A short answer on Donald Trump not releasing his tax returns - by Daniel L. O’Neil

by News Editor
in Blog
on 26 February 2016
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Our fine city (and my alma mater the University of Houston) played host to the final GOP debate before Super Tuesday last night. Besides some of the horrifying things the candidates said about other issues (including Rubio putting DACA in his crosshairs and Cruz again not taking the opportunity to finally publicly comment for the first time that he is in fact not the Zodiac Killer) the most important part of the evening was the discussion of Donald Trump’s tax returns. 

Prior to the debate the previous general election-loser Mitt Romney took a hilariously ironic position on The Donald’s tax returns. As a brief reminder: Mitt Romney only released two years of tax filings and a summary document of other years, all at the eleventh hour leading up to the general election four years ago. During the debate last night Donald Trump admitted on air that some of his open tax years were being “routinely” audited, as they had been in most of the prior tax years.

The most important takeaway for you today is that there is no stigma in being audited by the IRS. Many audits are closed out with no adjustments made – that is to say, the IRS took a closer look at everything, found no genuine issue, and moved along. That is how many audits end. Other audits end with minor adjustments – the Code is so complex, Byzantine, and contradictory even if you have an army of tax lawyers and a friendly CPA you still might make a mistake or two that the IRS is going to correct, and you pay the fair shake on the difference without a serious violation going on your permanent taxpayer compliance “report card” history. Many audits end with the whimper, not the bang in the taxpayer writing a check for a few extra bucks to Uncle Sam. And then there are the other kinds of audits that have larger (if not financially devastating) impacts. There is a whole spectrum on how “bad” those can go – in terms of taxpayer compliance history, in terms of legal fees if you are going to fight it in both the administrative and litigated controversy process, and in terms of shockwaves the one bad result will have in prior open years (a cascading bad result) and in future years to come.

The Donald referenced that his lawyers would tell him not to release the tax years that were currently being audited. This is sound advice. There is a difference between the IRS itself releasing a person’s returns (super illegal) and a candidate choosing to disclose them to silence the hushed whispers from previous general election-losers in the shadows. The Donald could disclose them if he wanted but there is zero reason to do so. Why?

America is composed of two distinct classes of taxpayers – (A) those that write checks to tax professionals hand over fist with the simple instructions to put together a plan where they pay the least amount of tax to the government and (B) those that do not have the resources to invest in the army of tax professionals.

In this system, Class A taxpayers push the envelope on tax positions. There is no reason to play it conservatively so long as the positions meet the minimum requirements of tax ethics and pass the laugh test when you need to explain your position in audit. Class A taxpayers never have “final returns” until the tax year is completely closed out, absent fraud or other crime issues that will re-open “closed” years. The benefit of pushing the envelope is the ability to amend and re-file year over year until the year is closed out with finality, absent the scenarios that would extend the statute of limitations. The Donald is a wealthy successful businessman. It is no doubt that he is a Class A taxpayer. Releasing returns for open years puts the world on notice on what his positions were – which jeopardizes further amendments and re-filings. Also releasing a return still under audit is not releasing a “final return” since there could still be significant adjustments made to it to close out the audit.

Audits are always a scary proposition for an individual, for their family, and for their business. The benefit of the tax controversy system is being able to find the right type of tax professional for your issue among your choices of Enrolled Agent, CPA, or Tax Attorney. Each of the three is best suited for certain types of audits. They all have different levels of formal education, experience, and advocacy skills which are essential in audits. They all come at different price points. You will like some, you might hate some. But you get to pick what fits you and your needs the best and you get that professional or those professionals to help guide you through the administrative, and perhaps the litigated controversy too.

If we can help you with your IRS or any other tax issue that is weighing on your mind please call us today