A lesson from Trump's taxes: An underfunded IRS is outmatched

Planet Money


And so part of the reason that president trump has been able to pace a little taxes at least according to the Times is because his businesses have lost so much money they've lost more than a billion dollars and he. Has, used the carry forward provisions among other things to reduce his tax bill for years and years. You know when you have business losses, it's like you have like money in the tax bank that you can use to pay less taxes in the future. Now, originally back in nineteen eighteen when carry-forward I started if you lost money one year, you could use that loss to reduce your taxes for next year but only for that one year and then a while later Congress said you know what you can carry over losses. For two years then Congress extended it further to fifteen years and eventually congress said you can spread your losses out. You can carry losses forward for as long as you want forever President Trump signed the bill that made that change into law in two thousand, eighteen and Isaac says there are good reasons to have this provision in the tax code it can be helpful for struggling businesses. So on the one hand, you kind of don't want your tax system to bankrupt a viable business just because it has a bad year. Right. So that's one. So it's useful but also but but depending on, you know how clever you are about your investments and how you go about booking what counts as a loss. There's lots of room to kind of gain with creative accounting. It is it is wildly open to abuse. So carry-forward is sometimes a reasonable useful thing and sometimes something that people and businesses abuse to pay less taxes than they should, and there are people at the irs whose job it is to figure out for every tax return that uses this provision you know which is this reasonable or is this abuse but as it says, the funding that pays for the IRS to enforce carry forward rules and the rest of the tax code, it has been cut for years it's been. A pretty substantial. block of the Republican Party in Congress has lined up behind the idea of really depriving the irs of teeth especially, the enforcement arm that that goes after. The rich and just like think about how expensive it can be to audit the taxes of the ultra rich fridge people do not have simple straightforward tax returns. They have a ton of paperwork fancy lawyers in. So look at the story we read The New York Times about the president's taxes right and and it was a picture that they have to assemble by looking at hundreds of different tax returns for hundreds of different entities. Now imagine having to do that for every even for one in ten rich people in the United States right Obviously, it can't be done. Except there's one congressional committee that specifically looks into the super-rich but only in some cases but but. One of those cases use the case of president trump. There was this one paragraph in the time story I mean there were a lot of paragraphs in the time story and a lot of it was interesting but there was one paragraph in particular that really I wanted to understand better. So the paragraph was related to this seventy three million dollar tax refund that Donald Trump apparently got in two thousand and ten and that he and the government are still fighting over. Okay. I'm going to read this paragraph it says quote refunds require. Blah. Blah Blah in opinion of the Congressional Joint Committee on Taxation Blah Blah Blah and tax law requires the committee to weigh in on all refunds larger than two. Million dollars to individuals. So what this paragraph is saying is there is a committee in Congress that has to give an opinion every single time the irs is about to send some rich person, a multimillion dollar tax refund as I read this and I thought like why you know what is going on you have questions. So I called Dave Norton he's a corporate lawyer who used to work at this committee, the Joint Committee on taxation, and he told me this is not a normal kind of congressional committee. You know it doesn't right laws. It doesn't hold hearings where lawmakers ask questions that are really more like comments and the joint committee staff is. A non-partisan expert staff of economists. Lawyers. Accountants. So it's like it's like Congress's. Team of tax nerds. That is a good way to put it. Exactly, right mostly the nurse on this committee figure out what different changes to the tax code would mean for the government and for the economy, you know how different potential tax tweaks would work. But a few of them go into work everyday and review giant tax refunds that the IRS is about to send out it's it's interesting because it's so one by one right you don't think of Congress as doing. Anything on like we'RE GONNA get every big tax refund that goes out in America. But that is what they're doing here and I agree it is It is pretty unusual. It might be unique in terms of something that the Congress would get involved with Congress got involved with this back in the nineteen twenties basically because they didn't trust the person who was overseeing the IRS, the Treasury Secretary Andrew Melon. Melon was one of the richest men in America. Also, one of the biggest tax payers in America had all these business interests that he held onto he was treasury secretary, and so congress was like wait you're the boss of the IRS and you owe all these taxes and you have investments and all these businesses that the IRS is supposed to be taxing that seems very shady. You know we want to make sure that you're not just having the irs and you and your pals massive tax refunds. So what we congress are going to do is we're going to pass a law that requires this Joint Committee to review big refunds. Congress basically said tax nerds keep an eye on these rich guys in the refunds, and so here we are almost one hundred years later and the tax nerds. They are still keeping an eye on these guys, and that's why in two thousand eleven trump's refund made its way to this committee. Apparently, the committee reviews hundreds of these refunds a year. So it's you know. Sort of, but there are a couple of things in this case in the case of Donald Trump's giant refund that are unusual. One unusual thing is typically the committee reviews the refunds before they get sent out to tax payers make sense. Yeah. It would think you would think but there is this special corner of the law and it actually applies to sort of the twin Sarah of what you were talking about earlier in the show the twin of the carry forward provision right where you can carry forward losses. The twin is Keri back. Here's how Carrie backwards if you lose money in the year, you're filing your taxes for now instead of carrying those losses forward as you do in carry forward, you can look back to. The past, you can say, look a few years ago. I was making tons of money I was on the apprentice and I paid tons of taxes, and so what I WANNA do is I want to carry my losses from the present back into the past and I want you to give me a refund for all of those taxes I paid a few years ago. Right so that is what president trump in fact was doing in this case when he got this giant seventy-three, million dollar refund and the special provision of the law that applies here is actually something they call a quickie refund and so innocent. Cute little seventy-three, million dollar tax refund and what happens with a quickie refund is the IRS. Okay. We will send you the refund before we've done a thorough evaluation of your claim and you have to promise that. If we ultimately decide that your claim for this refund, not you're going to give us back the money. So that's what happened here. That is thing number one that was unusual to quickey refined I seventy three million dollars. Yes. Okay. So thing number two that is unusual is just how long it has taken to figure out whether the refund was legit. You know whether the president in fact qualified for the refund under the law so Typically. The Joint Committee Clears Clears Refund reviews. In about three weeks maybe a little bit more than three weeks in a kind of standard run of the mill case they've says that some really complicated cases might take a few months to figure out but the president's case is still unresolved and it went to the committee nine years ago years they've says, he never saw anything take anywhere near that long when he worked at the Committee I never saw years Adam okay. So a case that went on for years would be very unusual in your experience. That's fair. Say yes and you know it makes sense that once Donald Trump becomes president trump the case would become exceptional and more complicated and take longer but this was already going on for years before that happened and so it's not entirely clear why it's taking so long. So Okay we've been through what's going on with the president's case, and also where does this weird committee review come from The one last thing I wanted to ask Dave was does it even makes sense to have a special Congressional Committee Review You know individual tax refunds you sort of worked on both sides you you were describing working for clients whose refunds are held up by the committee you've worked on the committee holding up People's refunds as you study them. Do you feel like it's useful? I do think just from a from a revenue perspective the taxpayer gets huge bang for the buck out of the C. T. Refund review process it costs almost nothing to run. It's you know as I said, just a few people and they can be counted upon to spot millions and millions and millions of dollars of potential mistakes. The spotting thing. Hey, look this is this million here million there at this shouldn't be going out for this this this reason

Coming up next