Court Stays Ruling Allowing Disclosure of Trump's Tax Returns Pending Appeal

(Parker Tax Publishing January 2022)

A district court granted former President Donald Trump's request to stay the court's prior ruling dismissing his suit to keep the Treasury Department from disclosing his tax returns to the House Committee on Ways and Means pending his appeal to the D.C. Circuit. The district court determined that a stay was appropriate under the circumstances considering that the absence of a stay could result in the mooting of the case. House Committee on Ways and Means v. Department of the Treasury, 2021 PTC 399 (D. D.C. 2021).

Background

As Donald Trump campaigned for the 2016 Republican presidential nomination, he refused to publicly release his tax returns. That refusal led many - including his eventual opponent, Hilary Clinton, and then-Vice President Joe Biden - to demand that he release his returns. Trump won the nomination and the election without ever releasing his tax returns. Republicans also won a majority in both the House and the Senate.

After the 2016 elections, Representative Richard Neal (D-MA) became the ranking member of the House Committee on Ways and Means (Committee). Within months of President Trump's inauguration, he and other Democratic lawmakers suggested that the Committee should invoke Code Sec. 6103(f) to request President Trump's tax returns. Under Code Sec. 6103, tax returns and return information are generally confidential, and unauthorized disclosure of tax returns is a felony. However, Code Sec. 6103(f) authorizes congressional committees to request tax returns from the Treasury Department, and the Treasury Department "shall furnish such committee with any return or return information specified in such request." Code Sec. 6103(f)(4)(A) authorizes three committees to submit the received information to the full House or Senate, placing it in the congressional record. However, committees hardly ever do so. A committee has published tax information only once under Code Sec. 6103(f) - in 2014 after an investigation into the IRS's discriminatory treatment of conservative organizations. Previously, there had never been a request under Code Sec. 6103(f) for the tax information of a former or sitting President.

Ninety-two House Democrats, including Neal, sponsored a resolution to require the Treasury Department to provide Trump's returns to the House, but the Committee's Republican majority rejected it. In the 2018 election, voters gave Democrats control of the House and thus of the Committee. Ranking Member Neal became chairman and announced that the Committee "would pursue the public release of President Trump's tax returns." In April 2019, Chairman Neal officially requested the tax returns through a two-page letter to the IRS (2019 Request). That letter said the Committee was considering "the extent to which the IRS audits and enforces the Federal tax laws against a President." Chairman Neal noted that an IRS policy - called the Presidential Audit Program (Program) - required a mandatory examination of the President's tax returns. The Chairman then wrote that the Committee needed "to determine the scope of any such examination" and whether it reviewed all "underlying business activities required to be reported."

To that end, Chairman Neal requested under Code Sec. 6103(f) the tax returns from 2013-2018 for President Trump and for eight business organizations controlled by Trump. Chairman Neal also requested any administrative files for those returns, as well as a statement by the IRS on whether it had audited each taxpayer and, if so, what information had been examined. The Treasury denied his request. Reviewing public statements by congressional Democrats, the Treasury concluded that the request's stated purpose contradicted what Democrats had "repeatedly said was the request's intent: to publicly release the President's tax returns." The Department of Justice agreed. In a memorandum opinion, DOJ's Office of Legal Counsel (OLC) summarized public statements from Democrats and found that no one had previously explained an interest in the tax returns by reference to the IRS audit Program. The Committee's newly asserted rationale was "pretextual" according to the OLC.

The Committee then sued the Treasury Department and Trump intervened. During the pendency of the case, President Trump lost the 2020 election, and the incoming Biden Administration reconsidered the Treasury Department's litigation position. Meanwhile, in June 2021, Chairman Neal sent another letter to the Treasury Department requesting Trump's tax returns (2021 Request). The 2021 Request asked for the same types of information as the 2019 Request, invoking various justifications. Unlike that earlier letter, however, Chairman Neal requested Trump's materials from 2015-2020. Shortly after Chairman Neal sent the 2021 Request, OLC released a new opinion stating that Code Sec. 6103(f) required the IRS and the Treasury Department to comply with the Committee's request. Armed with the new OLC opinion, the Treasury Department announced that it would hand over Trump's tax returns, and the Committee dismissed its suit against the Treasury Department.

Trump then brought counterclaims and crossclaims against the Committee and the Treasury Department. Trump argued that (1) the Committee's request for tax materials lacked a valid legislative purpose; (2) the Committee's request violated the separation of powers; (3) Code Sec. 6103(f) is facially unconstitutional; (4) the Treasury Department switched its position in retaliation against Trump in violation of Trump's First Amendment rights; and (5) the request violated Trump's due process rights because IRS audits were ongoing and congressional access to his tax materials would influence the outcome of the audits.

Analysis

In Committee on Ways and Means, U.S. House of Representatives v. U.S. Department of Treasury, 2021 PTC 395 (D. D.C. 2021), the district court granted the Committee's and the Treasury Department's motion to dismiss Trump's claims. The court found that the bar for establishing a valid legislative purpose is a low one and that the Committee's study of the Presidential Audit Program was a valid purpose, even though statements by Chairman Neal and other legislators showed mixed motives underlying the 2021 Request. The court explained that the test is whether Congress has a valid legislative purpose, not whether that is the only purpose. The court also rejected Trump's separation of powers argument after finding that the threat to the executive branch from a Code Sec. 6103(f) request on a former President is minimal and the Committee's reasons for its request overrode that minimal intrusion. Regarding Trump's constitutional challenge to Code Sec. 6103(f), the court said that to succeed, Trump had to show there was no set of circumstances in which Congress could permissibly use Code Sec. 6103(f). But the court found that a committee's request premised on a valid legislative purpose was a set of circumstances in which Congress's use of the statute would be constitutional. Trump's retaliation argument was rejected by the court based on Trump's failure to allege that his politics were the but-for cause of the IRS's and the Treasury Department's change in positions. Finally, the court found no violation of Trump's due process rights since Congress's investigation of a pending audit of Trump's information did not by itself raise a due process problem and Trump did not allege that the Committee ever exerted pressure on the IRS decisionmakers who are conducting the audits of Trump's tax information.

Observation: The court cautioned Chairman Neal against publishing Trump's returns. The court said that public disclosure of another's tax returns is a grave offense and observed that prior committee chairs have wisely resisted using Code Sec. 6103(f) to publicize individuals' returns. However, the court remarked that while it might not be right or wise to publish the returns, it is Chairman Neal's right to do so, since Congress has granted him this extraordinary power and courts are loath to second guess congressional motives or duly enacted statutes.

Trump appealed the district court's ruling to the D.C. Circuit (an appeal which is still pending). He also filed a motion in the district court requesting a stay of its ruling pending the expedited appeal. The Committee did not oppose Trump's motion. The district court considered four factors for a stay pending appeal: (1) the likelihood that Trump will prevail on the merits; (2) the chance of irreparable injury to Trump absent a stay; (3) the possibility that a stay would substantially harm other parties; and (4) the public interest in a stay. Upon consideration of these factors, and recognizing that the absence of a stay could result in the mooting of the case, the district court found that a stay is appropriate.

For a discussion of tax provisions relating to disclosures of tax returns and return information, see Parker Tax ¶262,140.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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