- Tax audit suggests one potential challenge: managing IRS
- Law provides little guidance on bank loans, global interests
The federal tax audit that emerged as an issue in Donald Trump’s campaign would turn into another problem altogether if the Republican nominee wins the election -- and gains the power to pick the next Internal Revenue Service chief.
“He would be on both sides of the issue,” said Sheldon Cohen, the IRS commissioner in President Lyndon Johnson’s administration. “Of course, you’ve got to be concerned about it.”
The potential conflict of interest with the IRS is one example of the governance challenges posed by the billionaire’s broad business interests. Trump trailed Democrat Hillary Clinton by 9 percentage points in the latest Bloomberg Politics national poll, and he’d need a historic comeback to win. But should he pull it off, he might face an even thornier challenge: convincing the public he can make policy decisions without regard for how they’d affect his fortune.
The nature of those interests -- more than 500 partnerships and closely-held companies that own and manage signature real-estate holdings and license Trump’s brand -- makes it difficult for him to separate himself from his businesses, according to three business-ethics specialists. A President Trump would face an unprecedented array of potential conflicts -- from federally regulated lenders that have advanced him an estimated $630 million to foreign governments that have influence over his golf resorts and other developments.
“In terms of conflict of interest, there’s really nothing comparable,” said Kenneth Gross, who leads the political law practice at Skadden Arps Slate Meagher & Flom LLP and is a former lawyer for the Federal Election Commission.
Neither Trump’s campaign nor the Trump Organization, which houses his business operations, responded to e-mails seeking comment.
Clinton has faced her own conflict-of-interest questions, focused mostly on the Clinton Foundation, the $2 billion charity that her husband, Bill Clinton, founded. The Associated Press reported this year that as secretary of state, Hillary Clinton met with at least 85 people who had donated to the foundation or pledged commitments to its programs.
The foundation announced in August that if Clinton wins, it will stop taking money from any foreign or corporate donors. Bill Clinton has said he’d resign from the foundation’s board. September marked the end of the Clinton Global Initiative, an annual gathering of politicians, business leaders and others to discuss solutions to global problems.
Richard Painter, a corporate law professor at the University of Minnesota and a former White House chief ethics officer for President George H.W. Bush, said that to avoid conflicts, the Clintons need to sever their connections to the foundation. That includes having daughter Chelsea Clinton, the charity’s vice chairman, step down from the board, he said.
A Clinton campaign spokesman referred a reporter to the foundation’s previous statements about the changes.
It’s not unusual for candidates with extensive business interests to seek the White House, but typically their holdings are better suited for management by an independent trustee. For instance, Mitt Romney, a founder of private-equity firm Bain Capital who was the 2012 Republican presidential nominee, said that year that if elected, he’d put his estimated $250 million portfolio into a blind trust overseen by federal officials.
Lyndon Johnson was the first president to place his assets in a blind trust. His was set up by Cohen, whom Johnson later named to head the IRS in December 1964.
Trump has said he’d avoid conflicts by turning over the management of his businesses to his children, Ivanka, Donald Jr. and Eric. “I would put it in a blind trust,” he said during a Republican primary debate in January. “Well, I don’t know if it’s a blind trust if Ivanka, Don and Eric run it, but -- is that a blind trust?”
It’s not. Blind trusts are overseen by independent trustees, Gross said. Last month, the Trump Organization announced a new brand for future hotels and resorts: “Scion.” But even if Trump left management and even with a new brand that’s not his last name, he wouldn’t truly be separated from his companies’ interests, Gross said. He’d still know where his business interests are placed around the world, including Turkey, South Korea, India, Azerbaijan and elsewhere.
Then there’s the IRS audit, which Trump’s tax lawyers confirmed in a March letter. Trump has cited the audit as his reason for not releasing any tax returns -- something major-party presidential nominees have done for roughly 40 years. (There’s no rule preventing people from releasing returns even if they’re under audit. But tax specialists advise against it, saying the public might find items that auditors missed.)
IRS Commissioner John Koskinen told members of Congress last month that he’d resign immediately if the next president asks him to, but his term is up in November 2017 regardless. It’s impossible to know whether the tax agency would still be auditing Trump by then; only Trump himself could release that information. IRS officials are barred from discussing individuals’ tax returns.
Questions would also remain about Trump’s transactions with lenders that are subject to federal regulation, said Painter, of the University of Minnesota. One such question: “whether he’s going to kowtow to the banks, because the banks are extending him credit,” Painter said.
On a May 2016 disclosure, Trump reported loans from 16 lenders, including units of Bank of New York Mellon Corp., Bank of America Corp. and UBS Group AG. Among his borrowings is a $170 million line of credit from a unit of Deutsche Bank AG that funded renovation work at the new Trump International Hotel in Washington. Deutsche Bank is negotiating with the U.S. Justice Department to settle a mortgage-securities investigation that may be resolved only after the election. News organizations reported last month that the government had asked for $14 billion, a figure the bank has said it won’t pay. As president, Trump would nominate a new U.S. attorney general to oversee the Justice Department.
Certain presidential appointees, including cabinet heads, require confirmation from the U.S. Senate, which provides a check on the White House’s authority.
But federal law provides only muted guidance for presidents. While criminal conflict-of-interest rules generally ban officials’ using their positions to further their personal interests, those rules exempt the president and vice president. (White House leaders “should conduct themselves as if they were so bound” by the rules, according to a 1983 Office of Government Ethics letter.) The president is also exempt from rules governing how members of Congress and other officials interact with lobbyists, trade groups and other interests.
“He’s off the hook when it comes to the requirements that regulate Congress -- it gives him a very wide berth,” Gross said.
The U.S. Constitution prohibits officeholders from receiving compensation from a foreign government or related entity. But Gross said that wouldn’t apply to, say, Trump urging official visitors to stay at his new hotel on Pennsylvania Avenue, five blocks from the White House.
In the absence of legal restrictions, it would be up to a President Trump to ensure his decisions weren’t affected by his businesses’ aims -- or face political backlash.
“All you really have is the power of public opinion, and maybe the power of a Congress alarmed by actions by a president that fit his or her economic interests,” said Norman Ornstein, a scholar and political expert at the American Enterprise Institute, a conservative policy group in Washington.