POLITICS

Democrats Just Got A Break In Their Trump Tax Return Case

A whistleblower's allegation of interference with the president's IRS audit hints at another way to obtain those tax returns.

House Democrats revealed this week that a federal employee has come to them with information about “possible misconduct” relating to an Internal Revenue Service audit of President Donald Trump.

It’s a big development in Democrats’ quest for Trump’s tax returns.

First, the whistleblower could boost their legal case. Democrats want to see the president’s tax returns partly because they don’t trust him not to improperly influence his audit. The IRS has said such concerns are “unfounded,” but if Democrats have evidence of possible interference, those concerns would be pretty well-founded.

Democrats on the House Ways and Means Committee sued the Trump administration in July for defying a federal disclosure law that is supposed to give certain congressional committee chairs access to anyone’s private tax information. The Treasury Department has refused to turn over the president’s tax returns in response to first a formal request and then a subpoena from the Ways and Means panel.

The committee’s lawyers revealed their whistleblower material this week in a motion that asked U.S. District Judge Trevor McFadden to hurry up and order the administration to obey the law. The case, which is currently in the District of Columbia’s federal trial court, could run longer than a year due to appeals.

Another reason the whistleblower is a big deal is that he or she might be able to give the committee information on Trump’s tax returns. The law empowers IRS whistleblowers to divulge material to Congress. 

In most situations, it is highly illegal for IRS employees to expose private tax information, but they can give it to the House Ways and Means or Senate Finance committee if they suspect wrongdoing. Specifically, the law says that an IRS employee who has access to returns can divulge documents to tax committees “if such person believes such return or return information may relate to possible misconduct, maladministration, or taxpayer abuse.” 

Rep. Richard Neal, chairman of the House Ways and Means Committee, is leading Democrats' quest for Trump's tax returns.
Rep. Richard Neal, chairman of the House Ways and Means Committee, is leading Democrats' quest for Trump's tax returns.

It’s possible that the whistleblower knows something related to the ongoing audit that Trump repeatedly referred to on the campaign trail, said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. When Trump became president, maybe he fussed with that process in some way.

“The best case for trying to figure out whether Trump is interfering with an audit would be to look at the earliest returns that were open for audit after he took office,” Rosenthal said.

A Ways and Means spokesperson said the committee has not obtained the tax returns it requested from the IRS earlier this year. Chairman Richard Neal (D-Mass.) asked for six years of Trump’s personal and business returns, plus anything related to audits for those years. 

Since complicated audits can take years to complete, those started within the last six years might still be open. For that reason, Rosenthal has argued that Neal should have asked for documents from well before 2013. 

The committee ‘received an unsolicited communication from a federal employee setting forth credible allegations of evidence of possible misconduct.’

The possibility that Democrats might obtain Trump’s tax returns from a tipster has been raised before. In February 2017, Bryan Camp and Victor Thuronyi, respectively a Texas Tech law professor and a former lead counsel for the International Monetary Fund, wrote that a whistleblower could dump the tax returns in Ways and Means’ lap

But they noted that sounds like a simpler solution than it is. Very few IRS employees have access to tax returns. And the whistleblower part of the tax code doesn’t necessarily permit disclosure in cases of misconduct by the taxpayers themselves, like tax evasion. The history of the statute suggests that it “may refer only to the misconduct or maladministration by the IRS or its employees,” Camp and Thuronyi wrote. 

The House Democrats’ court filing this week describes possible misconduct by government agents. The IRS automatically audits the president and vice president each year, and someone allegedly may have interfered with that process. 

The motion says that in late July the committee “received an unsolicited communication from a federal employee setting forth credible allegations of ‘evidence of possible misconduct’ ― specifically, potential ‘inappropriate efforts to influence’ the mandatory audit program.” Democrats offered to give Judge McFadden more details in private. 

Sen. Chuck Grassley is fond of the tax disclosure law, but apparently not when Democrats use it.
Sen. Chuck Grassley is fond of the tax disclosure law, but apparently not when Democrats use it.

According to the filing, Neal asked Treasury Secretary Steve Mnuchin to hand over “documents and communications of specified Treasury and IRS employees” after receiving the tip, but Mnuchin refused, saying Treasury didn’t have any relevant documents covered under the disclosure law, which is known as Section 6103.

George Yin, a tax professor emeritus at the University of Virginia School of Law, said that Mnuchin’s specific reference to Section 6103 seemed deliberate. He said the Joint Committee on Taxation, which is a joint House-Senate panel controlled by Neal and Senate Finance chair Chuck Grassley (R-Iowa), might be able to ask for relevant documents under a separate law designed to help Congress get tax data

Grassley, a champion of whistleblowers throughout the federal government, is the person most responsible for adding the whistleblower provision to Section 6103 in 1998. The senator has “worked his entire career to make sure whistleblowers can make legitimate, good faith reports of potential wrongdoing without fear of reprisal,” said his spokesman Michael Zona.

As chairman of the Finance Committee, Grassley has used 6103 to investigate possible wrongdoing, including by his political enemies. But he’s not at all impressed by Democrats’ efforts to get Trump’s tax returns. 

“Democrats have made clear their only goal is to release the president’s tax returns in the hopes of scoring political points,” Zona said. “We’ve seen no evidence to the contrary.”

The White House did not respond to a request for comment on whether the president had interfered with his IRS audit.

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