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Yesterday, President-elect Trump tweeted he would leave his businesses “in total” to reduce his potential conflicts as President. The Office of Government Ethics (“OGE”), tweeted its praise for his remarks, and encouraged him to divest his interests rather than merely transfer control. But could Trump avoid paying tax on any profits from the sale of his businesses? Surprisingly, the answer may be yes. The law is ambiguous, a 50/50 proposition in my view.
In the Ethics Reform Act of 1989, Congress strengthened a variety of ethics rules, including those that prohibited federal officials and employees (other than the president and vice-president) from participating in official acts in which they have a financial interest. To soften the blow, Congress added Code section 1043, which allows officers or employees of the executive branch (including political appointees) to sell property, deferring taxation, to avoid potential conflicts if they reinvest the proceeds in either Treasuries or diversified mutual funds (and carryover their basis from the prior property). The deferral has been especially valuable to appointees like former Treasury Secretary Henry Paulson, who had large concentrated holdings that appreciated over many years.
Very little of the ethics law extends to the president or vice president, because of concerns over the separation of powers. But Code section 1043 does not expressly exclude the president or vice president from its benefits, including the ability to sell assets tax-free. The President only needs a written determination that divestiture of specific property is “reasonably necessary” to comply with any Federal conflict of interest statute, regulation, or rule (including those from the Ethics Act). And who issues those written determinations? The President himself or the Director of the OGE. So, in theory, Trump could write his own determination—or direct OGE to do so.
It might be hard for Trump to justify a written determination as “reasonably necessary” to comply with a conflict-of-interest rule from which he is generally exempted. But the spirit of the rules applies and, in its tweets (and in prior opinions), OGE asserted the President should act as if the letter of the law applies as well.
President Trump might also argue that divestiture is reasonably necessary under the emoluments clause of the Constitution, which prohibits the acceptance of payments from foreign officials or governments, or by the prohibition against accepting bribes. Both apply to the president (and might be characterized as conflict-of-interest rules). Unfortunately, there is little guidance on Code section 1043, which is administered by OGE rather than the IRS.
Applying section 1043 to the president would be novel. It would be enormously controversial, and might be considered aggressive. And, thanks to this law’s ambiguity, it may be his choice. But, to maintain public confidence, perhaps Trump should simply defer to OGE, or to another agency, like the IRS (or, perhaps, to a new, and more independent, person or body to review).
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Melania Trump, and her husband President-elect Donald Trump, center, walk with Senate Majority Leader Mitch McConnell, of Kentucky, as they depart after a meeting on Capitol Hill, Thursday, Nov. 10, 2016 in Washington. (AP Photo/Alex Brandon)