Trump and the IRS: A massive tax cheat and a hapless, corrupt agency

Back in February of 2019, then-President Donald Trump's former attorney, Michael Cohen, testified before the House Oversight Committee that his former employer had once shown him a big refund from the IRS and told him "he could not believe how stupid the government was for giving someone like him that much money back."

It turns out that the man who once claimed in a presidential debate that not paying any taxes made him "smart" was right about that. The IRS is stupid, or at least lazy and incompetent. It let Donald Trump off the hook for years.

On Tuesday the House Ways and Means Committee finally broke its silence and announced that after years of legal battles and delays it would release Trump's tax returns to the public, as they are authorized to do by the same law Republicans invoked when they investigated the IRS back in 2014. That probe, which was supposed to show that the IRS had targeted conservative organizations, actually made clear that the agency had targeted progressive groups as well. But this investigation looks like it exposed a real scandal. The only question is whether the IRS will take the fall for this entire mess or whether Donald Trump will finally be fully exposed for his egregious pattern of tax evasion.

The committee released a report on its findings Tuesday night, as did the Joint Committee on Taxation, which delved into some of the details of the returns themselves. The first big takeaway is that the IRS, which is supposed to audit all presidential tax returns under the Mandatory Presidential Audit Program, never even got around to looking at Trump's. It was only after the committee began its inquiries in 2019 that the IRS finally opened an investigation of Trump's 2016 returns, even though it had been tasked by that time with auditing him from 2015 through 2018.

That's very strange, to put it mildly, and it certainly validates the committee's stated premise for opening the case. Its members are now recommending that the Mandatory Audit Program, which has been in place since the Carter administration, be codified into law.

John Koskinen, who was IRS commissioner during Trump's first year as president, told the New York Times that he knew nothing about all this. The committee's report obliquely suggests that it might be a good idea to vet individual agents more carefully, mentioning the "substantial discretion an I.R.S. revenue agent possesses in conducting the audit of presidential returns and the absence of guardrails to ensure that such employee is not subject to undue influence by a president or his representatives." After all, such an agent might turn out to be a Trump loyalist, like Beverly Hills tax attorney Charles P. Rettig, who defended Trump's decision not to release his tax returns in a 2016 op-ed — after which Trump appointed him IRS commissioner.

So what we now know is that the IRS did not even begin its mandatory audits of Trump's taxes until 2019 and has completed none of them. So the returns the committee finally has in its possession are missing the backup information that would routinely have been requested of any return under audit to prove the legitimacy of its claims. So there are many unanswered questions about the validity of Trump's numbers, although we already about his sleazy tax avoidance schemes through the myriad lawsuits and criminal proceedings he has faced, as well as voluminous reporting by the New York Times and others.

Back in 2018, the Times reported on a trove of Trump family financial documents, including tax returns of Fred Trump, the ex-president's father. Fred had evidently gone to huge lengths to pass large sums to his children through dubious or outright illegal methods, mostly to evade paying taxes over many years. His son has apparently followed that tradition for many years. That issue has come up both in the investigation of these tax returns and in the recent criminal case against the Trump Organization, in which the family business was found guilty of nine criminal counts including tax fraud. It also features prominently in the New York attorney general's civil case against Trump and three of his adult children. 

In 2020, the Times came into possession of more Trump tax returns, including some of those the committee will be release this week. The story they told was pretty stunning:

Donald J. Trump paid $750 in federal income taxes the year he won the presidency. In his first year in the White House, he paid another $750. He had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made.

Perhaps the most intriguing detail in that story was that Trump was in fact still embroiled in an audit from 2009, with the IRS questioning the validity of a $72.9 million tax refund he received after declaring huge losses. If the IRS eventually ruled against him, the Times reported, he could end up owing more than $100 million. So here's one thing we can say for Trump: When he said that his taxes were still under audit throughout his presidency, he was telling the truth, That audit long predated his presidential campaign, however, and he never had any legal reason or legitimate excuse for not releasing his returns to the public. 

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But it's clear enough why he didn't want to. The story those returns clearly tell is of a man who publicly bragged that his businesses were hugely successful even as he claimed massive losses. He was afraid of being seen as the phony he is and was worried, reasonably enough, that the audit would expose him as a tax cheat who owed the government $100 million that he probably doesn't have.

This has always been a potential political vulnerability for Trump. Polling in the summer of 2020 showed that 66% of Americans believed he "should release his tax returns from earlier years," and 68% said that "Americans have a right to see each presidential candidate's financial records before the election." Fortunately for Trump, there was so much distraction with the pandemic during the 2020 campaign that the New York Times exposé never really penetrated the public consciousness.

There was a fair bit of hand-wringing among the chattering classes on Tuesday night over the committee's party-line vote to make Trump's recent returns public, which is just daft. There should be no question that any president must release their tax returns for the years they serve as president. which accounts for those the committee intends to release. This is the man who refused to divest himself of his businesses the whole time he was in the White House, which is also massively unethical. If Trump was hiding something during his tenure, as he pretty clearly was, the public has a right to know about it. After all, he's running again. I think we can feel fairly confident that he'll never come clean voluntarily.

The committee's report also shows that something is very wrong at the IRS, which appears to be understaffed and unqualified to deal with big-money malefactors' labyrinthine financial schemes. That can theoretically be fixed by staffing up the agency and recruiting people who know what they are doing and have enough oversight so there's less chance of corruption and cronyism. Perhaps the bigger problem is with the tax code, which favors rich cheaters like Donald Trump (and many others) who pay next to nothing in income taxes while the rest of us struggle to make ends meet and pay our fair share. We don't know yet whether Trump actually committed tax fraud on his personal tax returns. But there can be no doubt that much of what he did that was legal was deceitful and unjust.