Trump's tax returns will be immediately under audit

WASHINGTON — For the average taxpayer, the odds of being audited by the Internal Revenue Service are just 0.7%.

Unless you're President Trump, in which case your chance of an audit rises to 100%.

It's not just that his net worth and more than 500 partnerships make him a likely audit target under IRS policies designed to direct its enforcement efforts to the richest taxpayers. Under an obscure Internal Revenue Service rule, the tax returns of the president and vice president are automatically audited, every year, no exceptions.

That rule has been in place in one form or another since the Nixon administration, and it details the process for auditing presidential tax returns in minute detail — even down the color of folder they must be kept in.

Presidential tax returns have been subjected to that process for more than 40 years, but it's taken on new significance this year. It's indisputable that Trump's tax returns will be the most complicated of any president in history, and he's the first president since Gerald Ford to refuse to publicly release copies of those returns.

Why? Trump says he won't release his tax returns while they're under audit. "I will absolutely give my returns, but I’m being audited now for two or three years, so I can’t do it until the audit is finished, obviously," Trump said at a Republican primary debate last year.

And that's where some Democrats think they've found an opening.  "At the very least, even if he continues to hide behind the phony excuse of being under audit, he should release tax returns for 2016 as those are not under audit," said Rep. Joe Crowley, D-N.Y., during a debate in the House of Representatives last month.

But if Trump continues to use the audits as a reason to avoid releasing his returns, he can use that rationale for the remainder of his presidency.

The IRS rules mean that Trump will not be the first president to have his returns under audit. The agency treats presidential and vice-presidential returns similarly to those of IRS employees, who also receive a mandatory audit. The procedures are spelled out in detail in Internal Revenue Manual Section 4.2.1.11:

► The tax returns must be given a full audit — not just a pre-audit survey — regardless of whether a computer program known as the Discriminant Inventory Function identifies the return as raising red flags.

► The audit is fast-tracked. "The returns must be assigned within 10 business days of receipt in the group. The returns require expeditious handling at all levels to ensure prompt completion of the examinations."

► The returns must be carefully guarded, and locked away when not being actively examined.

► "The returns should be kept in an orange folder at all times." Under the IRS color scheme, orange folders get the third-highest priority, and are reserved for mandatory audits of the president, vice president, and IRS employees.

The process begins when the returns arrive in the office of the deputy commissioner for services and enforcement, the top career — that is, not politically appointed — official at the IRS.

One former deputy commissioner, Mark Matthews, said the process was so routine that it barely even came to his attention. “It definitely goes through the deputy commissioner’s office, and I know there was a safe in the back of my office where they kept the original returns,” he said.

Matthews said IRS agents are “scrupulously nonpartisan” and would treat the president’s returns without regard to political agendas. “It is drilled into IRS agents to treat similarly situated taxpayers similarly. ‘It’s not who you are, it’s what your taxes are,’” he said.

Once completed, the presidential tax returns are kept in a locked safe in room 3014 of the IRS headquarters in Washington.

A 1997 audit by the General Accounting Office found that every presidential tax return since 1913 was accounted for, kept meticulously in special folders designed to protect the documents from deteriorating over time.

But many of those documents are missing a key part of the return. In her book Unbridled Power: Inside the Secret Culture of the IRS, the agency's former official historian revealed that many of the presidential signatures are missing from their tax returns — ripped off and stolen, apparently, as souvenirs.

As of 1997, every presidential tax return ever filed amounted to a stack of paper about 5 feet deep.

With Trump, they may need to find more room.

In a tweet last year, Trump posted a photo of him signing what he said was a recent tax return, with paper stacked more than three feet high. "Isn't this ridiculous?" he wrote.

As recently as 2015, Trump promised he would release his returns. But beginning last year, he started to add a qualifier. “I will really gladly give them. When the audit ends, I’ll present them. That should be before the election," he told ABC News last May.

He never did — nor had he released prior-year returns no longer under audit.

While Democrats, watchdog groups and news organizations have sought his returns in order to examine them for conflicts of interest, tax experts say there's another important reason to release them now that he's president.

Now that he's president, the integrity of the tax system is at stake, said Joseph Thorndike, director of the Tax History Project and an editor for Tax Analysts. "Can we trust the IRS to enforce the law against their boss? Putting it in the baldest terms, that's really the question," he said. "This is an important threshold we’re about to cross."

Indeed, the mandatory audits come out of a largely forgotten Nixon scandal, when it appeared that tax problems — not the break-in at the Watergate hotel — was most likely to bring down his presidency. Nixon had claimed a $576,000 deduction by donating his vice presidential papers back to the government. Nixon invited the Joint Committee on Taxation to examine his returns, which led to  $476,451 in back taxes and interest.

Since then, most presidents have released their tax returns shortly after filing them — usually on the Friday night before April 15, when they're less likely to get much attention.

Trump has not yet taken any definitive position on whether he'll release his returns this year.

"Again, we'll cross that bridge when it comes to it," Spicer said last month. "But the President has been very clear throughout the campaign and consistent that he’s under a routine audit."

But will that position change now that Trump is president?  "I don’t know," Spicer said. "I’m worried about getting my own (taxes) done."

"Again, we'll cross that bridge when it comes to it.  I think the President has been very clear about his position on his tax returns, and we'll have to see where it goes from there.  But the President has been very clear throughout the campaign and consistent that he’s under a routine audit," Spicer said last month.

© 2017 KING-TV


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