Like most, I have read the New York Times article that analyzes President Donald Trump’s past tax returns. The Times was able to obtain access to tax return information from someone who had “legal access” to the president’s IRS transcripts for the 1985-1994 tax years. These electronic IRS records provide a wealth of information – and the Times was able to piece together 10 years of President Trump’s tax history.
But first, as a point of disclosure, I am not taking any opinion on the ethical issue of whether our president or any elected officials should disclose their tax returns to the public. Unless tax return disclosure becomes a requirement to run for office, I pass no judgment on any public official who wants to keep their financial affairs private.
However, taxpayers and tax professionals should take note of the wealth of information found in IRS transcripts. And those who want to guard their tax information should take precautions on who they authorize to receive this information from the IRS.
Accessing Trump’s 1985-1994 transcripts
IRS transcripts were at the center of the Times’ article on Trump’s finances for 1985-1994. The newspaper allegedly obtained Trump’s tax information from his Form 1040 tax return transcript to analyze his finances.
The Times reported that these transcripts were provided by a person who had “legal access” to this private tax information. It is unlikely that the person had consent from President Trump to disclose this information to outside sources. Only President Trump’s authorized third parties could legally access this information. The most common authorization is to a CPA or attorney. To authorize this person, the taxpayer ink-signs a Form 2848, “Power of Attorney.” Another method is to authorize (again through an ink signature) a third-party, such as a tax preparer to get your information through a Form 8821, “Tax Information Authorization.” Most authorized third parties through Form 2848 or 8821 are trusted providers and likely assisting President Trump with tax matters, such as filing a return. The Times article is silent on how the legal access was granted.
Another common method to access transcripts is to order them via Form 4506-T, “Request for Transcript of a Tax Return.” Taxpayers or their authorized third parties can request that the IRS mail them a copy of their transcript using this form. This one-time authorization to access tax return information is commonly used in the mortgage industry to assist lenders in the loan application process.
President Trump
Bloomberg News
The three types of IRS transcripts
For many taxpayers, the Times article poses many questions about the source of the tax information. Most taxpayers have no idea what an “IRS transcript” is or what is contained in these transcripts. Furthermore, most people have never seen their transcripts and have no idea on how to obtain them.
Most individual taxpayers have three IRS transcripts for each tax form filed for each year:
- A tax return transcript — an electronic printout of most of the line items on a filed tax return that can go back to the past three years.
- An account transcript — a summary of key items on a tax return and a detailed list of most transactions for that tax year that is available back six years. The account transcript also has an account balance owed, but it is not a reliable resource for determining how much a taxpayer owes.
- A Wage Income transcript — all information statements (Forms W-2, 1099, etc.) filed under the taxpayer’s taxpayer identification number going back 10 years.
There are two other types of transcripts that are derivatives of the three primary transcripts: the “record of account” transcript which combines the tax return and account transcripts into one transcript and the “verification of non-filing letter” which provides the taxpayer a confirmation that a return was not filed for that year.
Tax return transcripts
From the Times article, it seems clear that the authors were able to obtain the “tax return transcript” for 1985-1994 in order to glean the detailed information about Trump’s tax return reporting. It is the only transcript that could provide the type of detail reported.
Presumably, the tax return transcripts provided to the Times were obtained years ago, as the IRS does not make this information readily available past the last three years.
The person who secured 10 years of return transcripts would likely have had to request these documents over several years. It would require multiple requests over several years to obtain the 10-year span of tax return transcripts because tax return transcripts are only kept for the past three years.
The Times article does not provide any information about Trump’s claims that he has been audited for many of the past tax years. That information could have been obtained in an IRS account transcript.
In the transaction code section of the account transcript, the transcript would show an “audit indicator” (usually a transaction code “420” or “424”). The audit results (additional tax) would also be shown if the audit was complete (TC 300). Additional penalties from the audit would also be shown on the transcript.
Wage Income transcripts, meanwhile, provide a great deal of information about a taxpayer’s income and investments. For example, a taxpayer’s interest income would be reported on Form 1099-INT, stock sales on Form 1099-B, and partnership/S corporation income and activity on Schedule K-1. All of these forms, and more, are reported in a taxpayer’s Wage Income transcript.
The Times article highlighted a spike in President Trump’s interest income for $52.9 million in 1989. The WI transcript would likely show the source. It would also show investment sales and activity.
WI transcripts provide very useful information for taxpayers. Taxpayers can use their WI transcripts to reconstruct income and to file back tax returns. Unfortunately, taxpayers still cannot use the WI transcript to file current year returns as it is not available until May – well after the April 15 filing deadline. Extension filers can pull their WI transcript in the summer and use this information to file an accurate return. Confirming the return includes all Forms W-2/1099 and other information statements is a great way to avoid an IRS underreporter notice and an audit for unreported income.
‘Legal access’ questions remain
How President Trump’s old tax return transcripts turned up is a mystery. What is more of a mystery is who shared them and how they got them. And there may be legal issues for the person who supplied them to the Times. For starters, if the disclosing person was involved in the preparation of Trump’s tax returns, they likely were not given the permission to disclose the information. This likely would be a criminal violation of Internal Revenue Code Section 7216 which prohibits tax preparers from disclosing tax return information to a third-party without the consent of the taxpayer.
The Times reported that the person had “legal access” to the transcripts. If this is true, there is a document trail that could round up a short list of people who were authorized to obtain this information.
Taxpayers looking closely at this story can now understand the information available through IRS transcripts. Taxpayers should also learn another lesson: Watch out who you give authorization to view your tax information.
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