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Here’s What You Should Know as Trump Tax Return Battles Brew

Sept. 27, 2019, 8:46 AM

President Donald Trump’s decision not to release his tax returns in 2016 has spurred battles coast-to-coast on the state and federal level.

Two states have passed laws in response to his refusal, which he has said is because he is under IRS audit. And Congressional Democrats have requested and subpoenaed his returns, saying they need them to assess how the IRS audits presidents.

Those efforts have brought unique legal battles, and the outcomes could determine whether lawmakers or the public are able to scrutinize the president’s financial activity.

There will likely be multiple appeals as the cases progress, and the Supreme Court may eventually have to weigh in—whether that can happen before the 2020 presidential election remains to be seen.

Here’s what you should know about each of the cases:

California’s Ballot Requirement

The Source of the Fight: A July California law requires all presidential and gubernatorial candidates who want their names on the primary election ballot to provide their past five years of federal returns.

The law sparked several lawsuits, including suits from Trump in his private capacity and his principal campaign committee, the Republican National Committee, and the California Republican Party.

One of the California Republican Party’s lawsuits—which focuses on a state-law issue—is at the California Supreme Court. A handful of other suits involving federal issues are considered related, and are before the same judge at the U.S. District Court for the Eastern District of California.

The judge in the case at the district court hasn’t issued a final ruling yet, but he did issue a preliminary injunction Sept. 19 to block the law for now.

Legal Challenges: In the federal cases, Trump and others say that the law impermissibly adds a qualification for federal office not set down in the Constitution.

They also argue the law violates the First Amendment in several ways: by preventing political parties from freely associating, by preventing voters from selecting the constitutionally qualified candidate of their choice, and by retaliating against the president for past speech.

Trump and his campaign also say a federal statute—the Ethics in Government Act (Pub.L. 95–521), which requires presidential candidates to disclose financial information—should supersede state efforts mandating tax return disclosure. California says the statute doesn’t supplant the law because the statute’s text and history show Congress didn’t have that intention.

In its suit at the California Supreme Court, the California Republican Party argues the new law prevents California’s secretary of state from exercising a duty to place the names of candidates who are recognized across the state or nation, or become ballot-eligible through petition, onto the ballot.

The Analysis: Law professors said a court may ask whether the California requirement only shapes California’s election process or adds a new qualification for becoming president.

Wanting to know what a candidate’s tax returns look like is “clearly a political matter and not an election process matter,” said Derek T. Muller, a professor at Pepperdine Law School who focuses on election law.

Some legal experts disagreed.

“The California law does not add an additional ‘qualification’ because any candidate can easily comply with it merely by disclosing readily available and obviously relevant information,” said Laurence H. Tribe, a professor at Harvard Law School who focuses on constitutional issues.

A free speech question is whether California could be seen as forcing Trump and other candidates to speak, in a certain sense, by producing their returns, said Lawrence Lessig, also a professor at Harvard Law School.

There’s also concern that the California law will block voters from voting for their preferred candidate, he said.

District Judge Morrison C. England, Jr. suggested in his preliminary ruling that the Ethics in Government Act’s disclosure requirements may preempt California’s efforts.

While the district court case could be appealed to higher federal courts, that might not matter: If the state’s high court strikes down the ballot-access requirement for violating the California Constitution, no other court could review its interpretation of the state law involved.

Next Step: England will issue a written version of his preliminary opinion by Oct. 1.

If California appeals, the U.S. Court of Appeals for the Ninth Circuit could enter the fray fairly soon. The secretary of state’s and Gov. Gavin Newsom’s (D) offices didn’t return a request for comment on whether the state would appeal.

In the California Supreme Court case, the court announced Sept. 25 it will set the case for argument no later than the week of Nov. 4.

The period for certain presidential candidates to start acquiring signatures to get on California’s 2020 presidential primary ballot begins Nov. 4.

The Judges: Former President George W. Bush appointed England in 2002.

The seven judges on the California Supreme Court—appointed by state governors—are Chief Justice Tani Gorre Cantil-Sakauye and Justices Ming W. Chin, Carol A. Corrigan, Mariano-Florentino Cuéllar, Joshua P. Groban, Leondra R. Kruger, and Goodwin H. Liu.

Fight Over New York Law

The Source of the Fight: Trump—in his capacity as a private citizen—sued the House Ways and Means Committee and New York in July to block a New York law that requires state tax officials to hand certain congressional committees the president’s state tax returns upon written request.

Under the New York law, House Ways and Means Committee Chairman Richard Neal (D-Mass.) would have the authority to make such a request, but he so far hasn’t signaled that he plans to do so.

Legal Challenges: Trump has raised two main arguments for why the courts should block the law.

