Lawfare Daily: Attorney General Blanche’s Purported Waiver of Pres. Trump’s Past Tax Liabilities

[Intro]

Brandon DeBot: The acting AG has issued this addendum that, in our view and based on what's publicly known, he did not have authority to issue. And so, the IRS is not obligated to follow through on that, but we can imagine there's immense political pressure on the IRS to act.

Roger Parloff: It's The Lawfare Podcast. I'm Roger Parloff, senior editor at Lawfare, and I'm with Brandon DeBot and Kelsey Merrick of NYU's Tax Law Center.

Kesley Merrick: Congressional action's really important here, both to undo the agreement of the audit release, but also to use their oversight and investigatory powers to find out exactly what happened here.

Roger Parloff: Today we're talking about Attorney General Blanche's purported waiver of President Trump's past tax liabilities and what can be done about that.

[Main Podcast]

Before we go further I'm gonna ask you each to introduce yourselves and also to explain what the Tax Law Center is. So, Brandon?

Brandon DeBot: Sure. I'm Brandon DeBot. I'm a senior attorney advisor and policy director at the Tax Law Center at NYU Law.

Kesley Merrick: And I'm Kelsey Merrick. I'm the director of litigation here at the Tax Law Center at NYU Law.

Brandon DeBot: We're a nonpartisan organization that's focused on protecting the integrity of the federal tax system. Many of our staff come from major law firms, as well as IRS and DOJ. Most of our work is technical. Think research papers, technical comment letters, amicus briefs, and the like. We work closely with practitioners and former government officials, and our advisory board includes former officials from Republican and Democratic administrations.

Over the last couple years, we've closely examined the laws on taxpayer privacy and political interference in the tax system. We've also launched a project on remaking tax administration, which will focus on creating an executable vision for rebuilding and reimagining how the tax system is administered and developing concrete blueprints to achieve that.

So when news began to break on this topic, we were well-positioned to examine these issues, to educate the public about the potential consequences, and to detail steps that should be taken to block this unprecedented deal.

Roger Parloff: Okay. Today we'll be discussing the portion of the settlement of President Trump's $10 billion lawsuit against the IRS that does not involve the $1.776 billion anti-weaponization fund. That's the part that was created the next day in the addendum on May 19th, where Attorney General Blanche purported to, among other things, drop any pending tax audits or investigations of Trump and to waive any past tax liabilities.

Brandon, earlier this month, you called upon Congress to, quote, "stop the administration from implementing the sweetheart deal to end audits and to investigate potential criminal violations of the laws against political interference in the tax system." So broad brush, why did you do that?

Brandon DeBot: We're deeply concerned about the potential abuse of the tax and legal system in this case and how it could undermine the rule of law. The acting AG's addendum was entered into without authority. The acting AG does not have authority to issue that release unilaterally.

So, on June 2nd, with the acting AG stating that the administration is not pursuing the fund, but that it does intend to pursue these extraordinary audit protections, we became increasingly concerned that if Congress doesn't act, it will get even more difficult to stop this audit release as a practical matter. It's still possible that the IRS could choose to not act to carry it out, or that a future IRS could try to unwind it, or that there could be actions in the courts, but the best path forward is decisive action by Congress right now.

We've also become increasingly concerned based on public reporting that there could have been potential violations of crucial protections against political interference that help ensure the tax laws are administered neutrally, and Congress has built these protections on an overwhelmingly bipartisan basis over decades. And our view is that any potential violations warrant investigation, including by Congress.

Roger Parloff: Okay, and I should say that for those interested in this topic, the Tax Law Center has some articles on this topic which are very useful in, in my opinion. Brandon and Kelsey also wrote a useful and informative article on, on Just Security called “What Congress Should Do About the President's Sweetheart Deal in Trump versus IRS.”

