Transcripts For CSPAN2 House Oversight Hearing On Tax Avoidance The IRS 20240712

Weve got a great response out of our short period of time and i want to say right now we have our second hearing next tuesday on the Affordable Care act. Thank you everyone for joining us and thank you to the staff. We are holding this hearing virtually in compliance with regulations for Remote Committee proceedings and as resolution 965 and this is my first hearing is chairman of the subcommittee on oversight and my First Official virtual oversight subcommittee hearing in the ways and Means Committee. Before return to todays important topic i want to remind members of the decisions and procedures while we navigate this platform. First, consistent with regulations we keep microphones needed to limit background noise and members are responsible for on meeting themselves when they seek recognition or when recognized for five minutes. Second, the members and witnesses must have their cameras on at all times so even if you are for a second or few moments leave your camera on. Third, we will dispense with the practice of observing and go in order of seniority for christian dating alternating between minority and majority and [inaudible] after all subcommittee members have asked the questions we will move in seniority order to off subcommittee members. Finally, without objection representative [inaudible] will also serve as the chair in the event i experienced technical difficulties. I thank you for your continued patience as we navigate the technology in order to continue serving our country together in the great time of need. With that i will now turn to the important topic of todays hearing, taxpayer fairness. Our hearing today will focus on issues of tax fairness and i welcome my colleagues and i welcome the witnesses. I must note that this is the first subCommittee Meeting since the passing of her friend and colleague john lewis. John was the chairman and leave democratic member on this subcommittee for the past 15 years. I selected the Oversight Panel when i first joined the committee in 2007 because i wanted to work with john. He led the subcommittee with the same grace and sense of purpose of which he led his life. I obviously cannot fill his shoes but while our styles are not the same argument to do everything in my power to make john proud. As a subcommittee charged with conducting oversight in the programs within the umbrella of the ways and Means Committee our jurisdiction is very broad. Today we are focusing on one of most critical components of american government, voluntary tax system. Historically in the United States they had an excellent record of compliance with our tax laws americans need to pay their taxes ensuing the system is fair for all. Whether you are rich as rockefeller or just a regular joe. For five years trump the president has refused to disclose his tax returns. Trump has broken with history of every president since president nixon to sabotage public faith in our taxes. In 2017 i have led an effort [inaudible] the law is clear. Under 26 United States code section 6103f the committees legally and absolutely entitled to seat mr. Trumps return. It is our responsibility to restore the Publics Trust in the system by ensuring that the president s returns are ordered impartially and without clinical interference. Our chairman formally requested mr. Trumps return in april of 2019. The administration through treasury secretary min mnuchin and irs commissioner has refused our requests. They have been breaking the law for now 555 days. The house issued a subpoena in the administration refused to comply with the subpoena that our subcommittee will be looking into subpoena powers under the constitution. And the rules of the house but consequently, the house has requested the tax returns is being stonewalled by Political Parties and plenty of urgency in the New York Times reported that selfproclaimed billionaire President Trump paid only 750 in taxes in 2017 and in 2018. In the ten previous years he reportedly paid no taxes. I would like that deal. I am from north jersey we have teachers, police officers, firefighters, ambulance technologists and School Bus Drivers who pay more in taxes and how do they feel when they see their leader pays less than they do . The tax system that lets a supposed billionaire pay less than teachers, secretaries and custodians is broken. That is why we are holding todays hearing. I want everyone watching us to know that i personally invited the irs commissioner to join us today and he refused. I wonder why. What is he afraid of . Why is donald trump afraid to disclose his tax voluntarily . Is it because we may learn that the true source of the president s socalled wealth is not clean . What dark thinkers he might be open to and we have an excellent panel of witnesses like we have an Excellent Group of members here. Both sides of the aisle want answers to those questions and i look forward to the testimony. First i want to yield to my friend and Ranking Member of pennsylvania for the purposes of an opening statement. We work and serve together on this committee and eight years now and i look forward to working with you in this new capacity. Thank you, mr. Kelly. Unmute yourself. Thank you. This is the first. Weve been able to do together and ive got to tell you all of us know it was truly an honor to serve in the ways and Means Oversight Committee with john lewis. He certainly an inspiration not just to us but every american and mr. Lewis led this committee with dignity and understood the importance of our subcommittee and the role oversight played in congress with focus on making government more transparent, more efficient and more accountable to the American People. In addition to being legislators we are americans watchdog making sure that their money and every single penny of it, texture dollars are being spent wisely and to their benefit. Therefore, im looking forward to continuing to support and work with you chairman and hope we can find common areas where we can Work Together on behalf of the American People. Unfortunately i understand to date may not be that day for this great bipartisan agreement and today democrats will continue their relentless effort to weapon eyes the tax code for purely political purposes. Democrats have sought to publicize the president s tax return since day one of his presidency despite no evidence that he did anything wrong other than legitimately winning the last president ial election. This issue was furiously raised by my friends on the other side and amplified by many of their friends in the media like the New York Times and its so much like groundhog day. Once again with the exception of not being about his shadow of my friends on the other side are using taxpayers money and their time to drag us through another Campaign Debate that would result resolved four years earlier in the 2016 president ial campaign the people spoke at the ballot box with their vote and in my District Across the southern commonwealth of pennsylvania and the country. This issue, like so many others is one including my friends on the other side and other allies out there they cannot simply let go. They been challenging the selection since 2016 relentlessly and have never accepted the outcome of it. Now my friend President Trump is on the ballot and across the country folks will get a chance to decide whether he gets another term or not. Im confident they will grant the president those next four years but why use this fine committee as an instrument of the Democratic National committee . Why put everyone through this totally partisan groundhog day exercise . What is the substance of this politically partisan groundhog event today . I and able to succeed in his efforts through proper legal channels democrats have been unaided by an illegal likely illegal [inaudible] in the New York Times. This is a stunning breach of public trust. If this can happen to the sitting president of the United States it can happen to any american. Let me repeat that. If this can happen to the present of the United States is can happen to anybody at any level whether we sit in the highest office of the land or the lowest position in society. Now, we have written to the department. [audio difficulties] i ask for unanimous consent to enter both letters for the record. Your microphone is off. Your microphone is off. Im on, guys. Mine is on. Without objection that will be included in the record. That will be included in the record what you just presented. Can you hear me . Now i can. I couldnt hear you before. Okay, without objection it is admitted, is that correct . That is correct. Thank you. I find the New York Times report underwhelming to say the least. Itll does not suggest any illegal behavior took place. What they say that more information is needed to evaluate the specific transactions for items on the returns and at the times allegedly received despite not having all the facts which is never a problem for the times for them to write any article in the need for more information the times settle for insinuations with lines like this could be legally problematic. This may be problematic and that reporting is unfair and not of objective. In my book i just cant believe they can look at that article and say you know what, this is a wellwritten opinion. It is not new by the way. Its manipulation of their outlet. This type of reporting is incredibly unfair and to not objective reporting. For example, if i wrote a 50dollar check to Catholic Charities and took a charitable deduction on my taxes you could say the exact same thing that more information needed to verify this but it could, it could and might be legally problematic we just dont know. Thats absurd premise. Of course, you need a lot more information and that is what it is all about. Irs conducted an audit and if you have more information and makes the determination about tax filing the president has said he is under audit and the New York Times certainly indicates that he is under audit and that is exactly the way the process is supposed to work. Putting public pressure and suggesting impropriety at the irs without evidence will lines the work that the irs employees do improperly puts political pressure and improperly puts political pressure on them to reach a particular outcome. We are weapon eyes he and we know the democrats dont like the president and i serve 47 months of that and theyre unhappy with the last Election Results as youve heard more than 47 months of that and so much for accepting the results of a legitimate election but in a democracy we dont go after the duly elected officials. We dont know because there hasnt been anything pointed out that the president has a serious problem with the taxes paid New York Times claims to review them and even they say they dont know for sure. We do need to let the irs employees do their work and finish their audit they are the only Government Agency in a position to address any possible legal issues and its my understanding that both the president and Vice President taxes urns are examined every year. Since day one democrats have tried to publicize the president s tax returns for their political agenda. Back in 2017 members of this committee claim that we needed to see his returns to prove the president allegedly has mysterious ties to russia. Thats all we heard about from the Mainstream Media then and now it mustve just been the New York Times stated very quietly that the document it receives do not reveal any previously unreported connections to russia. How sad for them. This did not produce the results they wanted our democratic colleagues has simply look for other ways to weapon eyes the tax code. They want to attack a sitting president of the United States and this is a very dangerous procedure in one i think will set a very dangerous precedent and i fear the integrity of our tax code will suffer greatly as a result. As for the idea that the president did something wrong by paying a low amount of income taxes, give me a break. Earlier this year we had a hearing on Corporate Income taxes and i claimed that businesses pay all sorts of federal, state and local taxes, property taxes, employment taxes, sales tax, and on and on and as a businessman some years i paid more taxes than others in other years i paid no taxes. Why . Because some years i simply was more profitable we pay taxes on profit. It tells a very misleading story about a Business Owners tax situation. The president has paid millions and millions of dollars in all sorts of taxes over year and nevertheless democrats continue to suggest that having a lower level of income Tax Liability in any given year is means the president doesnt care about inhibiting to our country and is that true . Absolutely not. The president has donated every single paycheck as president s of the United States to the federal government and so far those donations have total nearly 1. 