Government

President Trump Wants To Prevent New York From Giving His State Income Tax Returns To Congress

The complaint cites that the House Ways and Means Committee has no legislative purpose for seeking Trump’s state tax returns.

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(Photo by Win McNamee/Getty Images)

While the fight for President Donald Trump’s federal income tax returns continues, his state tax returns could be an easier target.

When the Democrats took control of the House of Representatives earlier this year, one of their top priorities was to get a copy of the president’s tax returns. And if they were to be handed over to the House Ways and Means Committee, it is presumed that they would be leaked to the public.

Last April, the Democrats formally demanded Trump’s tax returns from 2013 to 2018 pursuant to Section 6103(f) of the Internal Revenue Code. That section requires the IRS to give a copy of an individual’s tax return to the chairman of the House Ways and Means committee. To no one’s surprise, Treasury Secretary Steven Mnuchin politely told them to pound sand. He argued that the Democrats’ request was unconstitutional because it had no legislative purpose.

But instead of pounding sand, the Democrats pounded the courthouse doors. A few weeks ago, the House Ways and Means Committee sued to enforce a subpoena demanding the tax returns. But no matter who wins, the other side will appeal with the likelihood that the case will end up before the Supreme Court. And no one knows whether the returns will be released before the 2020 presidential election.

Days after the lawsuit was filed, the state of New York passed Senate Bill S5072A also known as the TRUST Act. This would require the New York Department of Taxation and Finance to turn over an individual’s state tax returns at the written request of the House Ways and Means Committee, the Senate Finance Committee, or the Congressional Joint Committee on Taxation, so long as the request had a legitimate legislative purpose.

Yesterday, President Trump filed a lawsuit against the House Ways and Means Committee, the New York Attorney General, and the Commissioner of the New York State Department of Taxation and Finance. The complaint seeks a permanent injunction preventing the president’s state tax returns from being given to Congress. The complaint cites that the committee has no legislative purpose for seeking Trump’s state tax returns. Also, the TRUST Act violates the First Amendment because it is seen as retaliation for President Trump’s policy speeches.

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What will Trump’s state tax returns show? For starters, his total income for the year. The New York State Tax Returns — like most state tax returns — require the disclosure of income reported on the federal returns. This includes wages, dividends, business income, capital gains, and rental income. The return also requires the disclosure of the federal adjusted gross income.

Also, while the state tax returns do not show the exact amount of Trump’s federal income tax, it is possible to make a reasonable guess based on the numbers disclosed on the state tax returns. The New York tax returns have a form for itemized deductions and they look very similar to the federal Schedule A. The New York form allows deductions for charitable donations, mortgage interest paid, as well as state and local taxes. So with the adjusted gross income and itemized deduction amounts known, it is possible to calculate the federal taxable income with a reasonable degree of certainty.

Line 60 of the state tax returns will show if any donations were made to specific causes, such as the 9/11 Memorial, Prostate Cancer, or for Missing and Exploited Children. In case anyone was still curious about Trump’s generosity.

But the state tax returns will not show how much federal taxes were paid. They also won’t show whether he was eligible for (and took) any federal tax credits.

So will this lawsuit succeed? I will defer this to those who are more familiar with Congress’s subpoena powers. But I will note that Section 6013 of the Internal Revenue Code only governs the confidentiality rules of the federal income tax returns. And considering Congress’s very broad investigatory powers, including the use of subpoenas, requesting state tax returns is fair game.

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On the other hand, it is well known that the TRUST Act was designed solely for the purpose of disclosing Trump’s tax returns and his personal financial information. While the legislative text does not mention Trump by name, the House Ways and Means Committee is not seeking anyone else’s tax returns at the moment. The lead sponsor of the TRUST Act, Senator Brad Hoylman, had this to say:

The State Assembly should responsibly and promptly move forward and take up the measure because no one is above the law.

House Ways & Means Chair Richard Neal formally requested President Trump’s federal tax returns earlier this month, setting an initial deadline of April 10. The White House also failed to comply with the second request, set for April 23. Earlier this week, Treasury Secretary Steven Mnuchin formally denied the committee’s request.

Under New York State tax law, sharing state tax return information is prohibited, except under certain delineated circumstances. The TRUST Act would create a new exception to authorize the sharing of state tax returns with a requesting Congressional committee when the request is made in the furtherance of a legitimate legislative purpose.

New York is a solid blue state and their residents would love to see Trump lose in 2020 by any means necessary. They are particularly upset because the new tax law limiting state and local tax deductions to $10,000 per year resulted in higher tax bills for many of their high-income residents.

I am almost certain that once the TRUST Act became law, a copy of Trump’s state tax returns has been prepared waiting for the formal request from the Ways and Means Committee. There will be no bureaucratic delays. The request and the returns can be sent by email. The exchange can be done in a matter of seconds. This can be crucial since the returns must be released before the 2020 presidential election.

It could be argued that such a narrowly tailored law had no purpose other than to harass or humiliate someone. This is not a legitimate legislative purpose and has the effect of punishing someone for their speech and beliefs. The federal and state governments share tax information for investigative purposes, but these are usually for suspected underreporting of taxes or possible criminal tax evasion.

What is surprising to me is that the New York state tax returns have not been leaked yet. I have to commend the New York Department of Taxation and Finance’s security procedures as I am sure there are a few people inside the agency who would be very tempted to leak the returns. For the good of the country, of course.

While a state tax return won’t disclose everything, it will disclose Trump’s total income and what his federal tax bill might be. Whether this will have an effect on President Trump’s approval rating or the 2020 presidential election remains to be seen.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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