Also, before going further, I do think our readers, our listeners are familiar with the outlines of the lawsuit Trump brought, the $10 billion lawsuit and the settlement. But it might be worth just a very quick timeline to get us up to that May 19th addendum. If one of you can provide that

Kesley Merrick: So this suit, Trump v. IRS, was filed back in January of this year when the president, two of his sons, and one of his entities sued the IRS for $10 billion in the Southern District of Florida asserting claims under Internal Revenue Code Section 7431. This section provides a private right of action for civil damages for the unauthorized disclosure of taxpayer information. This is because tax returns are confidential under Internal Revenue Code Section 6103, and that confidentiality extends to the president.

As Lawfare readers might be familiar already, the president's tax returns, among several others, were leaked by an IRS contractor named Charles Littlejohn back during the first Trump administration in 2019 and 2020 Little John was then prosecuted by the Biden DOJ and sentenced to the maximum prison term of five years under the Internal Revenue Code.

So, fast-forward again to this year with Trump's civil damages suit. In April, his attorneys filed a consent motion to stay the case while the parties engaged in settlement discussions. The government hadn't made any appearance, and so the judge responded sua sponte, requesting briefing from the parties and court-appointed amici on whether there was actually a case or controversy here that would give the court jurisdiction in the first place. And as we now know, the plaintiffs dismissed the case with prejudice. Before that briefing deadline, the government never made an appearance in the case.

And on May 18th, the DOJ announced the settlement of the suit and the establishment of the so-called Anti-Weaponization Fund. And then the following day, May 19th, Acting Attorney General Blanche had signed a purported addendum that included this extraordinarily broad release of claims that the government had or might have had against not just the plaintiffs, but also any Trump affiliates, and that purported addendum specifically mentions that it extends to tax returns.

Roger Parloff: Okay, great. And of course, the anti-weaponization part has, the government has said it's not gonna, or Blanche has said he's not going forward with that, and a, and a judge has at least preliminarily enjoined that from going forward. A lot of people ask me and other Lawfare people what about the other half? Is somebody gonna sue to block that? And I take it your position is that a lawsuit is not really the best way to approach that prong of the so-called settlement, that it, it's either inappropriate or unnecessary. What would you say?

Kesley Merrick: You know, first I would just observe that the fund itself is, is still an open question, notwithstanding the attorney general's comments that they're backing away from the fund. Folks might have seen just a few days ago, the Department of Justice filed a motion in the court that has enjoined the fund, saying, "We're not submitting any more declarations. Whatever has been said should be good enough for you, Judge, to say that we're not moving forward." So, I, you know, one, that's still an open question.

But, you know, back to the, the audit release here and what can be done about that, you know, I, I think that's definitely fair to say that our view is congressional intervention is, is really imperative here. I think, you know, it could be challenging for someone to bring a suit based just on this audit release. You know, one way that could happen, for example, is by someone who's a Trump affiliate or claiming to be a Trump affiliate, if they're under IRS audit, they might raise this May 19th order as a defense to that IRS action.

But y- rather than, I think, waiting for someone who's potentially interested in effectuating this waiver to, to bring some kind of claim, it's really better for Congress to take action now to send a very clear and, and legally binding signal to the IRS that this is not an order that they have to follow or effectuate.

Roger Parloff: Brandon, anything you wanna add to that?

Brandon DeBot: Yeah, I, I think Kelsey put it really well. I would just add that to the last point about where we are right now, the acting AG has issued this addendum that, in our view and based on what's publicly known, he did not have authority to issue. And so the IRS is not obligated to follow through on that, but we can imagine there's immense political pressure on the IRS to act.

Members of Congress in both parties have expressed serious concerns over this extraordinary audit release, and they could, by passing legislation, both nullify this specific order, making it crystal clear that the IRS doesn't need to act, and also implement structural reforms that would prevent any president or any administration from pursuing a similar approach in the future.

And this would resolve the audit issue right now quickly before the IRS takes any actions. Once the IRS takes actions, if they do, there are still potential steps to unwinding the agreement, but they become much more challenging. And so that's why we think it's important for Congress to act quickly.

Roger Parloff: Okay, and one other thing that we probably ought to mention is that this is not, apparently, an abstract question. There seems to be pretty strong reporting that there is a, there has been a tax audit, a very significant tax audit, perhaps involving 100, potentially $100 million in liability for Trump. Can one of you discuss that?

