The Donald Trump campaign has released a letter in an effort to address those pesky tax audit stories that continue to dog his campaign. Trump has been under pressure to release his personal income tax returns for some time. He remains the only viable presidential candidate who hasn’t released at least some of his personal income tax returns.
(You can review returns from current hopefuls Cruz, Kasich, Clinton, and Sanders, as well as prior hopefuls Bush, Rubio, and Fiorina, here, courtesy of The Tax History Project.)
That pressure increased last month when former presidential hopeful Mitt Romney called out Trump on the issue, suggesting there might be a "bombshell" in the returns, advising Trump to "Show your back taxes."
Trump had initially responded that he could not release his tax returns until the Internal Revenue Service (IRS) had finalized his audit, saying, "As far as my return, I want to file it. I will absolutely give my return but I’m being audited now."
Trump's assertions that he is under a lengthy audit were finally corroborated by his tax attorneys in the letter, signed by Morgan Lewis tax partners Sheri Dillon and William Nelson (previously Chief Counsel with IRS). In the letter, Dillon and Nelson confirm that Trump's "personal tax returns have been under continuous examination by the Internal Revenue Service since 2002, consistent with the IRS’s practice for large and complex businesses."
The letter, which is dated three weeks earlier on March 7, is addressed to Mr. Donald J. Trump at The Trump Organization. The attorneys, Dillon and Nelson, who are partners at Morgan Lewis confirmed to Trump in the letter that the IRS examination of Trump’s return from 2002 through 2008 "have been closed administratively by agreement without assessment or payment, on a net basis, of any deficiency." There was no additional explanation, including what "on a net basis" specifically entailed.
Dillon and Nelson also noted that "[e]xaminations for returns for the 2009 year and forward are ongoing." Those returns involved items reported on earlier returns which caused the pair to conclude, "in this sense, the pending examinations are continuations of prior, closed examinations." What that likely means is that certain tax preference items, like losses, may be carried forwards or back on the returns, but neither Dillon nor Nelson offered further information. However, it's clear that the references to the earlier years are intended to shut down any suggestion that Trump might release those prior returns from the years that have been already been resolved.
When asked for further details, a firm spokesperson responded, "As a matter of firm policy we do not comment on the work we do for our clients."
You can read the letter in its entirety here (downloads as a pdf).
The IRS does not discuss individual tax returns but made it clear - with Commissioner Koskinen agreeing when asked last week - that there is not any prohibition against a taxpayer releasing the taxpayer's own returns during an audit. Whether it's a good idea or not is another matter: many tax pros, like me, weren't so sure that making the information public was a good idea.
Unfortunately for Trump, his statements that he was under extensive audit from IRS appeared to raise more questions than they resolved. Trump tried to explain the audits by suggesting he was being unfairly targeted, telling CNN's Chris Cuomo, "I'm always audited by the IRS, which I think is very unfair — I don't know, maybe because of religion, maybe because of something else, maybe because I'm doing this, although this is just recently." When asked why that might be, Trump replied, "Well, maybe because of the fact that I'm a strong Christian, and I feel strongly about it and maybe there's a bias."
Trump later clarified his statements when asked by CNN's Anderson Cooper, that it probably wasn't about religion, saying, "Well, I know they certainly had a lot of problems, I mean, if you look at what's been happening over the years — I don't think, I don't think it applies." Instead, Trump seemed to suggest that it was something else, saying, "But I can tell you one thing: I am audited when I shouldn't be audited. ... I tell my people: Why is it that every single year, I'm audited, whereas other people that are very rich, people are never audited — and they don't even know what I'm talking about when I talk about audits."
Trump's comments about wealthy taxpayers and audits are timely. Earlier this year, IRS released audit data that suggests that audits on the wealthy are down: for $1 million-plus earners, field audits (in person) are down (even though correspondence audits are up). Not all of the wealthy get audited although the chances are higher than for average taxpayers: overall, those taxpayers earning $1 million-plus faced a 9.55% chance of an IRS audit in 2015 compared to the less than 1% audit chance for those with incomes of under $200,000 for the same year. According to the data, by the numbers, out of a base of 416,178 $1 million-plus tax returns, there were 13,781 field audits and 25,972 correspondence audits.
When wealthy taxpayers are audited, the examinations aren't quite routine either. Chances are that Trump's audit is being handled by the IRS "Wealth Squad," a specialized, experienced group of examiners who focus on conducting audits of high-income/high-wealth taxpayers, the Global High Wealth Industry Group of the IRS Large Business and International division (more on the "Wealth Squad" here). They are, in that sense, the very best of the IRS which somehow seems fitting for Trump.
It's clear that the campaign released the letter in an effort to put an end to the question about what's in Trump's returns. It's equally clear that Trump does not intend to release those returns before the Republican National Convention. Whether that will quiet - or amplify - the call to see those returns remains to be seen.
