House Democrats are examining why the Internal Revenue Service did not fully audit Donald Trump’s tax returns when he was in the White House, despite an agency policy requiring such a review.
Insight into the lapse emerged Tuesday in a report from the Joint Committee on Taxation (JCT), a bipartisan congressional panel that reviewed Trump’s tax returns from 2015 to 2020.
The report suggests that part of the reason the IRS gave Trump the benefit of the doubt was that he used professional accountants for his returns, a practice widely used by wealthy individuals.
The use of accountants is no guarantee of financial honesty. In fact, Trump’s own accountants dropped him this year after questions were raised about the accuracy of the information he was giving them.
Despite a policy requiring the IRS to review statements from a sitting president, the agency only began auditing Trump in 2019 — two years into his presidency and after Democrats took control of Congress.
The JCT said in its report this week that it was unable to directly interview IRS officers, but its review of audit documents shows that the officer who conducted a “preliminary analysis of risks to determine scope of review” of Trump’s 2015 return argued for a “limited scope.”
“As additional support for a limited review, the officer noted that the taxpayer engages a professional accounting firm and attorney to prepare and file his tax returns, and that these parties perform the necessary activities to ensure that the taxpayer correctly declares all items of income and deduction,” the report states.
In its conclusion, the JCT questioned why the IRS officer reviewing the return placed so much weight on the accountants’ involvement.
“We also do not understand why the fact that a lawyer and an accounting firm were involved in the preparation of the declarations ensures the accuracy of the declarations,” the report said. “We would assume that this fact would be true for most, if not all, returns from high net worth individuals, and do not believe that such individuals should be subject to limited scope audits on this basis.”
“It seems unfair,” said Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, a Washington think tank, who previously practiced tax law.
He added that the IRS’ overreliance and deference to professional accountants “exemplifies how outdated the IRS is.”
ProPublica reported in 2019 that the IRS audits the working poor at about the same rate as the top 1%, in part because audits of the wealthiest Americans take longer and require more resources.
Rosenthal said what troubles him most was information in the report that indicated the IRS may have limited its investigation into Trump’s taxes due to “case sensitivity.”
The agent noted the “complexity” of the review, given that the return was tied to past returns and many other Trump entities, but “decided not to use the practice network’s specialized referral system.” unless absolutely necessary (due to case sensitivity); therefore, no specialist was appointed,” the JCT report said.
In other words, according to the JCT’s analysis, the officer assigned to the 2015 review had other options to deal with the vast and complex nature of Trump’s taxes.
Trump’s 2015 tax audit was not part of the mandatory presidential review, according to the JCT report, but a 2016 tax review of Trump opened later in 2019 was.
This audit listed more concerns and requested more documentation than the 2015 audit, but the JCT still noted a dozen additional avenues where the agency should have pushed for more information, including $40 million dollars of deductions.
The JTC also chastised the 2016 auditing officer for placing too much faith in Trump’s accountants.
“While the IRS addressed more issues in 2016 than in 2015, we are not comfortable with relying on professional tax preparation to ensure accuracy, and it does not appear that specialists were called in to help,” the report said. “As the audit has not been completed, 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 considers the use of accounting firms in its audit decisions.
The JCT report was released Tuesday, after the House Ways and Means Committee voted to release Trump’s 2015-20 tax returns. Trump was the first president not to release his tax returns since the 1970s.
The returns were due to be released this week, but Ways and Means Committee Chairman Richard Neal, D-Mass., told reporters Thursday that they may not be released in the “next few days” because staff members were still in the process of removing sensitive personal information from the documents.
Neal is pushing for legislation that would require the IRS to release and audit presidential tax returns.
The statements were prepared by 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 that Trump entities had been providing to Mazars for years.
New York AG Letitia James has since filed a $250 million lawsuit against Trump and his company, alleging they inflated the company’s net worth by billions of dollars in order to obtain more favorable terms from banks and corporations. insurance, including over a decade of financial statements that had been prepared by Mazars.
In his resignation letter to the Trump Organization in February, Mazars Group General Counsel William J. Kelly said: that these documents should not be relied upon. »
James also sent a criminal reference about his findings to the IRS. A spokesperson for the agency’s Criminal Division told NBC News in September that “IRS Criminal Investigation (IRS-CI) receives information about potential criminal activity daily from a variety of sources. Special agents review the information received for further criminal investigation.The agency will not confirm the existence of any investigations until the court documents are made public.
Trump has denied any wrongdoing, and his attorney Alina Habba said of James’ allegations that “we are confident that our justice system will not tolerate this unchecked abuse of power, and we look forward to defending our client against each of the unsubstantiated claims by the Attorney General.