Brandon DeBot: Sure. We won't get into the, the details. I think we know as much as, as you and your listeners about the status of, of this audit based on reporting especially from the New York Times. But according to that reporting, the president has been under audit for at least one particular tax return for over a decade. It relates to his potentially attempting to take double tax deductions, to, to double dip on particular deductions. And according to The Times, the amount in dispute may now exceed over $100 million. The Times has reported that that audit recently entered into settlement agreements shortly before this release was signed.

And so, you know, based on that public information, it sounds like, if that reporting is accurate, that this case has a lot at stake in just one particular matter, and that it was unresolved in the lead-up to the acting attorney general's purported release.

Roger Parloff: And just to add one other detail, I think The Times has also reported that in 2024, that Eric Trump himself had acknowledged that a, a tax audit was active. So it sounds like pretty strong... This isn't just you know, an anonymous sources.

Suppose hypothetically at the IRS, pencils are put down at this point maybe in reliance on Blanche's order, and then a new administration comes in and somebody wants to say, "Let's finish the audit." Is there a civil statute of limitations on, on tax audits that we need to worry about, or, or does that not exist?

Brandon DeBot: There, there is a statute of limitations for tax audits. The standard rule is three years, but there, it is longer in particular cases. If there's severe understatement of tax liability, for example, then it's six years. It is also extended if there is fraud, and it can be extended, as, as has likely been the case based on the reporting in, in the, with respect to the Trump audit. It can be extended by the parties agreeing to extend it while they work out the details a- and resolution of the audit.

So there is a potential statute of limitations here, issue here, although we don't know the exact nature of the dispute between the president and, and the IRS, and so don't know exactly when the, the statute of limitations might run.

But this is also something that Congress can address, and it can address that by passing a law that, for example, says any claims that are open between the president and certain other officials in the administration automatically have the statute of limitations extended past that person's time in office plus an additional maybe two years or, or pick your number. But Congress could ensure that there's not a, a statute of limitations issue with respect to audits of the president.

Roger Parloff: Let's now go to the criminal statutes that might be implicated here. This is one of the more interesting parts of your articles. There's at least two statutes in the IRS code that are particularly relevant. One is 26 U.S.C. 7217. Can one of you discuss how that works?

Brandon DeBot: Section 7217 was enacted on an overwhelmingly bipartisan basis after President Nixon tried to use the IRS to target his political enemies. And Section 7217 makes it unlawful for the president, vice president, White House staff, and certain other political officials, including the treasury secretary, to directly or indirectly request that the IRS terminate an audit of any particular taxpayer. Violations of Section 7217 carry serious criminal penalties including up to five years imprisonment.

Roger Parloff: That's an unusual statute in that it explicitly mentions the president as one of the people that is, is covered. It also, as an oddity, which it, it says one of the people that is not covered is the attorney general. And of course, that's the sole person who signed this document, which is strange. It's supposed to be a settlement. But the other side doesn't touch it. Stan Woodward, who signed the anti-weaponization fund part of this, he also doesn't sign this tax part of it. What is the statute of limitations on, on this this provision?

Brandon DeBot: Section 7217 carries a three-year statute of limitations. And you're correct, Roger, that there is an exception for the attorney general here. Section 7217 doesn't apply directly to the attorney general as a covered official, but that doesn't mean there is, there hasn't been a violation of Section 7217 because of how it applies with respect to direct and indirect interference by the president or other White House officials, for example.

So here we have New York Times reporting that has details about how the president discussed his audits in circumstances related to this lawsuit, and that his advisors received drafts of the settlement which suggests that officials like the president, who are covered by Section 7217, may have used the acting attorney general's purported order to influence the IRS with respect to these audits. There's also the possibility of criminal conspiracy that could apply to the Section 7217 violations or the possibility that the acting attorney general was an accessory to a violation of Section 7217 here.

Roger Parloff: I see. Another interesting thing I'll just... listeners might be interested in as another unusual aspect of this statute is it's built right into the statute, the second subsection B, that IRS officers and employees have an obligation to report such a request if they witness it. And in fact, if they don't, they themselves are subject to the same penalties, up to five years criminal. It's a very unusual statute.

