- “If this is the big pre-debate ‘gotcha’ that the Democrats and their allies in Big Media had in mind, it’s a bit of a flop.”
- The NYT story violates federal tax privacy law AND it’s nothing new.
The New York Times published an article Sunday evening analyzing several years of tax returns filed by President Donald Trump. This illegal leak of the president’s tax returns revealed nothing we didn’t already know about the Trump business hydra: It is complicated, has a lot of expenses that generate tax deductions, and hires very smart tax advisers to make the whole thing work with as low a legal tax liability as possible. If that sounds familiar, it’s because the Democrats also tried this line of attack against Trump in the 2016 debates.
Because most media will breeze over it, it’s important to pause and note the criminal illegality of this story. It is a federal crime for any federal, state, or local government employee to release a tax return without the consent of the taxpayer.
Ditto for tax lawyers, CPAs, enrolled agents, and other tax professionals. Interestingly, it’s also illegal to print or publish tax returns or information from them. Section 7213 of the Internal Revenue Code prescribes that each violation here is a felony punishable by $5,000 and/or five years in federal prison, plus the cost of prosecution. Federal employees so convicted are to lose their jobs.
Trump enjoys the same protection of federal tax law that any John Q. Public has. Someone should go to jail for releasing his tax returns. Speaking as an enrolled agent who has prepared taxes as a side hustle for nearly two decades, this cavalier attitude toward tax return custody is appalling to me. The president ought to have some conversations today with Treasury Secretary Steven Mnuchin and Attorney General William Barr about prosecuting the New York Times for its possible tax felonies.
The Story Is a Flop
Turning to the particulars of the tax return, there simply isn’t much here. There’s certainly no smoking gun, nothing that on its face is illegal in some way. The portrait that emerges is one of a very aggressive, wheeler-dealer businessman with a thousand fingers in a thousand pies. Trump allocates money in a wide array of business ventures, generating tax deductions that offset income from these and other enterprises.
Trump himself in the piece describes his approach as “truthful hyperbole,” which is one of those wonderful phrases like “trust but verify,” “non-denial denial,” and “unknown unknowns.” In this case, the phrase tells me, as someone who has had all sorts of tax clients over the years, that the president loves the game. He is always looking for his next business venture and wants to plow all his profits from other lines of work into the next chapter of his life.
Not surprisingly, a business empire run this way robs a lot of profitable Peters to pay a lot of unprofitable Pauls. The New York Times article throws around terms that sound tricky or scary to normal people, but to tax professionals are part of any business tax return — depreciation, amortization, business bad debt, net operating losses, passive losses, historic rehabilitation credits, consulting fees, and the like.
The bottom line is that the Trump business empire is basically a closed circuit — profits from business A are used to prop up business B and acquire business C. That creates a lot of deductions that offset the profit, which in turn means that in some years, very little tax is owed.