4 million, hardly in it for himself. [inaudible] this president has why . Going forward i hope this committee can find constructive ways to improve the lives of the American People sold their Government Works better for them and not simply for political gamesmanship. Our constituents want us to Work Together and to solve problems and not just score cheap political points through innuendo, and ive seen no evidence of an proprietary at the irs and im not seen any actual evidence of any and proprietary on the part of the president but the only thing is an on authorized tax michael, youve gone over in time. You should be more concerned about that than this endless pursuit of trying to undo a duly elected president good with that i yield back and im looking forward to a wellbalanced panel and to hear what they had to say about the president s taxes. I think we will hear a lot of good things. Stay tuned. Thank you to our distinguished panel for taking the time to appear before us today discussing a very important issue. Let me introduce all five witnesses. Our first witness is ambassador norm eisen. Ambassador eisen currently chairs as a senior fellow and government studies at the brookings institution. Most recently served as a special counsel for the House Judiciary Committee in 2019 until 2020 including during President Trumps impeachment. This is the author of a new book on President Trump and weve known him well in controlling the ethics issues that occurred during the obama administration. Norm, thank you and we are ready for you. Thank you, Ranking Member kelly, members of the subcommittee. I apologize but i wanted to introduce all the panel. My mistake. Im sorry, mr. Chairman. No, im sorry. Our next witness will be Kathleen Clark and she teaches at Washington University school of law in st. Louis missouri and specializes in ethics, government ethics about whistleblowing and National Security law. She is anticorruption ethics workshops around the world and is provided ethics training for federal and state and local government agencies. Our third witness is letterman. Professor letterman teaches courses in federal tax and serves as director of tax program at the indiana University School of law and has been ranked as one of the ten most frequently cited u. S. Tax scholars. Professor letterman was recently awarded the Fulbright Research grant where she focuses on the transparency of tax rulings. Our fourth witness is steve rosenthal, serves as the senior fellow for the urban institute in his research focuses on federal income tax issues and previously served as legislation counsel for the joint committee on taxation. Final witness is andy gray wall, professor grable is the joseph beck rosenfeld scholar and professor of law at the university of iowa. He taught there since 2011 and focuses on issues related to tax administrative and constitutional laws. Each of your statements for the witnesses will be made a part of the record in its entirety. I would ask you summarize your testimony. To help you with time please keep an eye on the clock which should be pinned to your screen. If you go over the time i will notify you with the top of my gavel and let you know when there is 30 seconds left. Ambassador eisen, you may begin. Thank you again, mr. Chairman. I want to thank Ranking Member kelly and the members of the subcommittee for inviting me to testify at this important hearing on taxpayer fairness as part of this distinguished panel. Our tax system as the chairman pointed out favors the wealthy at the expense of the average folks. It cuts generous breaks for Investment Income and rigidly taxes income earned by people working two and even three jobs to get by. In the system a person earns less than 20000 is more likely to be audited than someone who earns over 400,000 like much else about our tax system that makes no sense. President trumps signature 2017 tax law has made things even worse for regular americans. For example, that law inflicted a trillion dollars worth of damage on homeowners by taking away mortgage and Real Estate Tax deductions and this is a structure that favors those in the very top income levels levels at the expense of everyone else in the New York Times revelations about mr. Trumps tax returns make him the poster boy because its basic lack of fairness. The reporting indicated that he paid no taxes for ten, 15 years prior to 2018 and that he paid only 750 in both 2016 and 2017. 750 and that is less tax than someone who earns just 24000 in 2016 paid. Mr. Trump deducted 70000 for hair care year and paid his own daughter now a white house official and 750,000 for what are called consulting payments. Then there is the 72. 9 million refund the president received for abandoning his family in Atlantic City casinos. And it appears that he did not abandon them completely as the rules required to get a refund and mr. Trump may have to pay back 100 million as a result and that is the subject of the audit, of course. We should not have to rely on media revelations in the fourth year of his presidency to learn these things and many other questions still remain open even after the story and that is because the president refuses to disclose his tax returns and break with his predecessors going back for decades. Now that we have the times reporting we do have a better idea of why he may have held back those returns of all the secrets hidden in them what concerns me the most is the president s massive debt. He knows he will have to repay or refinance over 300 million worth of debt in the next four years and that is only a partial picture. Mr. Trump will need help covering his loans and the makes him vulnerable and could be influenced by bad actors or foreign powers including hostile ones and americans have to worry about what mr. Trump may do to curry favor with those who could help him manage his debt load and that is conflicting financial interests compound this risk in the original sins of this administration and of the president was his refusal to divest those conflicted financial interests and another breach of norm and not just norms. On the first minute of his term he has violated americas original ethics law, the constitutional prohibition under president s taking things of value or emoluments as it was referred to in the 18th century from foreign governors. The New York Times must raise additional questions about his foreign funding with licensing payments of 3 million originating from the philippines 2. 3 million from india in 1 million of turkey. Mr. Trump has monetized the presidency in a way never before seen in American History and resulting in over 3400 conflicts by one count and is hosted foreign leaders and his moral logger resort and spent up to 400 million in taxpayer money on selfpromoting trips to his golf course. This afternoon is limited. Im going to focus on the first issue, the conflict of interest faced by irs officials who review and audit the president s tax returns and how congress can mitigate that conflict. These irs employees face a difficult situation. They have a duty to treat the president like they would any other taxpayer, but they may feel pressure to give the president more favorable treatment. This conflict stems from the very structure of our government. The irs is part of the executive branch. The president sits atop the executive branch. The irs employees are in effect reviewing their bosss tax returns. This conflict is not just an academic matter. History shows that it can affect how the irs does its job. 50 years ago, irs employees gave president nixon favorable treatment on his tax returns, in which he claimed highly questionable deductions allowing him to pay less than 900 in tax despite having more than 200,000 in income. After that favorable treatment was leaked to the press, the irs opened a Second Review of nixons tax returns. On the second go around, the irs rejected nixons claimed deductions requiring him to pay more than 400,000 in back taxes. Why did the irs employees initially permit those improper deductions . At the time, one tax expert explained irs agents and their superiors would be extremely reluctant to audit the tax returns of the president as if he were an ordinary taxpayer. That was true 50 years ago. And it may be even more true today because President Trump has repeatedly retaliated against officials who follow the law, where following the law hurts President Trump. In my written testimony, i describe in detail several examples of such retaliation. Let me touch briefly on two examples. President trump retaliated against then attorney general Jeff Sessions because sessions recused from the investigation into trumps 2016 campaign. The law clearly required sessions recusal. Sessions followed the law. Trump retaliated against sessions for following the law, instead of just doing what trump wanted. President trump also retaliated against defense official by withdrawing his earlier nomination of her to become the pentagons comptroller general because she had accurately warned omb officials that the president s hold on [inaudible] violated an act. She reminded the officials what the law required. Trump retaliated against her for invoking the law instead of just doing what trump wanted. We cant entirely remove the conflict faced by irs employees because it is inherent in our structure of government. But congress could mitigate the conflict by increasing transparency. If we require Public Disclosure of the president s tax returns, the irs as well as the irs audit of those returns, the irs would be publicly accountable for the way it hands the conflict handles the conflict of interest. Demonstrating the power of transparency. The irs decided to revisit nixons returns only after the information about those returns was leaked to the press. I look forward to taking your questions later. Thank you. Thank you so much, professor clark. Im not going to do the 30 second rule. I understand that could disrupt people. I dont want to disrupt anybody. You may begin. Thank you very much. Distinguished members of this committee, thank you for the opportunity to testify on the topic of taxpayer fairness. I would like to make four main points today. One, [inaudible]. The irs needs adequate funding. Three, some taxpayers have more opportunity than others for noncompliance. And four [inaudible] tax laws is an important part of taxpayer fairness. [inaudible]. Audits have a significant compliance effect on taxpayers who are not audited. It ranges from about 4 to about 12 for each dollar directly collected from enforcement. It is also worth noting that tax penalties do not have nearly the deterrent effect that audits do. They also have an indirect on future tax payments that are audited. Taxpayers that are audited increase their tax payments in subsequent years. Research also suggests to incentivize compliance by those audited audits need to be effective and it requires resources. Irs needs sufficient funding to provide service to taxpayers who need help complying and maintain cybersecurity. In 2011, congress began cutting the irss budget. As a result, the irs has experienced significant reductions in its staffing and activities. The Congressional Budget Office recently reported that, quote, the amount of funding and staff allocated to enforcement activities has declined by about 30 since 2010, unquote. Irs audit rates have declined significantly since 2010 as well. Moreover, audit rates have declined more sharply at the top. Both for individuals and corporations. Reduced