I'll also mention the New York Times reporting here. We're relying a lot on the New York Times. It's a group led by Alan Foyer. They said that the people involved in negotiating this, well, obviously Todd Blanche signed it. The private lawyers included Boris Epstein or Boris Epshteyn, who is a former client of Blanche's also. Blanche's current top deputy, Trent McCotter, a private lawyer named Daniel Epstein, who works, who represented Trump. We don't know that all of them worked on this aspect of it, and of course that's just the reporting. And I guess the OLC head T. Elliot Gaiser, blessed a portion of this. That might have been the anti-weaponization fund.

Boris Epstein is usually described as a senior counsel to the president. I don't know if that's a member of the executive office of the president. I- is he an applicable person under 7217 as you understand it?

Brandon DeBot: I, I don't know his employment status either and so, can't opine on that. In general, the White House officials, any, any employee of the executive office of the president is a covered official, so it would depend on his capacity.

Roger Parloff: Okay. And then there's a second statute, at least in play, 26 U.S.C. 7212. Can one of you describe that one and how it works?

Brandon DeBot: Section 7212 makes it a crime to interfere in a particular tax audit or investigation either corruptly or by force or threat of force. Section 7212 covers everyone, so both government officials and private citizens. It carries a, a, serious criminal penalties, including a maximum three-year term of imprisonment.

Roger Parloff: And what's the statute of limitations?

Brandon DeBot: The statute of limitations on Section 7212 is six years under the tax code.

Roger Parloff: Okay, and I interrupted you. You were gonna add something?

Brandon DeBot: I, I was just gonna add that, that here the reporting suggests that those involved in negotiating the settlement were aware of at least one pending audit of, of President Trump, the one that we've talked about with likely more than $100 million in dispute. And so that audit could be what is required under Supreme Court doctrine to meet the standard for 7212 that there was intent to corruptly interfere in a particular tax audit or investigation.

Roger Parloff: So that's a particular element of that statute. You need to know about a particular audit or investigation that's ongoing.

Brandon DeBot: Right.

Kesley Merrick: E- exactly.

Brandon DeBot: That you're trying to influence, yeah.

Kesley Merrick: And that, that's what Brandon mentioned with the Supreme Court precedent there. It has to be a, a specific audit. It can't just be general interference in, in IRS administration for purposes of 7212.

Roger Parloff: Okay, and to the extent that we're talking about, since one of the people involved here is, is President Trump, we get immediately into immunity questions. And I don't know how much you all have thought about that, and whether this, this is an official act, and if it's not an official act, whether you could ever overcome the evidentiary hurdles to bring a case against him. Do you have thoughts on that, either of you? I mean, assuming he did something wrong.

Kesley Merrick: Right. Right. I, and, you know, I mean, we ha- we have some thoughts. You know, I don't know that they're particularly enlightened. You know, our bread and butter is Title 26 of the U.S. Code and, and tax administration. But of course, we're well aware of the immunity ruling by the Supreme Court in Trump v. U.S., and I think there are a lot of open questions in terms of just how broad that is. Is it absolute immunity? Is it presumptive and rebuttable immunity?  You know, I think this is really uncharted territory and, as with so much of what we're discussing today, truly unprecedented.

You know, but I, I think we can observe that, you know, to your question about whether this is an official act, I think it's pretty difficult to make the argument that resolving the president's private claims and his personal tax liability would fall under a- any definition of official acts.

But, you know, it, of course, it's, it's just hard for us, I think, sitting here today to, to predict how that, that might, might come out in the future. And in terms of, you know, the ability to uncover any evidence of wrongdoing, again, I think this just goes back to our position that congressional action is really important here, both to undo the agreement and the audit release, but also to use their oversight and investigatory powers to find out exactly what happened here.

Roger Parloff: And Brandon, d- do you agree with that? I, I, I, I assume that getting to the bottom of what happened here will, will itself run into, headlong into a lot of privilege issues: executive privilege, attorney-client privilege, I'm sure. It, it, it may not be practical to pursue. Is that- How, how do you feel, Brandon?

