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Ramifications of New York’s Proposal to Disclose Trump’s Returns

Posted on June 12, 2019

Ivanka Trump, Jared Kushner, Treasury Secretary Steven Mnuchin, Hillary Clinton, U.S. Rep. Alexandria Ocasio-Cortez, D-N.Y., and Michael Bloomberg all could be affected by pending New York legislation to make President Trump’s tax returns public. 

Bills passed by the New York State Legislature would offer not only the president’s state tax records to requesting congressional committees, but also the records of any person — past or present — who served in or was employed by the executive branch or by the office of the president.

S. 6146 and A. 7750, which have not yet been sent to Gov. Andrew Cuomo (D), also would authorize the State Department of Taxation and Finance to release to the chairs of the U.S. House Ways and Means Committee, the Senate Finance Committee, and the Joint Committee on Taxation any New York tax records filed by a U.S. vice president, any person in a role subject to confirmation by the U.S. Senate, any member of Congress representing New York, and any statewide elected official such as the governor or attorney general. 

Congressional committees headed by different political parties conceivably could turn the requests into a free-for-all. Were Democrats to seek disclosure of the New York returns of Ivanka Trump and Jared Kushner, for example, Republicans, in theory, could retaliate by requesting the New York returns of former Secretary of State Hillary Clinton and her deputy chief of staff, Huma Abedin.

Similarly, any current or former top Treasury official who worked on Wall Street would be subject to New York’s disclosure requirements, as would New York Mayor Bill de Blasio (D) and former mayors Michael Bloomberg and Rudy Giuliani, whose state returns otherwise would not be subject to disclosure in his role as Trump’s personal attorney. 

Notably, the disclosure requirements would also extend to entities in which these categories of people control a stake of 10 percent or more.

Lawmakers amended the language in three key ways: The bills were narrowed to apply only to government officials or employees; to require redaction of all federal information entered into or attached to the state return; and to require the requesting congressional committee to certify that the request for the returns be “related to, and in furtherance of, a legitimate task of the Congress” rather than to “a specified and legitimate legislative purpose.” 

“It was essential to make sure the legislation New York enacts is upheld in court,” said Assembly member David Buchwald (D), a tax attorney and author of A. 7750. The original legislation potentially subjected 19 million New Yorkers to the disclosure requirements, he told Tax Notes.

“It was narrowed to elected officials representing New York, top appointees, and the businesses those individuals are significant shareholders of or they otherwise control,” Buchwald said. “It includes thousands of tax filers, but not millions. It’s still broad enough to ensure legality without implicating broader privacy concerns.” 

Buchwald emphasized that the legislation exists against the backdrop of congressional committee chairs already authorized to have access to every American’s federal tax returns. Also, New York has information sharing agreements with the IRS and with dozens of other states, he said. Given this context, the legislation “is actually a fairly modest expansion of existing tax sharing principles,” he said.

Inspiration for Measures

Daniel Hemel, an assistant professor of law at the University of Chicago Law School, argued that the New York law was on solid ground regarding constitutionality, but that the provision for redaction of federal return information was necessary to preempt the possibility the IRS would retaliate and cut off information sharing with New York. 

Hemel’s 2017 white paper, “Can New York Publish President Trump’s State Tax Returns?” published in the Yale Law Journal's online forum, was the inspiration for portions of the state's 2019 legislation, Buchwald said.

In the paper, Hemel challenged the assertion that the law would be challenged as a bill of attainder, which is an act that unconstitutionally imposes punishment upon a specific person or group of persons. Hemel pointed to the 1977 Supreme Court decision in Nixon v. Administrator of General Services, which upheld the application of the Presidential Recordings and Materials Preservation Act to a class of one named president in narrow circumstances. By opening the New York disclosure authorization to several groups of people, the state legislation would avoid such a legal challenge.

Yet House Ways and Means Committee Chair Richard E. Neal, D-Mass., has stated that he would not request the president’s New York tax returns for fear that it would jeopardize the subpoena lawsuit by appearing to go on a “fishing expedition.” 