enforcement of the tax laws benefits tax evaders, not those who comply. Restoring the irss budget to at least 2010 levels would be a very helpful step that would bring significant return on investment. Third, some taxpayers have more opportunity than others for noncompliance. Taxpayers whose take home is largely not subject to third party reporting, such as selfemployed individuals, have much more opportunity for noncompliance and statistically contribute much more in the federal tax gap. The irs has consistently found that levels of Tax Compliance vary with how visible the item is to the irs. For example, with respect to wages and salaries where the taxpayers employer both actually withhold taxes and report payment amounts to the irs, the irs estimate that 99 voluntary compliance rate. Where theres no withholding requirement, but there is substantial information [inaudible], the irs still estimates a very high voluntary compliance rate of 95 . By contrast, where theres no third party reporting, such as, with respect to Sole Proprietorships, the irs has lower level of voluntary compliance rate of only 45 . People comply with the rules more when they know they are being watched. Where taxpayers are not being watched up front because theres no third party reporting, the irs particularly needs [inaudible]. Fourth, enforcement of the tax laws is an important part of taxpayer fairness. The irs mission is to quote provide americas taxpayers Top Quality Service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all, unquote. So part of the irss mission is fairness to all. And part of that fairness is protecting the tax paying public. Former irs commissioner once wrote that quote our tax system depends on each person who is voluntarily meeting his or her tax obligation, having confidence that his or her neighbor or competitor is also complying unquote. Enforcing the tax laws demonstrates to taxpayers that noncompliance doesnt pay. Taxpayer fairness also includes the possibility of more enforcement where theres more opportunity for noncompliance. Even if those audits are more expensive to conduct because they cannot simply be done by correspondence, for example. Thank you for the opportunity to testify in this important set of issues. Im happy to answer questions. Thank you very much, professor. And now i would like to call on mr. Rez rosenthal mr. Rosenthal. You are recognized for five minutes. Thank you, chairman, Ranking Member kelly, distinguished members of the Oversight Committee and full ways and Means Committee. Thank you for inviting me to speak today on tax fairness. Im steve rosenthal, senior fellow at the brookings policy center. The views i express are my own and should not be attributed to any other person or organization. Every president since Richard Nixon has voluntarily leased his income taxes released his income taxes to the president , until donald j. Trump. And since president nixon, the irs has audited every president s returns. Last month, the New York Times reported new details on President Trumps income taxes and the ongoing irs audit [inaudible]. These details a picture of President Trumps returns that began to emerge in early articles. This picture calls into question the fairness of those returns in three respects. The fairness of the amount of taxes the president reportedly paid, the fairness of the president s reported business losses, and the fairness of the irs audit of President Trumps income taxes. Let me address each of those in order. First, i believe the 750 of taxes reportedly paid by mr. Trump in 2017 was not fair. 750 is lower than the taxes paid by the average taxpayer in every income group that we might use to compare. Perhaps President Trumps tax returns for 2017 represents a businessman who had a bad year. According to the times, President Trump paid little or no taxes for many many years. Second, the fairness of the president s reported business losses. The times reported exceedingly large expenses in losses for President Trumps businesses, which would only be fair if the losses were genuine and accurate, and we cant tell if they were. In the 1990s, President Trump generated close to 1 billion dollars of losses by borrowing, spending, and losing money on casinos and other failed ventures. President trump used those losses to reduce his taxable income to avoid paying taxes. However, according to an earlier times story, President Trump omitted income as his borrowings were forgiven. In 2009 President Trump claimed another big loss, 700 million which he carried back to income he previously reported in 2005, 2006, and 2007, according to the times. We cant tell without more information whether the 700 Million Dollars was appropriate or should have been reduced also. Now the third question, was the audit fair, or is the audit fair . According to the times, the irs continues to audit the president s 2009 returns, including the 700 Million Dollars loss that he claimed on those returns. The irs is also auditing the subsequent returns, 2010 and forward. Again, we cant tell without more information whether the irs is conducting these audits fairly and impartially, but theyve lasted a long long time. The irs often struggles to audit complicated Financial Arrangements and past due businesses, so separating the delay thats attributable to the sprawling nature of President Trumps Business Empire from any delay to the status of his president is difficult. But the source of the audit delay is important. We have only one president. He directs the entire executive branch, including the irs. I encourage the subcommittee and the fall ways and Means Committee full ways and Means Committee to continue to exercise its oversight responsibility over the executive. Thank you. Im happy to take any questions. Thank you. I appreciate your comments, mr. Rosenthal. And now we will have the professor and you may begin, professor. Thank you. Ive written and spoken a lot about President Trumps tax return information over the last couple of years, but i just wanted to speak taxpayer fairness as a topic unto itself first. I think the first thing we should realize is that really what were not talking about today is taxpayer fairness but fairness generally. If you are poor, disadvantaged, uncertain immigrant status, or are otherwise facing challenges in society, yes, of course you are going to have troubles with irs, but you will probably have trouble getting a drivers license or any kind of vote and so on. The broad issue is fairness and talking in the context of the irs. I dont want to turn irs into a punching bag or issues related to low income persons. It cuts across all society. With respect to the tax context specifically, let me give you one anecdote that will help explain the challenges indirectly to low income taxpayers. A few years ago i got a notice of deficiency myself [inaudible]. I knew exactly what was wrong from the notice of deficiency, why the irs was wrong. I prepared in a document, couple of pages, with a long explanation and all the supporting documents, put it all together neatly, and i wrote the irs, heres why youre wrong, a, b, and c. I sent that in. I get an automated letter saying that your assertion means you are wrong. Im scratching my head. I did a b and c and youre telling me d . Im a tax law professor. I was pretty confident i did everything right. I had to go to tax court to get a human being at the irs to Pay Attention. All through this time, i couldnt get irs appeals calling in a phone number was helpless. Eventually once a human being, an actual lawyer at the irs looked at it and said this is done. We just told the tax court this is over. Imagine if you were a low income person or otherwise facing disadvantages, first, you probably wouldnt be able to get everything right the way i did. Even if you did, you submitted the same documents that i did and the irs told you you were wrong . Well, you wouldnt know that the irs made the mistake. And i think we need to Pay Attention in terms of tax fairness, we need to give a lot of thought of how low income persons interact with the tax system, because it is not fair. If a tax law professor cant figure it out, low income persons are going to have a hard time. I would encourage you to think about funding for low income taxpayers and other measures to help those who are most vulnerable in our society. I want to emphasize as well this should be a bipartisan effort. Both parties [inaudible]. Whether were talking about President Trumps stimulus payments or president bushs tax cuts and the quick refunds or the implementation of aca, everybody should want a stronger irs. I want to echo the professors statements about adequate funding. Want to make sure that money is not wasted by the irs or anyone else, but the funding should be taken seriously. Funding issues. Lastly, and i suppose this goes a little bit into the trump tax return fight. I hope that we can slow down the rhetoric a little bit about conflicts of interest facing irs employees. My sister has been a doj attorney for ten years. She works on audits and disputes all the time. When shes at home, President Trump appears on the television. She turns it off. If shes listening to npr and hes on the radio, she cant stand his voice. This idea that she or her colleagues are somehow in the pocket of the president and arent doing their jobs carefully and faithfully and just doing whatever he says . It is so offensive to her and to the morale of the thousands and thousands of people working at that agency. So i hope that unless we have some grounds for it, lets not allege that irs employees are just doing the president s handywork, and lets give respect to Public Servants who work every day for a reasonable salary to serve all of us. With that, i thank everyone for their attention. I appreciate your comments. Thank you very much. At this time, we will open the hearing for questions. Without objection, each member will be recognized for five minutes to question our witnesses. If the witnesses will respond with short and concise answers, by the way, the members try to make their questions short and concise, all members should be able to ask questions. As mentioned earlier, we will not observe the rule in this remote setting. It will instead go in order of seniority for questioning. Alternating between minority and majority. Beginning with the members of the Oversight Committee. After all, subcommittee members have asked questions [inaudible] alternating between minority and majority. Members are reminded to unmute yourselves when you are recognized for your five minutes. I will begin by recognizing myself with the questions. This question is for the entire panel. I want a yes or no answer. The times reported that mr. Trump paid 750 in taxes, 2017, which is less than a schoolteacher in my district. This does not seem fair. It doesnt seem right. And it certainly doesnt seem patriotic. We need to know more. Should the president s federal tax returns be released to the public . I will start with the ambassador, and then we will move on from there. Ambassador . Ambassador eisen . Can you hear me . I can. Mr. Chairman, the answer is yes. Yes or no . Yes, absolutely. Professor clark . Yes, the president s tax returns should be disclosed to the public. Professor letterman . Yes. Mr. Rosenthal . Yes. Professor graywall . Yes [inaudible]. This question is for ambassador eisen, lying and cheating and stealing revealed by the New York Times about mr. Trumps tax returns confirm our worst fears. The report promised that trump has 421 million in debt. How can we know if he or his government is advancing the interest of the nation or mr. Trumps private interests . Please describe how this corruption, if it exists, affects trumps ability to carry out his due thes. Duties. Mr. Chairman, mr. Chairman, the problem is that we cant know whether any of the president s decisions are motivated by the public interest, and we do know that a great many of his decisions are motivated by his personal and political interests, to the expense of the public interest. The reason for this stems from his failure to divest himself of his conflicting financial interests. Weve never seen anything like this in American History, and the result of that