When Donald Trump is sworn in as the nation’s 45th president, his complex business empire will immediately be subject to an audit by the Internal Revenue Service.
Thanks to an obscure provision in the IRS manual, Trump and his vice president, Mike Pence, will each be under a mandatory audit annually.
“The requirement for mandatory audits of the tax returns of the president and vice president dates back to the Watergate era in the 1970s,” the IRS said in a statement to McClatchy, noting that nonpartisan career employees adopted the requirement. “Since then, this provision has remained in place during both Republican and Democratic administrations as well as under IRS Commissioners appointed by both parties.”
The little-known provision in the IRS manual spells out strict rules under which the returns are audited. They require expeditious processing, and unusual security precautions. For example, the returns “should be kept in an orange folder at all times.”
Those audits, it adds, must be completed at the Baltimore Technical Services office of the IRS. They must be kept out of view of other IRS employees and locked “in a secure drawer or cabinet when the examiner is away from the work area.”
It’s unlikely that Trump’s tax returns will fit in a drawer or cabinet, though. In October 2015, he tweeted a photo of himself next to a tall stack of papers he said were his tax returns.
His financial disclosure forms filed with the Federal Election Commission list 584 companies on which he is a director or officer, not to mention his investment holdings. Portions of Trump tax returns leaked during the presidential campaign showed that much of his business income flows through to his individual tax return.
It means his tax filing as president will likely look much different than say President Barack Obama’s modest IRS-audited 38-page tax return. For the 2014 tax year, it listed wage income of almost $395,000 and business income of $88,181.
Changes to tax law in 1998 made it illegal for members of the executive branch to interfere with an ongoing audit. But the presidential audit provision in the IRS tax manual is an internal requirement. It does not stem from a law that mandated a corresponding regulation.
They ought to do an audit, they ought to make sure it’s right and they ought to release it to the public. Richard Painter, chief White House ethics counsel for President George W. Bush
Trump could challenge the requirement, or direct his Treasury secretary overseeing the IRS to seek changes to the longstanding practice.
“I don’t believe there is anything that would prevent the president from … instructing that this precautionary measure of the IRS audits be rescinded,” said Norman Eisen, who as special counsel to the Obama White House during the first term put in place new ethics guidelines. “He could theoretically do it.”
If the IRS audits Trump and finds an issue, it would remain between the IRS and him unless it reflected criminal activity. This would be like the back and forth of any other ordinary audit between a taxpayer and the agency.
Trump could use the automatic audit as an explanation for continuing to refuse to release his tax returns to the public. Being under audit was his main reason during the campaign, though there is no legal reason he could not release them even while an audit is in progress.
Presidents before Trump have routinely released their tax returns after the annual IRS audit, but it is not required.
Trump could simply say that the IRS knows everything, and given his business interests across the globe he’d prefer to keep it private.
“The returns are protected by law,” said Joe Thorndike, a tax historian who runs the website taxhistory.org and has tracked four decades of tax returns of presidential candidates and sitting presidents. “He’s not required to release anything so we have to rely on the agency.”
And that agency is under fire.
Congressional Republicans have criticized the agency for alleged targeting of conservatives.
Budget cuts by Republicans in Congress have left the IRS facing “chronic underfunding,” according to a 2013 report from the National Taxpayer Advocate.
Lawmakers also have tried to impeach IRS Commissioner John Koskinen, 77. His five-year term ends on Nov. 12, 2017, but he could resign before then to give Trump a chance to put in his own person.
Interference with the IRS is unlikely, said Mark W. Everson, George W. Bush’s IRS commissioner from 2003 to 2007.
“People have learned the hard way you can’t reach in,” said Everson, now vice chairman of alliantgroup, a specialty tax advisory for small and mid-sized firms. “I operated with total independence in terms of enforcement matters.”
That was a reference to Richard Nixon, whose vice president Spiro Agnew resigned in 1973 after pleading guilty to tax evasion. Nixon was audited twice by the IRS, the second time settling with the agency in 1974 and paying $465,000 in back taxes after paying almost none over three years.
Nixon made his tax returns public in a bid to quell public outcry, and since then every U.S. president has released them. Nixon’s successor Gerald Ford is the only president since who didn’t release the actual tax forms, offering instead a summary of the taxes he paid on his salary and modest tax deductions.
Unless there is an unlawful leak of Trump’s tax documents, he faced criminal prosecution for tax fraud or he chose to release his tax returns, there’s little chance the public will know how much Trump pays in taxes or what if any tax shelters he uses.
“That’s the only public information that you are going to have on anything,” said Michael Sullivan, a former IRS agent specializing in large-dollar cases and with Fresh Start Tax in Fort Lauderdale, Fla., which represents taxpayers in disputes with the IRS.