House Democrats are scrutinizing why the Internal Revenue Service failed to fully audit Donald Trump’s tax returns when he was in the White House, despite an agency policy mandating such a review.
Some insight into the lapse came in a report Tuesday from the Joint Committee on Taxation (JCT), a bipartisan congressional panel that examined Trump’s tax returns from 2015-20.
The report suggests that part of the reason the IRS gave Trump the benefit of the doubt was because he used professional accountants for his returns, a practice widely employed by wealthy individuals.
The use of accountants is no guarantee of financial honesty. In fact, Trump’s own accountants ditched him this year after questions were raised about the accuracy of the information he was giving them.
Despite a policy mandating that IRS review a sitting president’s returns, the agency did not begin to audit Trump until 2019 — two years into his presidency, and after Democrats took control of Congress.
The JCT said in its report this week that it was not able to interview any IRS agents directly, but its review of the audit materials show that the agent who did a “preliminary risk analysis to determine the scope of the examination” of Trump’s 2015 return supported a “limited scope.”
“As additional support for a limited examination, the agent noted that the taxpayer hires a professional accounting firm and counsel to prepare and file his tax returns, and those parties perform the necessary activities to ensure the taxpayer properly reports all income and deduction items correctly,” the report said.
In its conclusion, the JCT questioned why the IRS agent reviewing the return gave the involvement of accountants so much weight.
“We also fail to understand why the fact that counsel and an accounting firm participated in tax preparation ensures the accuracy of the returns,” the report said. “We would assume this fact would be true of most, if not all, returns of high-net worth individuals, and do not believe such individuals should be subject to limited scope audits on this basis.”
“It does seem inequitable,” said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, a Washington think tank, who previously practiced tax law.
He added that the IRS’s over-reliance on, and deference to, professional accountants “illustrates how outgunned the IRS is.”
ProPublica reported in 2019 that the IRS audits the working poor at about the same rate as the wealthiest 1%, in part because audits of wealthier Americans are more time-consuming and require more resources.
Rosenthal said what troubled him the most was information in the report that indicated the IRS may have limited its inquiry into Trump’s taxes because of “case sensitivity.”
The agent noted the “complexity” of the review, given how the return tied back to earlier returns and numerous other Trump entities, but “decided not to utilize the Specialist Referral System in the practice network unless absolutely needed (due to case sensitivity); hence, no specialists were assigned,” the JCT report said.
In other words, according to the JCT analysis, the agent assigned to the 2015 review did have other options available for dealing with the large, complex nature of Trump’s taxes.
The audit of Trump’s 2015 taxes was not part of the mandatory presidential review, the JCT report said, but a review of Trump’s 2016 taxes opened later in 2019 was.
That audit listed more concerns and asked for more documentation than the 2015 audit, but the JCT still noted a dozen more avenues where the agency should have pressed for more information, including $40 million in deductions.
The JTC also chided the agent conducting the 2016 audit for putting too much faith in Trump’s accountants.
“While the IRS delved into more issues in 2016 than 2015, we are not comfortable with any reliance on professional tax preparation to ensure accuracy, and it does not appear any specialists were called in to assist,” the report said. “As the audit is not complete, we cannot comment on the results of the audit.”
The IRS declined to comment on the committee’s report and did not return a request for information on how it factors the use of accounting firms into its auditing decisions.
The JCT report was issued Tuesday, after the House Ways and Means Committee voted to make Trump’s 2015-20 tax returns public. Trump was the first president not to make his tax returns public since the 1970s.
The returns had been expected to be released this week, but Ways and Means Committee Chair Richard Neal, D-Mass., told reporters Thursday they might not be released for the “next couple of days” because staffers were still redacting sensitive personal information from the documents.
Neal is pressing for legislation that would require the IRS to publish and audit presidential tax returns.
The returns were prepared by the accounting firm Mazars, which quit working for Trump and the Trump Organization this year after investigations by the New York attorney general and Manhattan district attorney raised red flags about information Trump’s entities had been providing Mazars for years.
New York AG Letitia James has since filed a $250 million suit against Trump and his company alleging they inflated the company’s net worth by billions of dollars in order to get more favorable terms from banks and insurance companies, including on a decade of financial statements that had been prepared by Mazars.
In its resignation letter to the Trump Organization in February, Mazars Group General Counsel William J. Kelly said: “We write to advise that the Statements of Financial Condition for Donald J. Trump for the years ending June 30, 2011 — June 30, 2020, should no longer be relied upon and you should inform any recipients thereof who are currently relying upon one or more of those documents that those documents should not be relied upon.”
James also sent a criminal referral about her findings to the IRS. A spokesperson for the agency’s criminal division told NBC News in September that “IRS Criminal Investigation (IRS-CI) receives tips about potential criminal activity from a variety of sources every day. Special agents review information received for further criminal investigation. The agency doesn’t confirm the existence of investigations until court documents are publicly available.”
Trump has denied any wrongdoing, and his lawyer Alina Habba said of James’ allegations that “we are confident that our judicial system will not stand for this unchecked abuse of authority, and we look forward to defending our client against each and every one of the Attorney General’s meritless claims.”