is because he has hung on to his businesses, over 3400 conflicts of interest, mr. Chairman, it has created a situation in which the American People cannot be confident when the president makes a decision not to go forward with the fbi headquarters plans across the street from his hotel. Does he have the best interest of the fbi . The country and the people in mind, or does he not want a competing hotel . When he is campaigning for the Federal Reserve to reduce the federal Fund Interest rate, is that so he can get a lower Interest Rate on his massive debt and on and on and on across personnel, across the decisions . We shouldnt have to ask the question. Thats the core problem, and this times reporting reveals it further. Thank you, mr. Ambassador. Professor clark, mr. Trump has said that because he completes his annual government Financial Disclosures, theres no need for the public to see his tax returns. Do you agree with that conclusion . No, i do not agree with that. The Current System for disclosing of the financing of the president and others has gaps, and some of those gaps would be revealed on tax returns, but i want to associate myself with the comments of ambassador eisen. This president has, you know, countless, nearly countless conflicts of interest, and we need to get a better handle on the president s debt, who his creditors and who his Business Partners are. Last week i heard at another Committee Meeting which i was invited to by congressman connelly, i heard the irs chief speak and say that the rich were not getting any leeway from the irs, and i have heard from several of you today that the numbers are out of sight of how the poor are being audited so much more in percentage than those who are well off. Thats pretty serious business. Professor letterman and mr. Rosenthal, press reports indicate mr. Trump treats his Seven Springs estate as an Investment Property. This allows him to avoid the al tern ti minimum tax alternative minimum tax. [inaudible]. More than 2 Million Dollars in local property taxes. Professor letterman, mr. Rosenthal, is it fair that President Trump can claim a desuction while families in my state new jersey cant . Deduction while families in my state new jersey cant . One rule for the average joe and another for the wealthy and powerful. Does this generate profound unfairness in our tax system . Professor letterman, please start. Thank you. So the cap on the salt deduction came in with the tax cuts and jobs act of 2017. That cap is for 2018 and 2019, which my impression is that the New York Times did not have those returns, but making an excellent point that for ordinary individuals theres that 10,000 cap for most state and local taxes but it doesnt apply if you have a business or Investment Property. I think the fairness issue here is whether the Seven Springs property is as the times reported actually treated by President Trump as an Investment Property and whether that treatment is correct. Thank you. Mr. Rosenthal . Mr. Chairman, i think you highlight a core issue that the New York Times is reporting, the blending of personal and business expenses by President Trump. The ordinary joe receives [inaudible], might have interest income, and income tax reporting is cut and dry. When you turn to business arrangements, like businesses that can incur a wide range of expenses, some of which might arguably be personal as opposed to business, but might also be inflated, [inaudible] determined accurately. And the wage earner really doesnt have that kind of latitude. So when a business say deducts a personal expense on behalf of the owner, that ability, that latitude is not something that the ordinary worker has. Thank you, mr. Rosenthal. Without objection, id like to enter into the record an article from the New York Times this past sunday. It is entitled who is the tax cheat . You decide. It addresses the unfairness in our tax system. Hearing no objections, it is entered. Mr. Graywall, in your testimony, you note that your impression is that the leak to the New York Times arose outside of the government. Could you elaborate on why you think that thats the case . Again, i have no inside information, but we keep seeing leaks from the National Security community, from the white house, everywhere, but it seems like over the last 30 years, hundreds if not thousands of people must have seen some or all of trumps tax return information, within the government. Yet i havent seen any leaks of any sort until now. thank you for your response. I now recognize mister kelly thanks bill, can youhear me . Yes sir. Thank you sir. Ambassador eisen, are you suggesting that President Donald Trump didanything illegal when it came to the handling of his tax returns . Mister kelly. Yes, sir no questionmister ambassador, did you anything illegal or didnt he . We cant know the answer unless we have the full information so the core thing that is wrong sir if i just may offer a brief answer, the core thing that is wrong is that the president has broken with precedent to withhold the information we need. The question you ask is avery good question mister kelly. Yes, sir no. Is there something illegal, im just asking you. Youre a very goodwitness, im just asking a simple question. Im trying to make my question brief so your answer can be brief so the question is yes, sir no, did President Trump do anything illegal on his tax returns . Based on the information we have before us i believe the president took an illegal 72 million deduction. He did not abandon all interest. Let me move on becausei understand what youre saying. Officer letterman, can you tell me, are yousuggesting President Trump did anything illegal with his tax returns . I did not suggest that but i agree with ambassadoreisen, we cant know without seeing the returns. So why dont you get to seesee the returns . They are confidential Tax Information. They are confidential and were never supposed to be exposed to the public so thank you for that. That applies to the irs. Professor clark, areyou suggesting the president Donald J Trump did anything illegal with his tax returns, yes, sir no . I think the New York Times article implies that he may have. I didnt ask what the New York Times article implies, i asked if its illegal. Mister chairman,Ranking Member, whatever you want to call yourself today. Let her finish her answer please. I want to make my question brief so your answer can be brief. My question to the member of the panel is doyou believe donald trump did something wrong. If i thought the witnesses were not answering honestly and wanted to give you an answeri would cut them off. [overlapping conversation] we know how it stacks up. [overlapping conversation] you can talk as long as you want but its not stacked up. I get it. I get it and im reclaiming my time sir. Professor clark, bring it to an end. On asking if thepresident did anything illegal with his tax returns. I think the jury is out sir. Yes, sir no, did the president do something illegal . We need more information. All right, i get that. Mister rosenthal, same question to you, are you suggesting that the president did anything illegal with his tax returns . We need to decide illegal, if i decide illegal thats a knowing violation of a duty of the statute, we do not yet have any evidence of that. We do not have an email or some other reflection that President Trump knowingly violated the law. But the term illegal as laypeople look at this, i answered many questions, did President Trump breakthe law and here is how i answer that question. There is a range of behavior to taxpayers. [overlapping conversation] its my time, i appreciate your saying that know the president did not do anything illegal comes to his tax returns. I just tell you im sure in all fairness when it comes to fairness would you appreciate it if i had access to your tax returns so i could look at them and see if you did something illegal. We have a little thing called the rule of law. We have an agency called irs thats responsible for doing that and we have a greater especially on this committee duty to protect the rights of every single taxpayer including the president of the United States so thank you for being on the panel. Mister gray will would you suggest the president has done anything illegal based on the leaking of the president s tax returns printed in the New York Times which is highly, highly motivated in the opposite direction when it comes to this president so mister gray wall, are you suggesting the president did anything wrong in his tax returns . No serious or honest person would make critical criminal allegations based on a news article. I think thats what were talking about and i would suggest that the oversight, its main responsibility is protecting hardworking american taxpayers. Its not a political journey to look into nonprofits to see what we can do with them when it comes to 6103. Its about hardworking american taxpayers and i would suggest that at times it is hard for me to look at this and say were doing whats right and especially with thispresident , not us but other people have pursued this since his election so professor gray wall, you read all the New York Times reporting on the president s taxes, is that right . Moore comes out every day butive read it. And we dont know where they got that information, maybesomebody dropped it off by chance but are you in a position to adjudicate whether the president properly or improperly took any particular deductions for tax credits . I would neither indict nor defend any particular position. Why is that . The New York Times did not disclose its sources or underlying documents, all i have is referring characterizations which might be wrong and most importantly , to commit tax evasion a person has to know they are breaking the law. We have no indication of the president state of mind. I appreciate that answer because you do have a broad. [overlapping conversation] that is absolutely horrible, its unamerican and its unacceptable that anybody on this committee today who mentions that is off the charts and out of order. Mister kelly, need i remind you that several years ago you joined in the purge of 10 citizens who provided their tax returns and an investigation of the irs which leads me to believe whatsgood for the goose is good for the gander. You guys are the ones that started this. Based on the members and consistent with this question now. The chair now recognizes miss domenico for five minutes. I want to thank all our witnesses for joining us today. The New York Times reporting sheds light on two different accesses in america, one where hardworking people pay what they know and another where the rich and powerful use the tax code to avoid paying their fair share to the country that allows them to prosper. I know since 2010 irs investment has been reduced by 20 percent in adjusted dollars, causing the 20 percent decline in overall staffing and a 30 percent decline in enforcement staff. Earlier this year i led an appropriations request calling for 14. 5 billion in funding for the irs including at least 5. 5 billion for the enforcement account and 5 million for systems modernization. Professor letterman you talk about this. To what extent has thedecline in funding and staffing in the last 10 years impacted the fairness of the irs Examination Program . The custom really hurt the irs, its hurt the Examination Program and it has declined more at thetop and in part its simply that when you have fewer resources , its easier to use them on less complex returns so most of the irs audits are correspondence audits according to what the cbo reports and the irs reports and those are examinations that aredone by mail. So folds will have more complex tax situations, theyll take more time on it. So the resource crunch as the unfair effect of kind of pushing the audit focus on sort of the simpler type of returns which in general are going to be not those of higher income taxpayers. So then can you speakand following up on that how increasing the irs funding would bring a significant return on investment . For every dollar invested in the irs budget theres a Multiplier Effect in terms of direct revenue collected and then in addition to that for every dollar in direct revenue collected theres an estimate of about four to 12 in direct revenue justthrough general terms. And in what way does the New York Times article highlights the importance of irs enforcement and audits . Obviously we do not have to president returns and so we only have the New York Times reporting on it. I always want to caveat with that but it does highlight the importance of audits. It talks about the audit of allegedly President Trump claimed 72. 