Trump's Taxes and the Return of the Corruption Premium

by Neil H. Buchanan

If guilt can be inferred from a suspect's efforts to cover his tracks, the Trump tax returns must surely be incriminating.  The very fact of Donald Trump's insistence on breaking with decades of precedent by refusing to release his tax returns -- starting when he originally announced his candidacy, and continuing even after his non-majority electoral win -- cannot help but raise suspicion.

Even so, we are necessarily left with little more than speculation as to what he actually has done that he thinks is worth hiding.  And because of its political salience, people who are not tax experts are wading into unfamiliar territory and making unsupportable claims about the Trump tax returns.

For example, in an otherwise solid analysis of Trump's authoritarian impulses, the conservative writer David Frum recently questioned Trump's claim that releasing the tax returns is unnecessary because Trump's required annual financial disclosure report includes everything the public needs to know.  Frum was quite right to say that complying with the financial disclosure requirement is not good enough.

Unfortunately, Frum then overstates the case: "The truth is in the tax returns, and they will not be forthcoming."  If "the truth" means something along the lines of "information sufficient to answer all -- or even most -- of the important questions that have been raised about Trump's financial situation and dealings," then that assertion is clearly wrong.  The fact is that we do not know what questions the tax returns will answer because we do not know what is in them.

I have yet to hear an informed argument that convinces me that the tax returns would definitively show Russian entanglements, for example.  Maybe they would, but it is quite possible that they would not (even if such entanglements exist).

And another popular claim, that the tax returns would prove that Trump's net worth is not what he claims, is almost surely wishful thinking.  Annual tax returns simply do not collect the various pieces of information necessary to draw such conclusions, except incidentally and imperfectly.

Even so, that the tax returns would not tell us everything does not mean that they would tell us nothing.  And as long as Trump is being so secretive, in a context in which he is so shamelessly flouting longstanding practice, he is all but begging to keep the story alive.  And his opponents are -- quite appropriately -- only too happy to oblige.

The most recent skirmish involved New Jersey congressman Bill Pascrell, Jr., who serves on the House Ways and Means Committee, which has oversight of the tax system.  Pascrell relied on section 6103(f)(1) of the Internal Revenue Code, which allows the chair of Ways and Means to require the Treasury Secretary to "furnish such committee with any return or return information specified in [the chair's] request."

Pascrell sent a letter to the current committee chair, Texas Republican Kevin Brady, formally requesting that Brady issue such an order to allow the committee to review Trump's tax returns.  Further, Pascrell requested "that the Committee then vote in this closed session to submit the President’s federal tax returns to the House of Representatives—thereby, if successful, making them available to the public."

Pascrell certainly knew that his request would be denied, so for good measure he added a twist of the knife by reminding Brady that "[t]his Committee followed a similar procedure to release confidential taxpayer information in the past during its exhaustive investigation of the treatment of certain tax-exempt organizations."

There, Pascrell was pointing out that the Republicans (with Brady very much among the ringleaders) had recently decided to review private taxpayer information when it suited them politically, specifically with regard to the IRS non-scandal that has consumed so much time and taxpayer money over the last few years.

Shameless hypocrisy being well within Brady's otherwise rather limited skill set, no one was surprised when he summarily rejected Pascrell's request.  Brady wrapped himself in the flag, writing that "[p]rivacy and civil liberties are still important rights in this country, and (the) Ways and Means Committee is not going to start to weaken them."

And just to make sure that the unctuousness factor was high enough, Brady added: "If Congress begins to use its powers to rummage around in the tax returns of the president, what prevents Congress from doing the same to average Americans?"

If ever a slope was not slippery, this is it.  Trump's situation is completely unique, thus making it impossible to imagine someone saying, "Well, now that we've gotten the president's tax returns, who's next?"  There is no next person, because the issue at hand is a president who refuses to follow longstanding practice (grounded in principles of good governance and transparency) of having presidential candidates release their tax returns.

Moreover, the law specifies (and Pascrell specifically noted) that the review would happen while Ways and Means was "sitting in closed executive session."  Only then would the committee vote on whether to release the returns to the full House of Representatives.  Privacy and civil liberties were already taken into account when writing that section of the tax code, and Pascrell explicitly acknowledged that fact.

Although it is now completely ordinary for Republicans to go to extreme lengths to protect their dear leader, it is still good for the Democrats to force them to do so publicly.  Keeping this issue alive is an important part of being in the opposition.  The public agrees -- by a large margin -- that releasing the president's returns is important.  Knowing that Republicans will continue to stonewall does not relieve the Democrats of the responsibility (to the Constitution as well as to the citizens that it protects) of asking that this be done.

With the Pascrell request now squelched, one interesting question that has arisen is whether another provision in the same subsection of the tax code might provide a different legal avenue that could result in the release of Trump's returns.

