Nobody's Tax Returns are Confidential Anymore

Way back when Atlantic City was still Atlantic City (i.e., before the casinos arrived), I went there in hopes of finding a job so that I could remain there for the summer, and for a few hours was employed in one of those Boardwalk tourist-trap establishments that conducted "closed sale" auctions of objets d'art and other useful novelties.  The auctioneer would solicit bids from the crowd that had entered, do a few freebie giveaways of some of the lowered-valued (and often mass-produced) items, and then close off the premises so that the people seated could bid upon the supposedly higher-valued items in a private session.  As I carried the items to the bidders and collected their money, I would look into the bidders' opened wallets to see what kind of cash the wallets contained, and through arcane code jargon (example: "Bidder Number 22 has lines"), apprise the auctioneer of which attendees might be good prospects from which to extract cash.

(After ascertaining the cost of renting a room for the summer, I realized that if I were to actualize my plan to enjoy a summer of beaches and the Boardwalk, I would be lucky when I returned home to begin the Fall Semester to have thirty-eight cents in my pocket; and decided to continue for the summer my campus job of shelving books in the library instead.)

Criminal tax offenses are arguably the most bureaucratically complex crimes to prosecute.  The procedures and paperwork within the IRS are very involved and time-consuming.  It all begins with the front-line IRS guy or gal auditing the tax return, who, upon encountering some reason to suspect criminal activity, completes the paperwork to initiate an investigation (of which stage alone the Internal Revenue Manual speaks more than 16,000 words).  The case then works its way to the upper levels of the IRS bureaucracy, and then, some GS-½ (unless the job has been A-76-ed to a private sector contractor) must physically carry the case file across 10th Street to the Justice Department.

Once it makes its way to the Justice Department's Tax Division, a complex bureaucracy in its own right, the case file then descends the bureaucratic ladder down to the local United States Attorney's office and is assigned to the relevant Assistant U.S. Attorneys for prosecution. 

At this stage, the AUSAs often take the attitude that having racked up hundreds of federal personnel man-hours on the matter, it is a trifling matter to spend three or four days trying the case.  The corollary is that attorneys who specialize in taxation frequently advise their clients to settle their differences with the IRS as early as practicable when there is a palpable potential for criminal liability, so that the case never becomes a criminal prosecution.

As Justice John Marshall Harlan noted in the case of Boske v. Comingore in 1900, "The interests of persons compelled, under the revenue laws, to furnish information as to their private business affairs would often be seriously affected if the disclosures so made were not properly guarded."  The Boske case entailed a federal revenue agent who had been imprisoned for failing to disclose a taxpayer's filed returns to the Kentucky authorities on account of the federal confidentiality statute.

Any time money changes hands, information is also passed.  As my brief Atlantic City gig exemplifies, the information that so passes often reveals more about the person passing the money than about the subject of the transaction.  And tax returns can reveal information which is highly intrusive into the taxpayer's personal affairs.  Effective tax administration accordingly necessitates that information voluntarily disclosed to the tax collector be kept in confidence, and tax returns be disclosed only when the information on them is sought for a compelling purpose and there is no other likely source for such information.

Indeed, the 112-word tax information confidentiality statue that was operative in 1900 and validated in the Boske case has expanded; its successor provision, Internal Revenue Code § 6103, has a word count of approximately 20,000, exceedingly verbose even by Internal Revenue Code standards.

Violations of taxpayer confidentiality by governmental employees and others are criminal offenses under I.R.C. §§ 7213  and 7213A.

But New York County District Attorney Cyrus Vance, Jr. is not asking anyone from the IRS for Donald Trump's tax returns; he has subpoenaed (and received) them directly from Trump himself (or, more accurately, from Trump's tax return preparers).

It is neither unusual nor necessarily nefarious for individuals or businesses to be asked to show copies of their tax returns.  As a board member of a non-public school, I had occasion to review tax returns of parents who requested financial aid for their children's tuition, and in my law practice I successfully resisted an insurance company's boilerplate request for my client's tax returns in a case involving a damaged piece of artwork, in which my client's income was irrelevant.

Courts have held that

"[t]o compel the disclosure of tax returns, the movant must show that (1) 'the returns are relevant to the subject matter of the action' and (2) 'there is a compelling need for the tax returns because the information contained therein is not otherwise readily available.'"

Moreover, New York County's own courts have declined to compel disclosure of tax returns where the government's assertion of need was "speculative, conclusory, unconvincing, and insufficient to demonstrate a showing of necessity."

I am not familiar with District Attorney Vance's suspicions that Donald Trump may have committed financial crimes, but if indeed the former President has, then his tax returns (which, as I have previously noted, no doubt comprise hundreds if not thousands of pages) would likely contribute some significant evidence to help secure a conviction.

As matters currently stand, the Supreme Court's allowance of disclosure is a precedent for future abuses by prosecutors nationwide.  Nobody's tax returns can truly be confidential anymore.

But if Vance's accusations against the former President prove baseless, then Trump may well have additional arrows in his quiver.  I.R.C. §§ 7213(a)(3) effectively felonizes the wrongful disclosure of all federal tax return information, even if obtained through channels not authorized by the Internal Revenue Code.  The chances are excellent that, given the number of people in Vance's shop who will have access to Trump's tax returns (especially if the return information is presented to a grand jury), there will be someone who will illegally leak the information somewhere, and there may be hell to pay if, like Grover Cleveland, Donald Trump nonconsecutively serves another term in the Oval Office.

Kenneth H. Ryesky, a freelance writer currently based in Israel, is a lawyer who has taught business law and taxation at Queens College CUNY for more than two decades. He formerly served as an attorney for the IRS.

Image: 401(K) 2012