9 million refund as you know through the carries over on some losses and that audit is apparently ongoing as we heard earlier and we just dont really have much of a window into the audit process. The New York Times reporting gives us some window into it and it raises questions about how that audit is being carried out and to what extent are audits carried out differently for different types of taxpayers. Thank you very much. Mister rosenthal, can you how the president was able to exploit the federal tax system and irs by taking advantage of gray areas within federal tax law. For example what makes it difficult for the irs to deny the 70,000 dollar hairstyling deduction. Was used that simple example coverswoman. I think thats great. There are a variety of reasons why the president or mister trump at the time might have been able to avoid paying his fair share of tax liabilities. And it is 70,000 expense for the hairstyling. That would presumably pay up on one of his past due entities and so its very hard to find an audit of the expenses and items that are passed through from another entity onto the president. Sometimes theres layers and layers of these so even question an item takes a fair amount of looking. But lets just talk about that hairstylist because congressman kelly asked a very important question. The president break the law . Ive been practicing tax for 30 years, look at the law in a range. Its something personally illegal but you got hairstyling, it would be legal so it was purely a businessrelated expense. Maybe he washed his hair afterwards. It wasnt aggressive what President Trump took that deduction. That he actually went out and got his hairstyle for his professional capacity, something can be used that cannot be deducted. Was it illegal in the sense, but he goes to jail. The first step is that he negligence and reporting that number. Could there be a Civil Penalties for reporting that number. A later story by jim stewart, he asserted that it was possible the president deducted the 70,000 expenses. Now that its all serviceable these to it and we had an email from the president saying i know that i was reimbursed, lets go for it anywaysbecause this is buried in a past entity and itll never be found. Now that the criminal violation of the law. [inaudible] the dental ladies time has expired. Ill let you finish your last sentence Mister Rosenthal. I was describing, there are several questions about whether something is wrong , whether something is punishable by county. Civil penalty and whether someone can go to jail. Butin all the circumstances. There is an element of impropriety, that i believe the public deserves to know whether or not the president is perpetuating. Whether hegoes to jail or not is a separate matter. Liz kowalski. Thank you mister chairman. Can you hear me mister chairman. You. 19 to the committee and the witnesses for being here today. Weve been down this road as a committee for a long time and here we go again. The president is not legally required to disclose his tax returns. We talked about this before and here we are again. He chose not to. The American People elected himas president anyway. Since then democrats have fought the weapon i the tax code to obtain the president s tax returns free early for political gain as we see on display right now. These efforts through the Legal Process unsuccessful now someone has taken matters into their own hands by disclosing the president s private Tax Information to the New York Times without his consent. Weve heard many allegations of wrongdoing on the part of the president without any actual evidence. And yet my colleagues on the other side of the aisle seem entirely unconcerned with the only misconduct weve seen with the evidence, thats the disclosure of the president Tax Information without his consent. Is it correct that the Public Disclosure of an individual private Tax Information without their consent can be criminal. Under what circumstances. Technically someone from a Government Agency may be criminal but its a friend of yours whose disclosing it. Professor gravol, i understand theres a small number of ways that the disclosure of this nature may not violate criminal law. In such rare circumstances, wouldnt a disclosure still likely result in civil liability andmark. Certainly we reach a contract if you fired an accounting for your tax codes, presumably theyre going to the agreement that they keep your information confidential. I would note the language from the New York Times story which is a little weaselly if i may refer to a person who provided information hadlegal access to the returns. The story does not say that person had a duty to disclose. It just said that that person had access to the returns which suggests to me i dont know that they were not entitled to disclose. And thats from the concept of civil liability, what about National Ethics standards. For example in the case of a Bank Employee in the same kind of situation in banking. Certainly the principles violated confidence in that way. I was having a hardtime with that person. Professor, the president break the law by not publicly releasing his tax return . Theres no reason for anyoneto publicly disclose tax returns. Professor gravol, do you know why the president despite his eagle requirements when hesubmitted his Financial Disclosure forms. My impression is that would not raise the issue. Professor, if we accept the New York Times reporting as true, does the reporting lead youto believe that the president broke the law in the filing of his tax returns . In the reporting itself contracted from its coverage of mister trumps returns does not imply criminality. It did imply criminality with respect to the report itself does not. If it was taken at face value. Thank you professor, thank you mister chairman, i yield back. And i want to say this, you claim that one of us in the congress therefore has leaked to the New York Times. [overlapping conversation] are you saying somebody in Congress Leaked this information to the New York Times . It sure as heck sounded like you said that. Correct me if im wrong. Interesting. I just was simply asking the question anybody else would miss one testified all of us and if it was me being honda hung out to dry with no evidence whatsoever and want to know every single detail and. [inaudible] theres plenty of evidence , whether its criminal is the question. We want to know i think as i said just a fewmoments ago, thats why we need the tax returns. Thats why we in the Congress Need the tax returns so our story is not over. Mister chairman, i didnt come here to argue with you. Im not going to sit here very long to listen to you argue with me. I asked the gentleman the question, he answered the question and i yield back the rest of my time. Thank you for doingthis. Now id like the gentle lady ms. Sanchez from california, and you for joining us. Thank you mister chairman and before i want get to my questions i want to take a moment to express my sit sincere sympathies to the germans family and staff. It was alarmed to work with him and it was an honor to work for him. We lost our captain too soon and hes truly missed especially on the subcommittee that he led with such conviction and such dignity. To our new chairman after pascrell i know your chairmanship will continue the committees Important Mission and i look forward to working with you and your. I want to begin by thanking our panel of witnesses for joining us today to help us distill fact from fiction. Recent news reports have exposed the extent to which the irs has been unfairly focusing on the wrong population. All taxpayers must abide by the law but there is currently a tale of two tax systems in this country. The audit rate for taxpayers earning over 1million a year has been cut in half. The irs continues to rely on an Examination Program that focuses on auditing low income taxpayers because its cheaper and its easier for them reiterates the low hanging fruit. Professor lederman, out of audits impact Tax Compliance and deter taxpayers from cheating. It will have multiple effects, first of all direct revenue so audits bring in revenue directly for the federal government and as i mentioned before i have an important indirect effects as far as from various studies with a range of numbers for every dollar elected directly, the range is estimated at four to 12 of indirect effect on voluntary compliance meaning that people timely and voluntarily pay their tax obligations. Thank you both so i think that nobody really loves paying taxes but they really hate when they see the system is growing and certain people are getting off scott free. There is a 441 billion gross tax according to themost recent estimates. What is the relationship between the tax gap and higher income audit levels area. So the tax deficit the difference between taxes timely andinvoluntarily paid , as you mentioned that 441 million gross tax gap, that is reduced by a by about 60 billion annually so you end up with about a 381 billion tax this is according to the most recent irs estimates. Increasing audit rates, increases compliance. That reduces the tax. And you know, for one of the biggest components of the tax gap is individual taxpayer business income. And so audits there. Those are generally more complex returns. Would increase the direction revenue and then thereby increase voluntarycompliance and all that helps to shrink the tax gap. Used to teach and its kind of like i look at it as a teacher overseeing her students know that theyre not cheating on their exams if they know that somebody is watching them and paying attention, theyre more likely to do their own work and more likely to comply, is that correct . Thats my red light camera now. You know you dont use it only first and of course a lot of people will by the law whether or not theyre being watched but people know theyre being watched, for the most part that helps keep everyone honest area. Thank you. Turning to another troubling issue that has been highlighted repeatedly in the past, the ongoing lack of transparency going our president s finances undermines our democracy and threat to our National Security. Professor as the president gets concerning to you . Yes. It absolutely is. President trump according to the New York Times has over 300 Million Dollars in debt coming due in the next four years. That may not make him solvents, he may have difficulty paying off that debt or renegotiating it, refinancing it reared this really gets the question, he is subject to influence and leverage and a couple of National Security experts in the Washington Post on sunday , said that President Trump absolutely denied credit if you were treated like other Government Employees are treated. So yes, it is a concern. Would your concern about the president be lessened if his assetswere safe would end available to pay that. I think thats correct. If that has to limit that in context. So if its 300 million of debt coming due, that he has a massive amount of liquid Assets Available to pay that off. Then that suggests that he would be subject to the same kind of leverage. It this is going to put pressureon him. Thank you again to all our panel of witnesses and i yield back to the chairman. Thank the gentle lady and now were going to turn to mister swazi of new york. Your time begins. You hear me now . I thought i was muted. Thank you mister chairman and thank you to all our witnesses. Im so grateful for the time you spend here with us today. Professor gray wall, you said in your testimony you written a lot about the president s taxes and Ranking Member kelly said in his Closing Remarks of this last section that thepresident has done nothing illegal. Can you confirm the fact the president has done nothing illegal . Of course not, im not in that