Responding to that characterization, Hemel likened any request for Trump’s tax returns to staring down the great white shark in the movie “Jaws.”

“We know that he has reported negative income for years while also claiming to be a billionaire,” Hemel told Tax Notes. “We have seen him brag about tax sheltering in public — calling it ‘sport.’”

Hemel said he wasn’t concerned about the potential for future abuse of requests to New York. He argued that the state measures have nearly identical language to that contained in IRC section 6103(f), which "has been on the books for nearly 100 years and it has not been the subject of any significant abuse.”

Also, the basis upon which congressional requests to the IRS for federal returns can be made — and the basis on which Mnuchin has denied Neal's request — is dependent on whether the request serves a "legitimate legislative purpose." Buchwald said New York’s “legitimate task” language — a term of art under the 1957 Supreme Court case Watkins v. United States — is broader. "No inquiry is an end in itself; it must be related to, and in furtherance of, a legitimate task of the Congress," the Court held in Watkins. "Investigations conducted solely for the personal aggrandizement of the investigators or to 'punish' those investigated are indefensible."

Hemel said New York's amended returns in particular would be relevant to the Ways and Means Committee because they would provide insight into the results of past IRS audits of the president, which is the stated purpose of the congressional inquiry. Also, the original returns would show the president’s New York adjusted gross income, New York taxable income, and any deductions he claims on his IT-201 resident income tax return.

Potential Dangers

University of Iowa law professor Andy Grewal had a different take than Hemel on the historic use of section 6103(f), arguing that it generated controversy in 2014 when House Republicans obtained information related to the Tea Party targeting controversy and publicized that information.

“Also, section 6103(f) was used to request tax return information from groups opposed to the Vietnam War and from the Black Panthers. So there is at the least the potential for abuse under section 6103(f),” Grewal told Tax Notes. “At least some prior actions under section 6103(f) have seemed politically motivated.”

In a white paper of his own, Grewal wrote that only in the context of impeachment does Congress have a near-automatic right to the president’s federal return information. 

However, Grewal said that if a state wants to hand over tax returns and a congressional tax committee wants to receive them, “it is hard to think of a federal law that could block the committee’s action.” The state law itself, rather than the congressional committee request, could be challenged as an unconstitutional bill of attainder, he said, adding that is not easy to establish.

“What we’re seeing here is increasing politicization of tax administration,” said James W. Wetzler, a former New York tax commissioner who also formerly served as JCT staff. He said Treasury’s decision to turn down the Ways and Means Committee’s request for Trump’s tax return “based on an obviously strained reading of section 6103, which evidently didn’t reflect the position of the IRS Chief Counsel’s office, appears to have been a political decision,” and that there is now the potential for politicization at the state level.

“With this bill, New York state would put itself in the position of evaluating congressional requests for return information based on whether they further a legitimate task of Congress, potentially putting the New York state tax department squarely in the political crosshairs,” Wetzler said.

Beyond that, Wetzler said he has mixed feelings about New York’s legislation. “Trump and his enablers are eroding numerous democratic norms,” he said. “That leaves his opponents with the choice of maintaining these norms and accepting the resulting constraints, or violating them and thereby reducing the chance that the norms ever will be reestablished. I suppose it depends on one’s views of the seriousness of the threat that Trump poses to democracy.”

Grewal, meanwhile, ended on this note: “New York officials have been aggressive when targeting persons in Trump’s orbit and have even removed protections previously provided to criminal defendants. So if this legislation does not lead to disclosure of Trump’s tax return information, I would not be surprised if the legislature tried other methods to compromise taxpayer privacy.”

“If the next president is a Democrat, then a Republican-controlled state with access to the president’s confidential medical or educational records might pass legislation similarly designed to retroactively remove privacy protections,” Grewal said. “Materials that citizens transmit to the government in confidence should not subsequently be used by that government for political advantage or retribution."

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