Brandon DeBot: I, I agree with Kelsey's analysis, and also that, as Kelsey suggested, there are still so many remaining questions, including who specifically was involved in what elements of the settlement negotiations. I'd underscore that in addition to Congress needing to investigate and having the ability to use its oversight powers to bring the facts to light here, additionally the, the provision you mentioned, Roger, requiring reporting to the Treasury Inspector General for Tax Administration is really crucial.

And I think that's evidence that when Congress set up this regime, Congress thought it was really important that the facts of these violations be reported and that there would be investigation. And so that responsibility for the, the IRS employees, if they feel they've received an improper request, an unlawful, you know, politically influenced request, to make a referral to TIGTA is also very important in that TIGTA could then investigate and, and bring to light potential violations and, and the facts that we need to learn more to determine the, the legal status. That's another pathway that, that those facts could be developed.

Roger Parloff: And you mentioned TIGTA. That's the Treasury IG, In- Inspector General for Tax-

Brandon DeBot: Administration, correct.

Roger Parloff: Administration, okay So really you, you do focus on Congress and what they should do. And one thing I, I take it you think they should do is hold an investigation, try to find out what happened here. But what, what are your other legislative proposals?

Brandon DeBot: Sure. Definitely, in, in addition to oversight we think it's important for Congress to take several actions to block the release of claims and add guardrails so that powerful officials in, in future administrations cannot try to effectively close their own audits.

The first step, as I mentioned before, is simply nullifying the acting attorney general's purported release of, of claims including tax audits.

The second is preventing the IRS from entering into final closing agreements with the president and other powerful officials while they're in office. The IRS can enter into a closing agreement that is signed by both an authorized IRS official and the taxpayer that conclusively resolves the matters in dispute and detailed by that closing agreement unless there's a showing of fraud, malfeasance, or misrepresentation of a material fact. But that's determined by statute, and Congress could, for example, say that while a covered official is in office, the IRS cannot enter into a closing agreement with that official. Or they could say that such closing agreements do not receive the finality that's afforded to other closing agreements. So that's the second step.

The third step is extending the statute of limitations so that a future IRS can effectively pursue audits of the president and his affiliates. And we got into this a little bit earlier, but just to, to underscore that Congress could choose to ensure that a future IRS can effectively examine the returns of, of the president. For example, you know, if, if a closing agreement has been set aside due to fraud, malfeasance, or a misrepresentation of material fact, that the statute of limitations is automatically extended in such circumstances, or that the statute of limitations is automatically extended beyond the term of the president or other specified officials.

The fourth step that we think Congress should take is to require additional reporting of key information to ensure that it becomes public and to facilitate oversight here. For example, beyond TIGTA, the, the inspector general, requiring TIGTA to make reports to congressional committees that could then have information to investigate and also to release information that is not confidential publicly so the, the public has a, an understanding that there's been a, a report of potential improper interference. So that legislative step would facilitate oversight and investigation.

Roger Parloff: So when you mention closing agreement I take it that means that o- in an ordinary audit, the IRS and the taxpayer might reach a genuine agreement, a, a settlement, or the IRS might decide they were mistaken, there, there is nothing there the tax liability is correct, and then they would enter a closing agreement to f- finalize and make sure that this doesn't get relitigated later. So, here you wanna, you're hoping for congressional action before a closing agreement might take place in Trump's case. I- is that basically what you're saying?

Brandon DeBot: Yes. That, that's a core component of our recommendation is for Congress to act as quickly as possible. Congress could make this provision retroactive to the beginning of the year, the beginning of this administration, or, or another date so as to try to ensure that there couldn't be a final closing agreement with the president or, or his affiliates who are covered by the purported release.

That might, you know, implicate some of the issues that, that you and Kelsey were discussing earlier. But the best path for Congress to, to ensure that the IRS doesn't act and can't act with, with finality would be to block the IRS's ability to enter into a closing agreement before it happens.

Roger Parloff: And that sort of retroactivity you think is, is lawful and, and, there, there wouldn't be a problem with, with that?