position to evaluate. So you cant confirm the president has done nothing illegal. I operate from a presumption of innocence, i dont accuse people of breaking the law. But we dont have those facts, right . That is correct. The New York Times said that the president paid 750 in taxes in 2016 and 2017. The president says thats not true. Canyou tell us what the truth is . Without seeing any tax returns and related documents. Mister gray wall, professor gray wall, is it true that every president since president nixon has disclosed their taxes to the public with the exception of President Trump . I think maybe ford released a transcript, i might be mistaken but the general tenor of president is to make full disclosure. So professor gray wall, the president has broken with that tradition. It he is a nontraditional president , thats for sure. Professor gray wall, is it accurate to say that the irs manual requires that every president and every Vice President be audited by the irs . After watergate and the associated issues, the manual was amended to require double audits in fact of the president. Professor, do we know whether or not the president has been audited by the irs . I believe that the ways and Means Committees met with persons from the irs in charge of the Internal Revenue manual audits, i was not present but your committee would know. Do you know whether or not the president has been audited by the irs . I do not have inside information. You know whether the president s audit was done the appropriate way . I do not have inside information. Is it reasonable for this committee to request the president s tax returns that we can determine whether hes been audited . I would request you do the same thing the senate did, senator schumer and another of his colleagues requested a treasury Inspector General investigation into the president s, into the irs audits into the president s returns. That is the most responsible way to go about this the way yoursenate colleagues have done. Mister lederman, thank you so much for the information you provided us. I want toconfirm a couple things. Professor lederman, is the irs budget today less than it was in 2010 . In terms of dollars, yes. Is it accurate to say there are 30,000 less employees in the irs today than there were in 2010 . I dont have the exact staffing numbers. I know the staff has been cut a lot buti dont have that exact number. The number i have is 30,000 less, that there were over hundred thousand employees and today there are 7000. The other information i have is that the number of auditors, the number of revenue agents today is the lowest its been since 1954. Does that sound accurate to you . I dont have a precise number that they dont surprise me. Doesnt sound reasonable to you that the number of people audited today is about one in 90 whereas in 2010 it was one out of, im sorry. Today is oneout of every 220 people. Which is about half a percent of the people that are audited whereas in 2010 it was one out of 90 which is one percent of the people audited. Thats right. Returns in 2019, its a 10th of a percent for individuals overall, 7 10 of a percent for corporations overall and then if the return is examined in 2010 it was over one percent, 1. 1 percent for individuals overall and 1. 4 percent forcorporations overall. I have some information from the center on budget and policy priorities that says the audit rate for millionaires has gone down by 61 percent since 2010. Audit rate for largest corporations has gone down by 51 percent and the audit rate overall as gone down by 45 percent. The time for mister swazi isexpired. We now are going to call on Mister Truman from california. Professor lederman, your testimony points to several instances where the irs limited staffing and resources undermines audits and Tax Compliance which in turn attributes the tax gap. I can understand that because in california i was elected to california tax board. When we had oversight over Tax Compliance. And we also saw the largest contributors to the tax gap are the high income individuals President Trump who use the tax loopholes and complicated tax schemes to avoid paying their fair share. Your testimony also looks at the recent Congressional Budget Office estimates that increasing the irs is funding to investigate these high income individuals would more than pay for itself. Allowing the irs to effectively collect unpaid taxes from the wealthiest individuals. And by increasing the examinations and collections budget by 20 billion over 10 years, it would increase revenues by 61 billion. If its increased by 40 million over 10 years, it would increase revenues by hundred and 3 million area i just find it outrageous that were in a situation now where someone earning less than 20,000 would be more likely audited and someone who earns more than 400,000. So how does it year to year funding for the irs ever operations and how would the country benefit from a permanent funding or the irs or multitierexclusion of what is suggested last week. So yes, youre pointing to the Congressional Budget Offices report about how much of a direct effects and increase on irss but it would have certainly, the irs has experienced not only budget cuts in dollars over the last 10 years but also that uncertainty from one year to the next about how much funding is going to get in so increasing its funding would be, it would give a great return on investment. As i said before and it certainly if the irs was going to be able to continue to invest in personnel and hiring andtraining , and Cyber Security technology, etc. Its helpful to be able to know that that funding is going to be able to continue into the future as the irs tries to ramp up and higher to increase enforcement service, etc. Stopped there unless you want more about how audits are helpful for compliance. Thank you Mister Rosenthal and miss letterman, the reporting in the New York Times is appalling but not shocking anyone paying attention to how this president disregards the rule of when it applies to him. And in a settlement with the state of new york last november the president admitted to just misusing funds into his personal charity, the Trump Foundation. Its money given to donors expecting that it would be used on charitable causes but instead given to funnel money to himself for illegal payments for other top trump operations as well as Campaign Expenses credit President Trump was forced to dissolve the Trump Foundation under Court Supervision and in november 16 president elect trump was forced to pay a fine to the irs using the Trump Foundation for using the Trump Foundation to make an illegal 25,000 Campaign Contribution area and so hes had an established record for using the tax system for his own gain. But understanding that there are these great areas that allow for him to do 70,000 for his own hairstylist, lets address this. Mister rosenthal, you said there was no way to verify income for these sole proprietors and miss letterman, you talked about the need for thirdparty income verification. You say how it can reduce these great areas. Such as in closures of income from llcs is what new york is doing right now western mark. I think professor lederman and i are both noted, last week the treasury Inspector General wrote a report to the irs pointing out how difficult it was too honest a Sole Proprietorship because there often playing a very large losses even though they have very little income that they are reporting. While the treasury Inspector General asked the irs to pursue a variety of remedies including a case study which seems reasonable to me. Of the irs reviews saying that was to laborintensive and too difficult to the irs correctly noted there has been a lot of changes on their new llc audit rules. That might yet help. And so progress is aware generally that there are problems in this area i want to remind you this based its work many times by adding new deductions like the 20 percent deduction which creates all the more complexity and difficulty for the irs. But this will be time intensive. But its not an excuse to justify low income taxpayers because its hard audit high income taxpayers. I dont mean to apologize for that. The gentleman sign is expired and i want to thank her for questions. And i like to call on now miss francine and miss moore. Thank you so much mister chairman. Again, i want toassociate myself with the comments of anyone indicated how wonderful it is to have him as our subcommittee chairman. And how much it is to have him on the subcommittee. I dont know where to start i have such excellent testimony today and i have so many questions and i only have five minutes. I guess one of the things are concerned our members on the other side continue to sort of indicate or implicate is that the president perhaps has donenothing illegal. And the defense always is that people are entitled to be clever and to use the tax code to their benefit and it doesnt necessarily mean that theyve done anything wrong i cant remember who it was but gave a great example and ill try to figure it out, taking something out on the street and throw it away, if you abandon it, as one sort of tax treatment as opposed to whether or not you sell it for a dollar and its an entirely different tax treatment. And if youre clever enough to figure out which one gets you the most money, that shouldnt be held against you so i guess with that i would like to just ask you all about the new York Attorney is examining the president s tax returns now to try to see whether or not they have there have been inflated values with with regard to loans, i guess im asking professor lederman or anyone else, without be one of the things that would be considered clever. It doesnt sound to me like youre actually asking about a federal tax issue per se. [inaudible] was that an honest mistake when youre saying you abandoned the casinos and then took a five percent interest in the new business, is that an honest mistake, is that something legitimate that would not incur any sort of penalties for criminal behavior . We only have the New York Times reporting, we havent seen his returns. But are you saying its okay to do. How about the gift tax, if you give your kids a consulting fee, would that be something that would be inappropriate, and appropriate way to avoidtaxes and youre just being clever . I think i see what youre getting at. Sorry, theres a bit of an echo. I think that the question here and i cant recall, it might have been professor gray wall about whether any actions that the president is alleged to have taken might have beencompliant. Might have been negligent. Might have been fraudulent or might have been willful in nature. We cant know theres a real difference between simply arranging your actual affairs to fit within a more favorable tax provision rather than a less able versus making claims. [overlapping conversation] im sorry, i dont mean to cut you off. Please allow for it when someone has. Miss moore. And i recognized sir . Mister chairman, i recognized that in mark. If you are. I was wondering if the joint, the tax codes, if a great integration of more tax for was that given a greater opportunity of the president given the structure of his businesses to claim more deductions . We havent seen his returns were 18 or 19 but would you say they create even more schedule fees, opportunities . Yes, the 20 percent deduction applies an additional opportunity. For businesses that are customers. On President Trump as 500 businesses at his empire so i would expect that he benefited from that 20 percent deduction. Im so sorry i dont have any more time and i would yield back. Thank you. We still have an open mind somewhere. And please, cease and desist now. Stop. Anyway. Our next batter is the gentleman frompennsylvania. I want you first echo the words that were said by my colleague Linda Sanchez just expressing still the profound sadness that i have over the passing of an American Hero and our chairman emeritus, john lewis. I also want to congratulate my good friend bill passed row on assuming the chairmanship and its an honor to servewith him and serve under his chairmanship. This issue is frustrating i think to most of the workingclass and middleclass constituents in my