Whereas section 6103(f)(1) gives the Republican chairmen of the relevant committees the legal ability to say no if they are hellbent on protecting their man, section 6103(f)(5) is a whistle-blower provision that cannot be blocked by Brady or anyone else.

Specifically, this provision specifies that anyone who has had access to tax information "may disclose such return or return information to" the relevant congressional committees "if such person believes such return or return information may relate to possible misconduct, maladministration, or taxpayer abuse."

This means that all members of the committees would receive the information, whether Kevin Brady or Orrin Hatch liked it or not.  (The other committees specified by the law are both currently chaired by Hatch, the long-serving Republican Senator from Utah.)

Upon a first reading, this provision does indeed seem promising.  If an IRS employee believes that a taxpayer is abusing the system, it might seem that this provision should allow her or him to bring the tax return to the appropriate committees' attention -- including the committee members from the minority party.  Although it would take a great deal of courage to risk Trump's wrath (especially given how poorly most whistle blowers are treated, even in more mundane matters), does this not provide at least an opening?

Actually, no.  As my colleague Philip Hackney at LSU's law school pointed out to me privately, the term "taxpayer abuse" in the quote above refers to abuse of a taxpayer by the IRS, not a situation in which a taxpayer is abusing the tax system.  This, he pointed out, is the best reading of the provision because of references to misconduct and maladministration, which are aimed at potential wrongdoing by the IRS, not taxpayers.

Interestingly (and buttressing Professor Hackney's reading of the text), this provision was added to the code as part of a now-infamous 1998 law in which the Gingrich Republicans, then newly empowered after four decades in the minority, did everything possible to neuter the IRS.  The Republicans did so after staging lurid show trials before congressional committees where aggrieved taxpayers told stories about abusive tax agents, all but a tiny fraction of which turned out to be almost completely fabricated or grossly exaggerated.  (Any misconduct is unacceptable, of course, but there was no evidence of systemic problems or a need for additional safeguards.)

If congressional intent means anything, therefore, the whistle-blower provision embodied in section 6103(f)(5) does not protect an IRS employee who might consider sending Trump's tax returns to all of the members of the Ways and Means committee.

And honestly, it is hard to imagine that the IRS's leadership would want an employee to use even an unambiguous whistle-blower provision to expose Trump's returns.  The Service has been struggling with budget cuts for decades, intensified by the Republicans' vindictive response to the recent non-scandal.  There is no question that the Republicans would harshly punish the IRS as a whole for the release of Trump's returns, even if the disclosure came from one rogue employee acting alone.  (Imagine the conspiracy theories that would follow!)

One further implication of the whistle-blower provision is worth noting, however.  Professor Hackney pointed out to me that an IRS employee who thinks that the Service is being too lenient with Trump might be able to rely on the "misconduct or maladministration" language to justify releasing the returns to the congressional committees.  That is, if there is a whiff of Trump having received special treatment not justified by the law in light of the contents of his return, an employee could blow the whistle.

In certain circumstances, this could amount to the same thing as my initial inaccurate reading of the whistle-blower provision, because if there really is something fishy going on, then disclosure could be justified.  However, if the audit turns up nothing, then closing the audit would not amount to misconduct or maladministration, so no whistle could be blown and the returns could never be made public.

In fact, from the standpoint of those who are hoping to publicize Trump's returns, this is in some sense even worse.  If the audit turns up questionable  items, Trump can quietly settle the issues in order to keep the return private.  So the only situation in which this provision would actually result in disclosure is if Trump did something wrong but the Service agreed to do nothing about it.

In a sense, this is starting to sound like the Trump University case.  After the election, Trump suddenly settled on generous terms with the plaintiffs who were suing him for fraud in that case.  Even though Trump had been fighting the case tooth and nail, the possibility of facing questions under oath (which, thanks to Clinton v. Jones, a sitting president can be required to do) made it important for Trump to pay to make the case go away.

The analogy to Trump's tax situation is intriguing.  He has been fighting audits for years, safe in the knowledge that no one at the IRS would have any reason to disclose his returns even if he were to negotiate an especially beneficial settlement.  Now, however, he can only guarantee the continued privacy of his returns if any settlements do not raise reasonable questions of special treatment from the IRS.

This is still bad news from the standpoint of those who wish to force the release of Trump's tax returns, because he still has the power to prevent that from happening.  Trump will surely continue to refuse to disclose, so only a purely illegal hack of the IRS would result in the release of the returns.

A tiny silver lining, however, is that this might provide a means to reduce what Michael Dorf has dubbed Trump's "corruption premium."  Despite all of the ways in which Trump and his family are looking to seek private gain from public office, Trump now has an incentive to pay his taxes in full without much of a fight.  A reasonable kleptocrat might view that as a small price to pay, but Trump hates to lose, and this will surely cost him money.