Trump’s Emolument Tax Problem

By: David J. Herzig (photo from

When a businessperson who runs many active businesses runs and wins for President, clearly there would be many second order problems associated with inherent conflicts between running corporations and the country.  When President-elect Trump won the office, many of these conflicts have bubbled to the surface.

For example, to avoid a conflict of interest between benefiting one’s personal holdings and the Country’s best interests, assets of the President are placed in a blind trust.  As many have pointed out, this works only when the President does not know the nature of the holdings.  Putting existing businesses into a blind trust does not stop the President for knowing the underlying assets of the trust.  The conflict is not ameliorated by trust structure.  Nor, by the way, would it be fixed if President elect Trump divests but the family continues to own the assets.

For this post, I want to consider the current discussion related to the blind trust problem called emolument.  Many prior to the election probably have not heard much about the idea of emolument.  Larry Tribe and others believe that President elect Trump’s ownership of active business assets, even in a blind trust, would violate, Article I, Section 9, Clause 8 of the Constitution which prevents the President from accepting “presents” or “Emolument” from foreign states.  Others, like Andy Grewal, do not believe that mere ownership of assets triggers the Emolument Clause.

If the solution to the blind trust and Emolument Clause problems is a divesture of President elect Trump’s assets as many advocate, this would trigger (to borrow a catch phrase of President elect Trump’s) huuuuuuge tax problem.

As the NY Times reported, there was at one point a $900+ million NOL on his state tax returns.  Further, it would not be unreasonable to believe (as is often the case with active real estate investments) that President elect Trump has ownership in assets with a zero or negative basis.  So, a divestment of his specific blend of ownership assets and deferred liabilities would trigger not only a huge tax bill, but, also result in the taxation at ordinary income tax rates.

For those advocating for divestment, I posit that remedy should not bring with it a penalty.  If divestment is the cure, I think there should either be a tax holiday or tax deferral as part of the package.  As Richard Rubin pointed out to me on Twitter, section 1043 of the Code is designed to help with similar situations when the certain executive or judicial branch members are required to divest to avoid a conflict of interest.

The statute as written does not seem broad enough to solve President elect Trump’s overall tax problems from a divesture.  The statute only provides nonrecognition of “gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds the cost….”  My cursory reading of the statute is the nonrecognition of gain would not help President elect Trump’s income tax recapture potential problem.  (Once again, I say potential because without a disclosure of tax returns, we have no idea if this is a problem).  I am sure that there are many other income tax problems related to the sale of his assets that would also be triggered by the sale.  It seems to deal only the capital gain nonrecognition problems.

If the call for divestiture to calm the Emolument Clause and/or blind trust problems is to eliminate any conflicts of interest between President elect Trump’s ownership stakes in ongoing enterprises, then the remedy can’t be a tax event.  That would seemingly be the result here.  A modification of the statute would need to be implemented to achieve an equitable resolution.

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