district. Through on average about 40,000 a year. To find out that many of them will pay more in taxes that the president of the United States who at the least makes millions claims to be a billionaire. So the question is then, given what was reported that 10 of the last 15 years President Trump 80 in taxes and then those rare years in which he did pay federal income tax paid 750 bucks. The question to my mind then is to what extent is this because of you illegality, to what extent is this because of massive loopholes in our tax system that treats the top one percent very differently or to what extent is actually a combination of those two. This is not a mutually exclusive. So lets use trump as actually a window into perhaps a larger issue, especially if its the second thing i mentioned. He asked Mister Rosenthal perhaps first if you could comment and offer an educated guess as to which of those menu of options i presented might be the answer. Sure. Thank you congressman the second portion of my recent testimony goes extensively to the question of whether the President Trumps Business Models were fair and by fair, i only mean they should be allowed if they were genuine and accurate. And whether they were genuine and accurate is a hard question to assess from our standpoint here. Actually have very closely looked at President Trumps 960 million of losses that he incurred in the 1990s. I helped the New York Times with that story. They gave me bankruptcy filings, attorneyclient privilege opinions that the disclosing the Bankruptcy Court and i discovered that President Trump took a position his lawyers told him would be unlikely to succeed if challenged. In my view, the position was nearly was found, i think the president wouldhave been subjected to interest and penalties. When you go to jail . Its hard to go to jail when the law is so complex you can sort it out. And to what extent was a problem in the tax code, it was a problem in the tax code the president exploited what was such ambiguity into a gross distortion. I think very far beyond what other lawyers, other practitionersfor taxpayers would do. So yes, the tax code has systemic issues. Complex but there are taxpayers who are more aggressive than others were they are in the spectrum of whether it would be lawful varies from transaction to transaction. Moving, thank you for that comprehensive answer. Moving forward again both for individual mister trump specifically individual like him who might be in the same behavior, or more generally those who perhaps are not as aggressive or outright committing fraud. Are still able to take advantage of generous loopholes, what are some anything or some things you would recommend to this committee to focus on as we perhaps had a reform of the tax codeearly next year. From my perspective, is not addressed to me but i published an article on how President Trump managed to hughley 960 million in losses based on my review of documentation. One of the things he did was he continued to accrue interest on loans that were never going to be a even though his letter did not accrue the income because they said a lot of issues was never going to be paid so that was and is not allowing the outstanding deductions by President Trumps businesses not to be offset by incomes from the letter. And in a footnote i suggested congress should correct that problem. Thats one. One second i yelled back. I want to thank the gentleman from pennsylvania for his questions. That these were not just examining one individual here under 6103. Someone in the executive branch of government but we are talking about the journal necessity of changing the code. Because the lower end is getting the lowend of the stick. This shown in many communities here at the congress and i want to thank them for these questions and now iwant to ask from texas Mister Doggett. For being here. Thank you so much and i couldnt agree with you more than this last comment you made about how unfair our tax code is to those at the lower end of the income scale and how our implementation and enforcement of our tax code is the same. But when you look at income inequality and the growing between working people and the one percent of the one percent. You see the effect in large measure of the tax laws that have been written in this committee and the failure of this committee through the years to stand up and demand full enforcement of our laws to ensure that what we do right even the various exemptions and preemption and special treatment that that law is originally enforced. That has not happened and it really is a much broader agenda that we need to cover. In each of the extent that the only defense that republican colleagues offered today is did he do anything illegal, you have to ask why could it possibly be legal to do some of the things that the president apparently did in his business dealings. So there are laws that need to be changed but these things he seems to have stretched the existing laws to such an extent that there is considerable question if we ever get the full returns that he did some things that were contrary to the law. Indeed, we do not have a meaningful hearing today before the strong investigative reporting by the New York Times and i guess one or more whistleblowers because they got the very kind of documents mister chairman that you and i in my case, i think about half a dozen times tried to get in the last congress and were never successful in being able to get as our republican colleagues objected to any broad inquiry on these returns. President trump has said that he views tax dodging as a sport but as weve heard today from our excellent witnesses, its a sport where only those in trumps category can win. And even afford to play. As ms. Q referenced earlier, the top 5 10 of one percent of the wealthiest americans account we believe according to the analysis for a fifth of the income that is hidden from the irs. So one study found that the superrich are the most likely to cheat on their taxes, the audit rates forthose not on the top have gone down. Meanwhile working families declined the earned income tax credit or are more likely to get audited than the superrich. Our tax laws have been an engine ofeconomic inequality. Mister rosenthal id like to start with trump as a loser and most of his business endeavors foisted his losses off on individual taxpayers, Small Businesses that were payingtheir taxes. The impressive Investigative Journalism has uncovered what congress was unable to accomplish and that is disclosure of really what a loser he has been and how desperate he is to seek personal gain at taxpayer expense. Really a taker, not a maker. Weve heard commentators say that hes either a terrible businessman or a taxcheat. Isnt there evidence to suggest both . Certainly President Trump lost staggering amounts of money. He borrowed money from banks and from public lenders and he spent it, lost it and deducted it. And then when his loans were forgiven, he failed to report income that would have reduced his losses. So the big picture is he ran through a lot of money and then he failed to include income that the tax law generally requires to be included. It was regressive reforming. sand the loss carried by that provision on which you rely very similar to the one that republicans right now are demanding in relief legislation. They included in that cares act, we tried to repeal at a loss carry back provision that allows for the carryback of these huge losses to avoid paying any taxes when there is a good year . Yes. I described President Trumps nearly billion dollar loss that he used currency to avoid paying taxes all the way through to 2005 and then for three years he had income but in 2009, it was a 700 million loss of that that looks somehow suspicious. He was allowed as part of the thousand nine legislation after five years to carryback that lost and erase any earlier years of paid taxes. And as to what congress did in the cares act to allow more flex ability in cares act lawsuits and may i say President Trump claimed in 2009 when so many taxpayers are claiming this year quickie refunds. The government writes a check first and then audits later. 2010 , the government wrote President Trump check and now in 2020 are still arguing the irs and President Trump whether or not writing that check was appropriate. I want to thank Mister Rosenthal for that last answer. Thank the gentleman from texas Mister Doggett for your quick questions and now with were going to call on ambassador eisen. I know you need to go but we want to thank you for being here today and having a great presentation and answering the questions that im sure mister kelly feels the same way. Thank you so much for joining ustoday mister eisen , professor eisen. Thanks chairman and i thank the Ranking Member as well. Thank you very much. Our next gentleman up for questions is my friend from chicago mister davies. I want to thank you for letting me leave after this hearing. I want to associate myself with many of the concerns that staff from my colleagues have as they talked about the president s tax returns. And i dont think that you has done something wrong, as a matter of fact i have done, i think hes done many things that are wrong. They may not have been illegal, but they are wrong. Like other systems in our country , the Internal Revenue service treasury and our tax code advanced policy are racially discriminatory. Policies that in practice exact a steep code from communities of color. Although our economies estimate the top one percent are responsible for 70 percent of tax underpayments, the five counties with the highest audit rates in the United States are predominantly africanamerican, followed closely by latinx counties in texas andsouth dakota counties with Many American reservations. All of this is unbelievable. Counter to law, treasury denied Economic Impact payments to incarcerated individuals and their families, thereby inflicting economic harm disproportionately on african americans, latinx and Indigenous People who are overrepresented in our prison system. Treasury justified its position to the Congressional Black Caucus by arguing that the incarcerated did not reserve the need because they are not working, had no economic need or were fraudulent. Shameful. Like congressman lewis said, i am tired of being sick and tired and im tired of hearing colorblind justifications for discrimination. The way to right wrongs is to turn the light of truth upon them. As discussed in Bloomberg Tax story i plan to introduce legislation that would correct demographic tax data in an effort to shine the light on racial inequities. Mister rosenthal, i want to include taxes for racial ethnic andlow income communities. More than the net worth of white families is nearly 10 times that of black households. Id like to ask which policies could help ensure that the wealthier taxpayers are paying their fair share so that the lower income taxpayers are not overly burdened. Mister chairman, id like to ask unanimous consent to submit to the record audit patterns as well as an audit by Bloomberg Tax regarding how tax codes inequities cause the Internal Revenue service to collect racebased data and i would appreciate that and if i could get a response from mister lederman, Mister Rosenthal, or doctor lederman. I will take a short answer to suggest something that was in congress as part. Which is to be sensitive to the racial relief. For example as part of the care that, the first round of the Payroll Protection Program was defined in a fashion that Large Businesses and i think as was found to be more racially homogenous, what benefited more heavily. And in fact they were there were tax benefits and the Payroll Protection Program including double attempts that ive written about in those benefits go up to the biggest and most established businesses in lieu of going to more diverse crowds. Congress got sensitive to that in thesecond round. I would suggest to congress if you can place any context on relief. Providing a stimulus package, money for everybody, try to target the money to the low income beneficiaries. Thats what i would say and i would defer to the professor on what can be donein audits. Thank you, so progressives contacts