HILL TAX BRIEFING: Digging Into Dems’ Trump Tax Return Lawsuit

Democrats’ fight for President Donald Trump’s tax returns now heads to the courts, and the pace of what comes next will be up to the judge selected to consider it.

The House Ways and Means Committee yesterday escalated its pursuit of six years of Trump’s business and personal tax returns, as the panel sued IRS Commissioner Charles Rettig and Treasury Secretary Steven Mnuchin. Ways and Means Chairman Richard Neal (D-Mass.) first sought the records in April.

House Democrats will be eager to see the returns before the 2020 election, in case Republicans take back the House and “undoubtedly quash the request,” said Steven Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center.

Judge selection will be the biggest deciding factor for how fast the tax return case can move through the courts, legal experts said.

The complaint leans on tax code Section 6103, which says that the heads of Ways and Means, the Senate Finance Committee, and the Joint Committee on Taxation have the authority to request the tax returns of any individual.

Read more from Aysha Bagchi and Allyson Versprille.

In Case You Missed Us: This is a special issue of the Hill Tax Briefing, to bring you the latest on the lawsuit. The newsletter will return on July 8, when Congress returns from recess.

Legislative Purpose?

Mnuchin has said that Neal’s request has no legitimate purpose. In the complaint, Democratic counsel countered that argument, pointing out that their request could impact several recent bills related to presidential tax returns or tax compliance.

Several of those bills highlight Democrats’ efforts to enforce the tradition of presidential candidates releasing their tax returns. Trump flouted years of tradition by refusing to release his returns.

This includes H.R. 1, which would require sitting presidents and vice presidents to disclose 10 years of returns. The bill passed the House in March. Another measure (H.R. 1489) would require the president, vice president, and members of Congress, as well as candidates for these offices, to disclose seven years of individual tax returns.

H.R. 1028 would require presidential and vice-presidential candidates to give the Office of Government Ethics individual tax returns for 19 years.

Another bill highlighted in the complaint (H.R. 1496) would prohibit a former president from receiving a monetary allowance unless they disclose tax return information requested by the Treasury secretary.

The complaint also refers to a bill (H.R. 1992) that would prevent partnerships from profiting from the donations of a conservation easement when the charitable deduction claimed is more than two-and-a-half times the original amount invested. The IRS and some lawmakers have been scrutinizing such deals.

An individual can claim a tax deduction under tax code Section 170(h) when making a land donation known as a conservation easement, which protects the property from future development.

Making Their Case: The complaint details the ways the president’s tax returns could help inform the panel’s legislating process. For example, the complaint says that the request would help the committee determine whether the IRS is fairly conducting annual audits of presidential tax returns and if there’s a need to legislate on the matter, said William Pittard, former acting general counsel and deputy general counsel for the House. Pittard is a partner at KaiserDillon PLLC.

The complaint seems to be an attempt to “paper over” some of the arguments raised by the Treasury Department when it denied the tax return requests—in particular that the requests were politically-driven and lacked a legitimate legislative purpose, said Sam Dewey, counsel at McDermott Will & Emery.

In previous denials, Treasury questioned why Ways and Means, if it was concerned about IRS audit procedures, didn’t request tax returns from past presidents in addition to Trump. Dewey said the committee seems to be trying to create a “post hoc justification” to what he views as valid concerns raised by the department.

Dewey worked as senior counsel for oversight and investigations on the Republican-led House Financial Services Committee from 2017-2018.

Oversight of Legislative Branch

The lawsuit is lawmakers’ latest effort to assert oversight over the legislative branch.

Trump’s lawyers have tried and failed twice to get courts to block subpoenas seeking records from his bankers and accountants. The president’s attorneys are appealing those rulings. A federal judge said in May that lawmakers have the power to demand records from his longtime accounting firm, Mazars USA LLP.

Democrats hope that the returns will give them insight into Trump’s foreign businesses, and whether he profited from the 2017 tax law.

Read more from Laura Davison, Joe Light, and Andrew Harris.

Lawmakers Respond

Ways and Means ranking member Kevin Brady (R-Texas), who previously has said Neal’s request is weaponizing the tax code, said in a statement yesterday that he will introduce a resolution expressing his disapproval of the lawsuit. A resolution doesn’t hold any legal weight.

“The resolution will ensure that every member of the people’s House will have an opportunity to support or reject partisan actions of Democrat leadership,” a Republican aide said.

Senate Finance ranking member Ron Wyden (D-Ore.) said that the law is on Neal’s side, because he’s relying on clear statute in his request—as well as Congress’ oversight authority.

“The lawlessness of this administration knows no bounds and courts are needed to force compliance,” he said in a statement.

Rep. Bill Pascrell (D-N.J.), one of the most outspoken Ways and Means members on the issue, said the judicial branch “has been a bulwark against Trump’s steaming corruption and roughshod lawlessness,” and said he expects lower courts to side with Congress.

—With assistance from Kaustuv Basu and Allyson Versprille.