The Washington PostDemocracy Dies in Darkness

Opinion Why did the IRS drop the ball on Trump’s tax audits?

Columnist|
December 22, 2022 at 4:58 p.m. EST
The IRS building in Washington. (Sarah Silbiger for The Washington Post)
4 min

After years of anticipation, America is finally about to see former president Donald Trump’s tax returns. House Democrats released summary reports on Tuesday and are expected to provide the underlying (redacted) returns soon.

The materials available so far present two big questions: 1) What kinds of financial shenanigans was Trump engaged in? And 2) why, exactly, did the IRS drop the ball on monitoring question No. 1?

The answer to the first question: possibly a lot. Staffers on Congress’s nonpartisan Joint Committee on Taxation (JCT) have identified many dodgy-looking things in Trump’s returns. These include questionable charitable contributions; “loans” to his children that might have been (taxable) gifts; “business” expenses that look like personal hobbies; and various other “Large unusual questionable items," as IRS staff put it, that Trump deducted as losses.

(Aside: “Large Unusual Questionable Items” would be a great name for a band.)

Trump’s audits are not complete, so we still don’t know whether any of these items were illegal. Fraud allegations aside, issues of national-security significance await resolution, including where Trump gets his money from, whom he still owes money to and, thus, whether he governed (or possibly will govern again) in the country’s interest or his own.

The JCT report, for instance, suggests that Trump received significant income from overseas while in office. In fact, in at least one year, Trump reported paying more in foreign taxes than in net U.S. income taxes. We still don’t know in which countries he earned this income, or, more importantly, who was paying him.

In the course of auditing Trump, the IRS could have asked for documentation to substantiate these foreign tax transactions. IRS agents also could have asked for documentation on the debts Trump owes, to corroborate any interest expenses he has deducted.

From what we know so far, though, it seems unlikely they did this due diligence.

So why didn’t the IRS do more to vet Trump’s finances?

According to the House Ways and Means report, the IRS only began auditing Trump’s tax-year 2015 return in April 2019 — more than two years into his presidency. This should set off alarm bells: There were lots of red flags about Trump’s tax behavior even before he took office. More important, the IRS’s own manual says the agency must audit the sitting president’s returns every year, even when there aren’t red flags.

Yet for some reason, it didn’t do so — at least, not until House Democrats asked for documents about those presumed-to-be-already-ongoing audits in April 2019.

To be clear: We’ve known for a long time that the IRS has been under-auditing wealthy taxpayers and large corporations, mostly because the agency was outgunned. Taxpayers like Trump have huge and (deliberately) complex returns. They can afford armies of accountants and attorneys to help them get away with aggressive measures, and the skeletal IRS doesn’t have the resources to challenge them. This is partly why Democrats decided recently to invest $80 billion in the IRS: to improve customer service and beef up enforcement.

But what’s astonishing here is that it seems the IRS was not just under-resourced but also timid.

Even once the belated audits commenced, agency staffers were bizarrely deferential to Trump’s tax counsel. Reports from the nonpartisan Joint Tax Committee and the Democratic-led Ways and Means Committee note that Trump’s team was often uncooperative, “failing to provide all the facts needed to resolve certain issues.” Yet IRS staffers apparently let it slide.

Sometimes IRS agents didn’t even ask for substantiation for apparently suspect tax claims. According to the Ways and Means Committee, IRS employees wrote in their notes that because Trump “hires a professional accounting firm and Counsel to prepare and file tax return,” that must mean the information contained in his returns was “properly” reported.

The JCT report even mentions an internal IRS email saying staff were reluctant to bring up long-standing subjects of contention for fear of upsetting their “good relationship” with a new representative Trump had hired.

This is not how audits usually work, to put it mildly. But it might explain why the Ways and Means staffers received “fewer documents than expected” from the IRS in response to their subpoena: The IRS waited to begin its due diligence, and then struggled to complete it.

Again, we don’t know why the agency didn’t put more resources toward these audits or why IRS staffers seemed scared of their own shadows. Maybe this outcome was due to overt intimidation from Trump or his minions. Maybe the reason is more benign but still troubling, such as disorganization or incompetence.

But the whole point of the IRS’s mandatory presidential audit program is to verify that the president is not behaving as if he’s above the law and that there’s no political interference in tax administration. From what’s been released so far, we can’t be confident about either.