Will President Trump’s Tax Return Problems Continue To Follow Him?

On Monday, the Supreme Court denied former President Donald Trump’s request to prevent the Manhattan District Attorney Cyrus Vance from obtaining his financial records, including his tax returns. Trump’s tax returns have been a source of controversy since he broke tradition by not making them public during his election campaigns. But now that he is out of office, how relevant will his tax returns be?

This case didn’t begin as a request for Trump’s tax returns. In 2019, the DA began investigating Trump to determine whether certain payments to his former lawyer Michael Cohen in 2016 may have violated New York state law. While Trump and his organization initially cooperated with the investigation, it ended when the DA’s office requested eight years of Trump’s tax returns and other financial documents.

The District Attorney then sent a subpoena to Trump’s accountants demanding the returns. Trump filed a lawsuit in federal district court to block the subpoena. His lawsuit was rejected and so was his appeal to the Second Circuit. He then appealed to the Supreme Court. The Court dismissed his appeal, holding that the president is not absolutely immune from state criminal subpoenas nor entitled to a heightened standard of need. But the court remanded the case back to the lower courts to allow Trump to challenge the subpoenas on other grounds.

On remand, he argued that the subpoena was overbroad and was issued in bad faith. The district court rejected these arguments and, on appeal, the Second Circuit affirmed. The Second Circuit noted that while subpoenas have limits, they need to be broad in order to conduct an effective investigation. In addition, the court was not convinced that the subpoena and District Attorney’s attempt to obtain Trump’s tax returns was a politically motivated attempt to harass and embarrass him. The grand jury investigation must comply with secrecy laws and the tax returns cannot be disclosed to the public.

Last October, the president filed an emergency request with the Supreme Court for a stay of the subpoena enforcement order until the court decides on the issue on the merits. And on Monday, the stay request was denied.

At this point, does Trump have any other options? Probably not unless the Supreme Court can quickly grant certiorari on his claim and rehear the case on the merits. But without the stay, the issue will be moot since the tax returns will already be in the District Attorney’s hands.

What’s unclear is why Trump has not disclosed his tax returns. His enemies think that they will reveal criminal activity. Or at a minimum contradict his boastful claims about how rich he is. The New York Times’s investigation reveals that despite his wealth, he paid only $750 in federal income taxes. However, this was partially due to past net operating losses that he carried forward to offset more profitable years. He also took advantage of several tax credits to reduce his bill. Finally, he paid $24 million to the government through the Alternative Minimum Tax.

It might also be possible that the tax returns have no incriminating or embarrassing information. Trump could be withholding his returns simply to distract his enemies. I like to believe that Trump has competent tax advisors who will steer him away from criminal activity. Also, if the tax returns really did contain any illegalities, they would have been leaked long ago. The resulting public criminal investigation would have damaged his political image even among conservatives. On the other hand, given the legal fees that have likely piled up trying to quash the District Attorney’s subpoena, this can turn out to be a very expensive way for Trump to troll his enemies.

But what’s next for Trump’s tax returns now that he is no longer in office? Yesterday’s Supreme Court action could be an indication that they do not want to interfere with future subpoenas.  And Democrat members of the House Ways and Means committee and the Senate Finance committee are likely to have no trouble getting Trump’s tax returns now that one of their own is in the White House.

It is highly unlikely that Trump will release his tax returns on his own. There seems to be no benefit to him to do so at this point. The tax returns will be scrutinized and his enemies will find a way to embarrass him. It can lead to additional inquiries by other District Attorneys even if they end up revealing nothing. However, if he plans to run for public office again, he may be required by law in some states to disclose his tax returns in order to be on the ballot.

The Democrats may try to release his tax returns to the public once they get a hold of them. However, releasing sensitive financial information of an ex-president can look like a serious abuse of government power. What’s the point of publicizing the tax returns of someone with no current public duties? Republicans will likely do something similar when it is their turn with the gavel. So if they do this, they better have a really good legislative purpose to do so.

There is something we mortals can learn from this. Tax returns are not safe from a criminal investigation. While there is an accountant-client privilege, it is not as broad as the attorney-client privilege. Tax returns are not a legal work-product even if the returns are prepared by an attorney. So tax returns can be subject to a subpoena.

Trump, by failing to share his tax returns to the public, violated a tradition but not the law. Despite this, he was able to win the presidency in 2016. However, the tax returns have haunted Trump’s  presidency as others have tried to get them. And now, the Supreme Court has essentially allowed the Manhattan District Attorney to get them. Even though Trump is no longer president, his tax returns could still be relevant if certain people continue to demand them. We will see if Trump will continue to be protective of his tax returns as a private citizen.

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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 [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.