The voices of Tax Policy Center's researchers and staff
House Ways & Means Committee Chair Richard Neal (D-MA) reportedly is about to make a formal request for 10 years of President Trump’s tax returns. But what specific tax documents does the committee need to review to fulfill its oversight responsibilities? I believe Neal should request both personal and business tax returns. With the right additional information, Neal and his committee would take a big step forward in pursuing its oversight responsibilities.
A few weeks ago, at a hearing by the Ways and Means oversight subcommittee, I described why Congress should request the president’s returns and return information, including investigating potential financial conflicts, developing future legislation, and overseeing whether the IRS is properly conducting any audits of these returns.
For more than four decades, presidents have voluntarily released to the public their Form 1040s, with accompanying schedules, but not President Trump. However, Congress can request them. In 1924, in the aftermath of the Teapot Dome scandal and Treasury Secretary Andrew Mellon’s alleged financial conflicts, Congress authorized the chairman of the House Ways and Means Committee or the Senate Finance Committee to request tax returns from any taxpayer. The law says the Treasury Secretary “shall furnish … any return or return information specified in such request.” (See Code sec. 6103(f).) Shall means, well, shall, though Trump may instruct current Treasury Secretary Steven Mnuchin to resist.
Initially, Neal may request only the president’s personal returns, according to recent reports. Reviewing Trump’s individual income tax returns would give Neal a broad overview of Trump’s financial profile—as we saw with previous presidents. The personal returns would, for example, reveal the amount of taxes that Trump paid relative to his taxable income. This effective tax rate measures whether someone pays a “fair share” of taxes.
Trump’s personal tax returns also would provide some details of his income and deductions. Congress would learn how much he made in salary or wages, total business income, and investment income. It would learn if he paid any foreign taxes. The Form 1040 and schedules would show what deductions he claimed. For example, how much did he contribute to charity? And it would show if, and where, he paid state taxes. Did Trump claim his residence in high-tax New York or no-tax Florida?
However, the information from a personal tax return is only an overview. Trump, unlike other recent presidents, receives significant income from ongoing and highly complex business relationships. As such, the Ways & Means panel also needs his business tax returns to fully untangle his financial interests and conflicts.
As now IRS Commissioner Charles Rettig explained in 2016:
“For wealthy individuals [like Trump], individual tax returns sometimes only provide a brief financial overview linked to numerous other conclusions and entities. To fully understand the financial status of Trump, one would likely need to see returns for multiple years, the work-papers for the individual returns and the returns for numerous related entities . . . .”
Thus, to fulfill Congress’s oversight responsibilities, Chairman Neal also should request Trump’s business returns, with accompanying schedules. Most importantly, Neal should demand the returns of the 500 limited liability companies (LLCs) and S corporations that comprise the Trump organization, and “pass-through” their income and deductions to Trump personally. LLCs typically file partnership returns, while S corporations file corporate returns.
With these returns, and the associated schedules, Neal would find detailed information on the sources and nature of each entity’s income and deductions (before it nets gains and losses). The returns could reveal the size and location of foreign accounts and whether any of Trump’s partners are foreign, including foreign governments.They also could reveal whether the entities had any debt that was partially or fully forgiven by lenders. The schedules to these returns also could include balance sheets for a business and could reconcile differences between financial and tax income reporting.
Ordinarily, a president’s personal tax returns would be sufficient for oversight purposes. But Trump’s business and financial interests are more extensive than any past president. And he refuses to divest his sprawling business empire or transfer his interests to a blind trust. Given these unique circumstances, Neal needs to request both President Trump’s personal and business tax returns.
Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Jacquelyn Martin/AP Photo