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New York Path to Trump Returns May Not Derail Federal Effort

July 16, 2019, 8:45 AM

House Democrats’ concerns that requesting President Donald Trump’s New York state tax returns could weaken their lawsuit seeking access to his federal returns may be overblown.

House Ways and Means Committee Chairman Richard Neal (D-Mass.) has been hesitant to take action on the New York returns, after the state passed a law allowing him to request them. He has been fighting off accusations of political motives, and the committee’s lawsuit is focused on reviewing how the IRS audits presidents.

Access to Trump’s New York returns could weaken that argument, some say.

“That’s what we have to be very careful about,” said Rep. Bill Pascrell (D-N.J.), a Ways and Means member.

But legal experts said seeing the state returns won’t ultimately undermine House Democrats’ lawsuit and could offer details about federal audits as well as any potential crimes.

House Democrats are seeking six years of Trump’s personal and business federal tax returns, a request that they elevated with a lawsuit on July 2.

The Democrats have plenty of reasonable grounds for making their federal request, said Howard E. Abrams, a visiting professor at Harvard Law who specializes in tax issues.

“Because the president controls the enforcement of the tax laws, even as they’re enforced against the president, Congress has a legitimate basis to determine if the tax laws are being enforced fairly and equally,” he said.

The administration has argued since the beginning that the committee’s request for Trump’s federal returns is politically motivated. They rejected multiple requests and a subpoena.

“No one could reasonably believe that the Committee seeks six years of President Trump’s tax returns because of a newly discovered interest in legislating on the presidential-audit process,” the President’s Office of Legal Counsel said in a memorandum opinion.

Need for Legislative Purpose?

Tax code Section 6103(f) says the Treasury Department “shall furnish” Ways and Means with any tax return information that the panel requests in writing. Some argue the Constitution also requires a legitimate legislative purpose behind the request.

But even if requesting the New York returns does suggest a broader political motive, that shouldn’t be a major concern, said Brian Galle, a professor at Georgetown Law.

“Agencies do things for political reasons all the time,” Galle said.

The Constitution grants Congress the power to establish the tax system and to oversee it, Galle said. This means that Congress can obtain tax returns without invoking the investigative powers that could require a legitimate legislative purpose, he said.

“It’d be like saying you need the investigative power to look in the yellow pages or look up something on Wikipedia,” he said. When it comes to tax returns, he said, “Congress has always had a backdoor into this library.”

And there could be important information gleaned in the New York returns—for example, ongoing concerns about the president’s business conflicts of interest, said Jessica A. Levinson, a clinical professor at Loyola Marymount University Law School.

“I think that you could say that there are other oversight purposes for which the Committee needs to look at state tax returns,” Levinson said.

Earlier this month, a federal appeals court dismissed a lawsuit arguing that Trump was illegally profiting from foreign visitors staying at his downtown hotel. The court didn’t address that argument directly, instead concluding the District of Columbia and Maryland didn’t have enough connection to the issues to be allowed to bring the suit.

What They Could Find

House Democrats have said they need Trump’s federal returns to review how the IRS is following presidential audit procedures. Seeing the state returns could give some insight.

This is because New York state law says taxpayers must file an amended state tax return if the IRS makes changes to their federal return. So, the absence of an amended state return would signal the IRS didn’t make changes.

Even though the law requires the state to redact federal return information, Steve Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center, said the state may be able to leave such a change unredacted, because it may be viewed as state information.

If a court finds the New York returns would provide Democrats with what they want, this could undermine a portion of the legal basis for requesting the judiciary’s help, Galle said. But state returns likely won’t have all the information Democrats are seeking, he added.

The state returns, for example, wouldn’t include the “work papers” of any IRS audit, like the returns and supporting materials of Trump’s business entities, Galle said.

In the meantime, there is frequent engagement between Ways & Means and House counsel on the tax returns request, according to Ways & Means member Brian Higgins (D-N.Y.).

“We’re at a point at which the chairman’s looking at all of his options in close consultation with House counsel,” Higgins said July 15. “I think eventually he will make a determination to the value of that information as it relates to the ultimate objective of getting all of the tax returns.”

—With assistance from Kaustuv Basu and Colin Wilhelm.

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

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