He says the committee can’t ask for the returns because it wouldn’t have a legitimate legislative purpose. The idea here is that even if using the New York law isn’t explicitly prohibited by any other law, courts could require policymakers to show they are using their political authority in a legitimate way.

He also argues that the law is unconstitutional retaliation against how he has used his right to speak.

The Analysis: Trump’s arguments have drawn plenty of scrutiny.

“The idea that it’s not constitutional because it doesn’t serve a legitimate legislative purpose is just crazy talk,” Lessig said.

While politics will always play a role in the decisions of lawmakers, Congress “certainly has the right to police the integrity of the executive branch of the president,” he said.

That assessment fits into the Supreme Court’s jurisprudence, according to Howard Abrams, a visiting professor at Harvard Law School who focuses on tax issues.

“Historically the Supreme Court has been reluctant to invalidate legislative action based on bad intent because if it could be done with good intent, they’ll just re-pass the law with a different record,” he said.

Not everyone, however, thought Trump’s argument was without merit.

“I think it’s reasonable—I don’t know if it’s a winner—that the committee couldn’t issue a proper subpoena for Trump’s state tax returns because according to Richard Neal they don’t oversee the state tax system,” said Andy Grewal, a professor at the University of Iowa Law School who focuses on tax issues, in reference to the chairman of Ways and Means.

Next Step: The court has yet to rule on two requests from New York Attorney General Letitia James and New York Department of Taxation and Finance Commissioner Michael R. Schmidt to dismiss the D.C.-based case against them. If they win, Trump would have to sue them separately in their home state.

The Judge: D.C. District Court Judge Carl J. Nichols, who Trump appointed this year.

House Democrats Up the Pressure

The Source of the Fight: The House Ways and Means Committee sued the IRS and Treasury in July after the administration rejected a request and a subpoena for six years of Trump’s personal and business tax returns.

Tax code Section 6103(f) gives certain committee heads, including the Ways and Means chairman, the right to request individual tax returns.

Legal Challenges: The administration has said the committee’s request and subpoena lack a legitimate legislative purpose.

Second, they have questioned whether any court is allowed to rule on this kind of high-level lawsuit between the legislative and executive branches.

Ways and Means argues Section 6103(f) doesn’t place any requirements on tax return requests, but that the committee has legitimate reasons for asking, regardless.

The Analysis: The concept of a legitimate legislative purpose plays a potentially big role in the case.

The question of whether a court is allowed to rule on this kind of dispute between legislative and executive officials sets the case apart.

D.C. District Court Judge Trevor N. McFadden has suggested he at least treats the issue as serious. When McFadden denied a request from House Democrats to speed up the case on Aug. 29, he said the case “presents novel and complex questions about the privileges and authority of all three branches of the federal government.”

Next Step: The court will likely rule on the administration’s Sept. 6 motion to dismiss the case after Ways and Means responded Sept. 23.

The Judge: Trump appointed McFadden in 2017.

Other Lawsuits

Those aren’t the only legal efforts to mine Trump’s tax returns and other financial data.

The Trump family has appealed an initial loss in its suit to stop Deutsche Bank from complying with a subpoena for financial information. The bank told the U.S. Court of Appeals for the Second Circuit Aug. 27 that it holds some tax returns related to the subpoena.

Trump has also sued Manhattan District Attorney Cy Vance in the U.S. District Court for the Southern District of New York to block the DA’s pursuit of tax return information from Trump’s accounting firm, Mazars USA LLP as it investigates whether the Trump Organization falsified business records. Trump’s attorneys reached a temporary agreement with Vance’s office on Sept. 26, delaying the deadline for Mazars to comply with the subpoena.

The California federal district court cases include: Griffin v. Padilla, E.D. Cal., No. 2:19-cv-01477, 8/1/19.

The California Supreme Court case is: Patterson v. Padilla, Cal., No. S257302, petition for relief filed 8/6/19.

The D.C. case over the New York law is: Trump v. Committee on Ways and Means, D.D.C., No. 1:19-cv-02173, 7/23/19.

The D.C. case between House Democrats and Treasury is: Comm. on Ways and Means v. Dep’t of the Treasury, D.D.C., No. 1:19-cv-01974, 7/2/19.

The Second Circuit appeals case between the Trump family and Deutsche Bank is: Trump v. Deutsche Bank AG, 2d Cir., No. 19-01540, appeal brief filed 5/24/19.

The N.Y. case between Trump and the Manhattan DA is: Trump v. Vance, S.D.N.Y., No. 19-cv-8694, 9/19/19.

—With assistance from Laura Mahoney.

To contact the reporter on this story: Aysha Bagchi in Washington at abagchi@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com