reduces income inequality. There is research that shows that agiven income inequality by race , we want to support progressivity and part of that is that productivity of the code itself but part of that is if there are insufficient audits at the top, then you undermine that productivity so making sure that theres a fair structure of audits where the high income are being audited at least proportionally, absolutely helps progressivity of income inequality and therefore it also he held to the kinds of issues yourereferring to. Ill submit my time. [inaudible] without objections. Our next speaker will be the gentleman from alabama, the gentle lady ison board. Thank you mister chairman. I want to thank all of our guests today and i also want to associate myself with all of my colleagues comments and im congratulating you on being a new chair. You obviously have huge shoes to fill. We will miss congressman lewis each and every day but mister chairman, thank you for holding this importantand timely hearing. The investigation of Donald Trumps tax return raises many issues that demand urgent attention of congress and it is clear that the American People deserve a more thorough examination of this information for a november 3 election. A report from the New York Times are indeed very troubling but not surprising. The notion that President Trump pays little to nothing income taxes while workingclass families follow the letter and spirit of the law shouldbe of concern to everyone. If President Trump took advantage of loopholes in existing laws to eliminate this Tax Liability, those loopholes need to be close and if he violates thelaw he must be held accountable. This is a case of a self purported billionaire paying less taxes than the average workerin my district. Construction workers, teachers that help our societies lives but in the case of donald trump is just one example, an egregious one i would suggest a broader issue within our tax enforcement system. We have an unlevel Playing Field that is told against workers and families in my district and in favor of the ultrawealthy area i want to associate myself with the comments of doctor davis who preceded me and asking very pointed questions aboutrace. For me when i look at my district , the shady accounting maneuvers and delay tactics used by donald trump are common tools used by the wealthy and i look at my district and see how disproportionately targeted rule and low income workers especially those who received the earned income tax credit. For example in the black community of my district, a dream county where its 6 to 70 percent africanamerican and has an Median Income level of only 21,000 a year but families in Greene County alabama are audited 40 percent more than average. I think its not only unacceptable but i think its also blatantly discriminatory. The irs should reprioritize their investigations and enforcement stores wealthy innovators donald trump and not towards low income rule Rural Communities where people are barely struggling. My question really is to both Mister Rosenthal as well as professor lederman. How does the disproportionate auditing of the eip see, the earned income tax credit recipient especially in low income communities contribute to the unfairness in our tax system and more importantly, what can congress do to improve Tax Compliance, especially among the wealthiesttaxpayers . Mister rosenthal, you first. I can go first. I think its well reported that the irs is auditing the ipc recipients at a rate equal to or higher than those who make more than 200,000 in income. And if you look to the tax gap, because the dollars are smaller with the ipc audits then they would yet before Business Owners audits, theyre not looking where the money is. And i think that largely this is an institutional inertia that is easy to do and the ipc audit with information and its hard to go after Sole Proprietorships, schedule fees or llcs, much much harder. I know im running out of time and i do want professor lederman to address that i also have a really pointed question to Kathleen Clark and i like to propose now. As a member of the House Intelligence Committee im concerned about the security implications the New York Times investigation. What National Security considerations arise from resident trumps potential conflict of interest personal debt obligations and what safeguards and transparency measures should congress implement to minimize these conflicts of interest in the current administrationand in future administrations . Could kathleen, could you answer that questionregarding the security implications . Absolutely, you make a very good point. President trumps business interests in Foreign Countries and businesses patronizing at his businesses create conflicts of interests, and one thing congress can do is require Financial Disclosure so that it requires protective audits to disclose business relationships that are not expressly captured by the Financial Disclosure environment. Thank you mister chairman. Youre welcome, last question is a real doozy. Interesting question which opens up, where talking a lot more than one persons statute here. I want everybody to understand and thats why were going to have more meetings, more Committee Meetings to put it to bed. In the future to deal with the subject. Of a runaway tax code that weather in the resources they have in the irs are enough to capture these nuances that weve moved away fromtoday. Now id like that ask mister schneider, thank you for being here misterschneider. The floor is yours. Thank you mister chairman and obviously welcoming you to the position of chairman i look forward to working with you and im grateful that you allowed us to join you here. I want to thank the witnesses as well. Weve been discussing today key issues, fairness, compliance and the tax gap and all are related and i think what has become clear in this conversation is that we face challenges around all three of these in this skew towards unfairly advantaging those at the top. Much of the conversation today has been about President Trumps filings and possible abuses of thetax code and our system of compliance for his own benefit. We put an unfair burden on taxpayers and follow the letter of the law to cheat our nations treasury but its not just individual income taxes that are at issue area i like to use my time today to discuss related issues of abuses within a preferred status provide to our nonprofits area last year it was reported the nra was abusing their tax status for example funneling money through its pr firm to launder their ceo wayne lapierre. After those reports ive worked over the last couple of years to understand the alleged abuses and highlighted these this year and in our detailed cases, that would be in direct violation of the nras tax status. For example reports of a plan to purchase a 6 million home on behalf of mister lapierre for text preferred funds, hundreds of thousands of dollars from highend clothing and also similar events for travel. There are also instances of apparent conflict of interest. Such allegations obviously anathema to the irs tax code status and like other exempt nonprofits enjoy, the American People are effectively subsidizing its operations. For this reason we rightly expect honesty and integrity in the Financial Operations of these organizations. Abuse of their tax status follows so professor lederman as i can turn to you in your testimony , you noted and i quote you, enforcement of our tax laws is an important part of tax fairness. So id like your thoughts, how have diminished enforcement resources within the irs and the consequences for trade associated with it affected the irs ability to enforce our tax code fairly . So no one wants to feel like the only challenges is required with their tax obligations, feeling like others are getting away with noncompliance and so in order to enforce the tax laws, the irs needs sufficient resources. Theres no question about that. It has to have the resources in order to be able to enforce the law with respect to all kinds oftaxpayers. High income individuals. If we had more effective, more comprehensive enforcement in this case focusing on thenonprofit world , how would that promote fairness . What impact would it have on reducing abuses of the tax code like what weve seen with the professional, the National Rifleassociation . I think with respect to tax exempt organizations we have to remember it really wasnt that long ago that congress was saying that was accusing the irs of targeting certain taxexempt organizations and i have written about that. And i think that that has really, that undermines the irs ability to enforce section 501 which deals with taxexempt organizations. So i do think that the rhetoric that congress uses about the irs is incredibly important. So i mean, just with 2013 if i recall they were, there were hearings on that so its fairly recent memory for the irs so i would keep that in mind. In terms of you know, both in terms of use of the irs and allowing the irs to do its job with respect to enforcing the laws that relate taxexempt organizations as well as toeveryone else. I think its important, this is not about the mission or objectives of any taxexempt organization. Its the idea that every taxexempt Organization Needs to follow the laws so the money going into those donors contributed to the mission and purpose not identifying the executive or the house and its true, no matter what organization it is i think the compliance is necessary to make sure all of our tax organizations follow the law and the american taxpayer is protected. With that my time is up. Again mister thank chairman i thank you. We also want to thank brad for the great job youve been doing on leading theoversight efforts. And nonprofits like the nra. This subcommittee works to support those efforts. We are very grateful. I want to ambassador normalizing. I want to thank Kathleen Clark. Letterman, im sorry. Steve rosenthal and mister gray wall. All five of you have been done an outstanding job in responding to multiple questions. I want to thank you all for doing that and i think joining with me in thanking the staff thats done a great job today in preparing quickly this hearing. I want to complement who they are. [inaudible] in closing, i would like to thank our witnesses for joining us. Please be advised that the members have two weeks to submit questions to be answered later inwriting. Those questions and your answers have been made part of the formalhearing record. I want to thank the Ranking Member and we will be together on tuesday on aca which chairs miss mcconnells meeting and with that the committee stands adjourned , god bless. Our campaign 20 20 coverage continues with candidates campaigning and debating area cspan your unfiltered view of politics. Today President Trump Campaign Rally in iowas capital of des moines. Live coverage begins at 7 pm eastern on cspan2. Dd has taught nonfiction books and authors every weekend. Today at 5 pm eastern law professor jennifer tell on her book big dirty money which looks at the repercussions average americans face from when the rich break the law in order to accumulate more wealth. Then at 11 50 5 pm in his book the spymaster risk level talks to former cai directors to provide an insight intelligence organizations operations. And on sunday at 9 pm eastern on after words political commentator Candace Owens on why black americans should vote republican in her book blackout. Interviewed by max, chairman of the american conservative union. Watch tv this weekend on cspan2. Democrats need to pick up four seats in the november election to win a majority in the u. S. Senate. According to the Cook Political Report 15 of the 35 senate races are considered competitive including the contest in colorado. Republican incumbent Senator Cory Gardner and democratic candidate John Hickenlooper took part in a televised debate from Colorado State university. Senator gardner is considered to be one of the more Vulnerable Senate republicans in this election cycle. Republican Senator Cory Gardner is embracing his allegiance to President Trump and Mitch Mcconnell making the case hes in a position to deliver for colorado. If coloradans deliver it back