Posts Tagged ‘President.Trump’

The Trump Organization Indictments

Monday, July 5th, 2021

Unless you’ve been hiding under a rock, you know that The Trump Organization and its Chief Financial Officer, Allen Weisselberg, were indicted on 15 counts including grand larceny, conspiracy, and tax fraud.  The former President is (and has been) a very divisive figure, and the comments on this run the gamut from “witch hunt” to “justifiably deserved.”  Is this from a banana republic (as Dan McLaughlin alleged) or a “travesty of justice” (as the New York Post opined)?  The indictment can be read here.

First, note these are all allegations; no one has been found guilty.  It’s also possible that former President Trump had nothing to do with this and had no knowledge of it.  However, in a closely-held family business its usual that all senior personnel would be aware of something like this.

So are these serious charges?  Absolutely.  If we take the allegations as true, there was $556,000 in federal taxes, $107,000 in state taxes, and $238,000 in New York City taxes that were evaded.  You cannot deduct personal expenses on a business return–this is something we tell everyone.  (Do note that some businesses can take a Home Office deduction, and other similar items related to business use of home.)  I’d love it if my business could pay my mortgage, utilities, and property tax.  That would be decidedly dumb (and illegal), so I manage to pay those expenses myself.  Now, a business can pay personal expenses for an employee, but those expenses paid become additional compensation.  If we take the indictment’s allegations as true, that didn’t happen here.

Is the dollar amount involved enough to warrant criminal charges?  Yes.  This is over $900,000 in total tax evaded, and that’s more than enough to cause a criminal charge.  But are those on the right correct that the only reason there are criminal charges is Trump?  Almost certainly, yes.  The Manhattan District Attorney doesn’t like the former president, so he was a target.  In most tax investigations, if the business admits liability and agrees to pay the tax and penalties criminal indictments don’t happen.  However, if you’re a celebrity or a politician (or worse, both), the ‘normal’ rules don’t apply and you’re a target.  You need to be clean, because you will be audited.

(An interesting fact is that President Trump a few years ago noted that he had been audited almost constantly over time.  Yet the IRS didn’t come after him.  It may be that they didn’t see the information that the Manhattan D.A. saw, or it may be they didn’t find anything illegal.)

The Trump Organization’s attorney noted he’s never seen such an indictment; that when companies do things like this they normally pay a civil fine (along with the tax, penalties and interest).  Is this prosecution politically motivate?  Absolutely, and here I agree with the critics.  There’s no doubt that if it were my business accused of this we would have been offered that.

Still, the scheme (if true) is quite brazen and decidedly wrong.  It will be interesting to see how this plays out over the next year or so.


Can I Disclose a Candidate’s Tax Returns?

Sunday, May 12th, 2019

Let’s say that back in 2010 I prepared the federal and California tax returns for John and Mary Smith of Irvine, California. Ten years later, Mr. Smith decides to run for statewide office. Let’s further assume I abhor Mr. Smith’s politics. Can I leak his tax returns to the Los Angeles Times? Can the Times publish the Smiths’ returns?

I, like all tax professionals, fall under the rules of Circular 230. Circular 230 basically states that I can only disclose a client’s returns with his or her permission, and that these rules protect current clients, future clients, and former clients. Federal law has more to state about this: Under 26 U.S.C. § 7213(a)(1) it is illegal for me to disclose to anyone any information about a tax return. Additionally, 26 U.S.C. § 7213(a)(3) states: “It shall be unlawful for any person to whom any return or return information (as defined in section 6103(b)) is disclosed in a manner unauthorized by this title thereafter willfully to print or publish in any manner not provided by law any such return or return information.”

So the answer to the first question I asked is easy: It is very illegal for me to disclose Mr. & Mrs. Smiths’ returns to anyone for any reason whatsoever without the permission of the Smiths.

The answer to the second question is far more difficult. While federal law makes it illegal for anyone receiving illegally disclosed tax return information to publish it, the First Amendment to the Constitution (“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”) likely overrides federal law. I have to use “likely” instead of “certainly” because there hasn’t been a case about this issue that has reached the Supreme Court.

