page shows income from XYZ LLC, an anonymous Nevada entity, how do we know whether it is also owned by a local casino owner or a Moscow magnate?

    On this issue, the media hurt themselves by perpetuating the myth of tax disclosure being equal to financial disclosure. Tax professors and their students should consider sharing some of the fact-checking chores.

    • 1. It is difficult to say in advance exactly what information might be found in Trump’s tax returns, without seeing them.
      2. Bob Kamman is correct that one should not overstate the information that might be available from the returns alone. On the other hand, the information that is there can be combined with other information from other sources. So I think what is relevant is what the information on the returns can lead to. This could potentially be a lot.
      3. Tax returns are a particularly valuable information source because they should contain information that is comprehensive and accurate, at least if the return filer is complying with the law.

  5. Another question that is important before Democrats get too excited about this idea: If the returns are disclosed to Congressmen, are they allowed to disclose them to the public, or would that be criminal on their part?

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