Kesley Merrick: You know, I think, you know, retroactivity is, is not necessarily a problem for Congress acting here. It does potentially raise a due process concern, but in the tax context, courts have found that Congress has pretty broad latitude to make retroactive changes to the tax code. So I think Congress is in pretty good footing considering court precedent with respect to that.

And even if, you know, there were a, a future challenge to any of these congressional laws, for example, again, if a Trump affiliate or someone else under audit who thinks they get protection under the May 19th order raises that as a defense again, you know, we, we think the court should be able to, you know, not even look to the, to the act of Congress in order to, you know, make a determination that the May 19th order was invalid to begin with.

Roger Parloff: So, the problem, of course, with any congressional, hoping for any congressional action is that they don't seem to act very often, and especially in ways that displease this president. So maybe what Kelsey was getting at is, is the next- well, maybe you disagree with me about that there, maybe you think that this is, might be a, a, an exception.

But otherwise, I think we should talk about what Kelsey was getting to, was if, if nothing does change, what does the next administration do if it wants to resume this tax audit? What, what do events look like then?

Brandon DeBot: So I think with respect to whether Congress will act or not, I would just observe that here there's been substantial bipartisan criticism, certainly of the fund, which the administration did back away from after public and, and congressional backlash, at least for now. But also of the audit agreement specifically, and members of both parties have introduced amendments or legislation that, that would take some of the steps that we've been discussing. So that doesn't mean that they, that it will get enacted, but I do think there's, there's a bipartisan concern here.

In terms of what happens under a future administration, that depends on the steps that the IRS takes now. If the IRS doesn't take any steps to effectuate the acting AG's purported order, then a future administration doesn't need to respect or follow that purported order because it was lawless. If the IRS follows through and, for example, enters into closing agreements with the president and his affiliates, then the question would become, was that agreement entered into with a, a showing of fraud, malfeasance, or misrepresentation of material fact? That would be a threshold question regarding whether a future administration could reopen and decide to continue to pursue that audit. That would be the, the question the IRS would need to consider.

Roger Parloff: And when you say that Attorney General Blanche's order was lawless. Just to be clear, you mean is it because it was only him signing it? Is it because he's not Treasury Secretary, he's not IRS, he's ... What, what makes it lawless?

Brandon DeBot: Yeah. DOJ does not have unilateral authority to agree to drop IRS audits. DOJ's settlement authority in tax cases only extends to matters that are referred to DOJ, and so, this is under Section 7122 of the tax code.

So here, the only relevant matter that was referred to DOJ, based on what's publicly available, is President Trump's taxpayer privacy lawsuit. So DOJ's settlement authority would be limited to those claims, and DOJ doesn't have freestanding authority to just settle any audit with a particular taxpayer without a referral, let alone to settle an undefined set of claims including tax claims for an undefined set of affiliates of the person who was involved in a lawsuit.

Roger Parloff: So let's assume that Congress does nothing and this goes forward in that posture. What will the impact be on trust and the tax system and fairness go- going forward?

Brandon DeBot: I think there could be a, a really unfortunate negative impact on, on trust. Some of the laws that we've been talking about are specifically designed to ensure neutrality, and that the tax laws apply the same to everyone without regard to politics or other characteristics that should be irrelevant.

And so the idea that a different set of rules apply to different taxpayers could erode trust in the tax system, and that is especially concerning because the tax system is built on voluntary compliance for the overwhelming majority of, of revenue collection. And that system depends on, on taxpayers believing in the code and that they should fulfill their, their federal tax responsibilities without the need for intervention from the IRS. And, and this is part of a broader story, which is that those protections that Congress has been enacted, those guardrails designed to prevent politicization and to protect taxpayer privacy, have been breaking down under this administration. And so, this is another unfortunate step that is putting pressure on those protections, and that could erode a, a fundamental aspect of the tax system.

Roger Parloff: Well, I, I think we'll have to leave it there. But thank you very much for joining us both Brandon and Kelsey. It's a very important topic. I appreciate you coming on.

Kesley Merrick: Thank you for having us.

Brandon DeBot: Thanks for having us, Roger.

[Outro]

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