By: David J. Herzig
I was given a heads up yesterday about new legislation requiring disclosure of a presidential candidate’s tax returns (thanks Janet Novack). In the wake of our coverage of the tax issues related to the presidential race, it is worth mentioning the legislation proposed by Senate Finance Committee Ranking Member Ron Wyden, D-Ore.
According to the press release: “‘Since the days of Watergate, the American people have had an expectation that nominees to be the leader of the free world not hide their finances and personal tax returns,’ said Wyden.
“The Presidential Tax Transparency Act says that within 15 days of becoming the nominee at the party convention, the candidate must release their most recent 3 years of tax returns to the Federal Election Commission (FEC). Should the candidate refuse to comply, the Treasury Secretary will provide the tax returns directly to the FEC for public release.”
As an initial matter, I am in favor of codifying a rule requiring the disclosure of tax returns if you a candidate for president on any State’s ballot. As I read the legislation, there seem to be major problems with the language of the statute. This makes me think that the legislation is more of a publicity stunt then a force for meaningful change.
Here are some of the problems I see with the legislation:
- Why is the legislation limited to candidates of a “major party?” If nothing this year we have seen that a meaningful third party independent candidate could run for president. If, for example, Donald Trump was not the Republican nominee, but, rather, ran as an independent, he could avoid the return disclosure requirement. Ross Perot, after all, was an independent candidate. Should his returns be exempt? Why not just base the disclosure on appearing on a ballot.
- What is a tax return? Up to now, most candidates would release only the first two pages of the return. Is this compliant with the proposed legislation? According to the proposed legislation, “The term ‘income tax return’ means any return (as defined in section 6103(b)(1) of the Internal Revenue Code of 1986) relating to Federal income taxes.’’ Under, 6103 (b)(1), “The term ‘return’ means any tax or information return, declaration of estimated tax, or claim for refund required by, or provided for or permitted under, the provisions of this title which is filed with the Secretary by, on behalf of, or with respect to any person, and any amendment or supplement thereto, including supporting schedules, attachments, or lists which are supplemental to, or part of, the return so filed.” (emphasis added). So, I would expect that the schedules need be filed, but the legislation should be more clear. My concern is that the historical precedent for disclosure is the first two pages. If it was interpreted to be the first two pages, this would be an especially troubling outcome for many commentators, like Joe Thorndike, who have rallied against this partial disclosure.
- Whose income tax return? What if all your income, e.g., Donald Trump or John Edwards, is k-1 income? Does the underlying 1065 tax return have to be released or are we stuck with figuring out schedule E? What if you are a trust fund kid and have only trust income via k-1? Do we get to see the trust 1041? What if you file as married filing separately and your spouse is the wealthy taxpayer with the gaming? Why do we not want to know what the family unit is doing?
What about if you are under audit as Mr. Trump is? Do we get to see the audit request? The deficiency notice? If we are determining loopholes, then we should know where a candidate got caught with their hand in the cookie jar. Why not instead use 6103(b)(2)? That section states uses return information which is much broader and gives the information that most commentators are really looking for. According to the section, “The term “return information” means—
(A) a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense,
(B) any part of any written determination or any background file document relating to such written determination (as such terms are defined in section 6110(b)) which is not open to public inspection under section 6110, …”