I wrote this brief piece because of the release of information regarding President Trump’s tax returns from 1984-1995. The New York Times published this information and stated they received the information from someone who had legal access to them. It is a certainty that particular individual violated federal law and could be prosecuted. If he’s a licensed CPA or Enrolled Agent, he could lose his license; if he’s a licensed attorney, he could be disbarred. If the Department of Justice discovers the individual responsible for the leak, he or she is very likely to be prosecuted (it’s a slam-dunk case). As for the Department of Justice going after the New York Times, I highly doubt that will happen. The case is anything but a certain winner. I strongly suspect the First Amendment overrides 26 U.S.C § 7213(a)(3).

The Freedom of Information Act Doesn’t Allow Access to President Trump’s Tax Returns

Wednesday, December 19th, 2018

Section 6103(a) of the Internal Revenue Code (IRC) mandates that tax returns shall be confidential. The Electronic Privacy Information Center (EPIC) wanted a peak at President Trump’s tax returns; might there be income from Russia? They submitted a Freedom of Information Act request to see his tax returns (from 2010 onwards). The IRS refused. EPIC filed a lawsuit in the District Court of the District of Columbia; that lawsuit was thrown out. EPIC filed an appeal to the Court of Appeals for the DC Circuit.

At first blush, the IRC stands in tension with the Freedom of Information Act (FOIA), which vests the public with a broad right to access government records. 5 U.S.C. § 552(a)(3)(A). One statute demands openness; the other privacy. But as we explain infra, the statutes work well together. Not all records are subject to FOIA requests. An agency need not disclose records “specifically exempted from disclosure by statute.” Id. § 552(b)(3). Because the IRC is such a statute, records that fall within its confidentiality mandate are exempt from FOIA.

Consider if I submitted a FOIA request to see Senator Chuck Schumer’s tax returns. Do I have any legitimate reason to see them? Well, I’m going to allege Senator Schumer is in the pocket of Ruritania, and the way to discover this is to have a little peak to see if he has any income from Ruritania on the return. Of course, if Senator Schumer were to sign a Tax Information Authorization or an IRS Power of Attorney, I’d be able to access his records. But just because I think something nefarious is going on doesn’t mean I can go fishing.

Indeed, as the Court noted:

The IRS declined to comply with the request for two reasons. First, the requested “documents, to the extent that any exist, [] consist of, or contain the tax returns or return information of a third party,” which “may not be disclosed unless specifically authorized by law.” Second, the IRS’s rules require that a request for a third party’s tax returns include his consent. See 26 C.F.R. § 601.702(c)(5)(iii)(C); see also I.R.C. § 6103(c). In fact, the IRS does not process a FOIA request that violates its rules. Id. § 601.702(c)(4). Because EPIC failed to obtain President Trump’s consent, the IRS did not process the request.

I left the citations in just to illustrate that the IRS had law on their side. But EPIC had another arrow in their quiver; they cited Section 6103(k)(3) of the Tax Code:

The Secretary may, but only following approval by the Joint Committee on Taxation, disclose such return information or any other information with respect to any specific taxpayer to the extent necessary for tax administration purposes to correct a misstatement of fact published or disclosed with respect to such taxpayer’s return or any transaction of the taxpayer with the Internal Revenue Service.

The Court analyzed this section at length. The Court noted that a “Significant Impact” on tax administration is necessary for a request to move forward. Additionally, the provision allows the IRS (not a requestor) to make information public, but only if the Joint Committee on Taxation allows for it. The Court agreed that EPIC couldn’t use this provision to force disclosure of a tax return.

The Court’s conclusion seems right to me:

This case presents the question whether a member of the public—here, a nonprofit organization—can use a FOIA request to obtain an unrelated individual’s tax records without his consent. With certain limited exceptions—all inapplicable here—the answer is no. No one can demand to inspect another’s tax records. And the IRC’s confidentiality protections extend to the ordinary taxpayer and the President alike. Accordingly, we affirm the dismissal of the Electronic Privacy Information Center (EPIC)’s lawsuit seeking President Donald J. Trump’s income tax records.

EPIC can send a request to President Trump, but unless he agrees to release his tax records they won’t be public.

Case: Electronic Privacy Information Center v Internal Revenue Service