Monday, December 13, 2021

The IRS Audited Donald Trump, But Not Joe Biden. Coincidence?

Is Lois Lerner in charge of determining which politicians to audit at the IRS?

That’s a relevant question from a recent Washington Post article looking into Joe Biden’s taxes. The Post received confirmation that the Internal Revenue Service declined to audit Biden’s returns from the years before he became president. But separate reporting confirmed that the IRS did audit Donald Trump’s returns from the years before he became president.

This raises an obvious question: Why the disparity?

This important question comes as Democrats want to give the IRS $80 billion in new funding over a decade, along with new enforcement authority—including to obtain additional information about ordinary Americans’ bank accounts. It also applies to a government agency that, thanks to Lerner, harassed conservative non-profits, and faces unanswered questions about the mysterious leak of tax records to the leftist website ProPublica.

Given these developments, it’s worth asking whether the audit disparity represents another instance of federal bureaucrats politicizing the tax code—and whether such an agency deserves even more funding and power.

‘Fact Checker’ Analysis

The Post column, from its “Fact Checker” Glenn Kessler, came after he said “a reader”—full disclosure: me—asked him to look into whether Biden paid his proverbial “fair share.” I want to give Kessler credit publicly for examining the matter in detail, unlike reporters at Politico and other outlets like the Associated Press and New York Times, whose reporters, when I raised the issue of Biden underpaying his taxes, gave me a polite brush-off.

That said, Kessler dodged a definitive judgment on either of the two separate issues regarding Biden’s taxes. The first is the fact that, from 2017 through 2019, Biden exploited a loophole he now wants to close—because his own Treasury Department says it allows “business owners, particularly those with high incomes, to avoid paying their fair share of taxes.”

As I had previously explained, Biden and his wife Jill funneled their book and speech income through two S-corporations. Because they characterized most of that revenue as corporate profits rather than wages, they avoided payroll taxes (which fund Medicare and Obamacare) on more than $13 million worth of income.

Kessler said, “Whether Biden is being hypocritical or not is in the eye of the beholder.” To which Biden himself might respond, “Come on, man!” If you spent the past four years using a loophole that your own Treasury secretary declined to employ for her speech income, you have absolutely no right to close it for others—and if you try, you have every right and expectation to get called on it.

‘Reasonable Compensation’ Test

The second question involves whether Biden, having used a legal, albeit politically hypocritical, loophole, did so in an illegal manner. That is, did he deliberately underpay his salary (as opposed to end-of-year profits for the corporation) in a way that violated IRS guidelines on “reasonable compensation?”

On this, the experts Kessler interviewed, as well as others, agreed. Biden likely underpaid himself, and by a substantial amount. After all, in 2017 Biden paid himself only $145,333 in salary—a roughly 37 percent drop from his $230,700 salary as vice president the prior year—while reaping more than $10 million in corporate profits at year’s end. The low salary vis-à-vis his amount of profits, particularly when all the income came from his own intellectual work product—as opposed to, say, a factory or restaurant where dozens of other employees contribute to the business—all suggest Biden violated the IRS guidelines.

Yet Kessler says that “whether his tax strategy was especially aggressive or par for the course is also a matter of interpretation.” The thin reed Kessler uses to cling to this position stems less from the fact that Biden’s actions were appropriate, and more from the fact that several experts said the IRS wouldn’t bother to challenge Biden’s questionable conduct. But speeding is still speeding, whether a cop pulls you over for it or not.

Why No Audit?

That gets to the most interesting nugget in Kessler’s piece: “A White House official said the IRS declined to do any audits of the Biden tax returns in 2017, 2018, or 2019.” Presidents are subject to automatic audit only for those returns filed while in office, and Kessler reported the returns from the time he was out of office did not get extra IRS scrutiny.

But a New York Times article last year confirmed the validity of statements Trump had made about his tax returns remaining under audit: “The records that the Times reviewed….match his lawyers’ statement during the 2016 campaign that audits of [Trump’s] returns for 2009 and subsequent years remained open.”

So why did Trump’s returns get subjected to what the Times called “a decade-long battle with the Internal Revenue Service,” while Biden’s returns got a free pass from the IRS, notwithstanding the articles and public scrutiny of Biden’s conduct? Does the IRS (as it claims) lack the resources to investigate items like the Biden controversy, or is something more nefarious or explicitly political afoot?

Subpoenas Ahead?

Of course, there’s one way to find out. If House Democrats want to investigate the way the IRS administers presidential tax returns—the stated claim behind their subpoena for Trump’s taxes—then they can request documents from the IRS regarding how it handled Biden’s returns for 2017, 2018, and 2019. For instance, they can study whether the public articles about Biden’s use of this loophole prompted any re-assessment of his returns by IRS staff, or should have.

Then again, given the way House Ways and Means Committee Chairman Richard Neal, D-Massachusetts, ignored questions about Biden’s taxes when the issue first emerged two years ago, he and his colleagues might want to keep their focus solely on Trump. But a Democratic majority focused on Trump’s taxes to the exclusion of Biden’s might give Trump added grounds to challenge and quash the subpoenas in court as a political fishing expedition.

Of course, another possible scenario looms: If Republicans take control of the House next year, they can use any legal precedents set in the case of Trump’s taxes to investigate Biden’s. In other words, Democrats should be careful what they wish for on subpoenaing information regarding presidential tax returns, because they just might get it.

This post was originally published at The Federalist.