By Richard Rubin 

President Trump's tax returns are once again in the national spotlight, after a New York Times report that he paid $750 in federal income taxes in 2016 and 2017 and no taxes for many other recent years. That result stemmed from money-losing businesses, various tax credits and questionable deductions, according to the Times.

The president has said the report is false and that he has paid millions of dollars in taxes, but he has provided no documentation or details. The Times report couldn't be independently verified; Republicans are seeking government investigations into the disclosure.

Here are answers to common questions.

Can President Trump release his tax returns?

Yes. He can release his tax returns whenever he wants to. That has been true all along.

He has said that he doesn't want to release them during an audit, but there is no law or rule against that. In fact, presidents are required to be audited under an Internal Revenue Service procedure, and that never stopped his predecessors from releasing their returns. He has also declined to release returns from years no longer under audit.

Keeping tax returns private during an audit makes a certain amount of business sense, because he wouldn't want outside experts reviewing them and giving ideas to the IRS. But of course, that's now what's happening anyway, because of the report of some of the details from the returns in the Times.

Is Trump engaging in tax evasion?

It is hard to know what label to put on Mr. Trump's tax affairs. Different pieces of the returns may lead to different legal conclusions as IRS agents, lawyers and potentially judges examine them.

Generally, tax professionals talk about criminal tax evasion as something plainly illegal and intentional. That would include, say, not reporting income received in cash at a business. For a vehicular comparison, this is like driving while intoxicated.

Then there's tax avoidance, which is what might be considered the gray area of the tax code. The code is unclear in parts, and many taxpayers arrange their affairs to minimize taxes with varying levels of aggressiveness.

"Like every other private person unless they're stupid, they go through the laws and that's what it is," Mr. Trump said during Tuesday's presidential debate in describing how business people think about taxes.

These are the cases that can attract the attention of the IRS and then get audited and litigated. The tax avoidance can be determined to have been illegal -- even subject to civil penalties in addition to the payments -- without being criminal. Speeding 13 miles an hour over the limit is an example of something that is illegal without being criminal.

Then there's tax planning, which uses clearly legal deductions to lower a tax bill, such as making donations to charity or timing the sale of assets to concentrate income in years you expect to have a lower tax rate. It's like taking a shortcut while driving.

How has Trump responded?

Just after the report was published, Mr. Trump declared it "fake news" and said he had paid a lot of taxes. During Tuesday's debate, he said he had paid millions of dollars in taxes. But he hasn't released any documentation or details.

The Times story uses the income-tax line from the tax returns, while Mr. Trump's business seems to be referring to a broader "personal taxes" label, which they haven't defined, to claim that he paid more.

"The IRS does not treat me well," Mr. Trump said.

How does Trump compare with other presidents?

Unlike every other president and major-party candidate in the past 40 years, he hasn't voluntarily disclosed his tax returns. The others did so in the name of transparency and accountability.

Mr. Trump's business affairs are also exponentially more complicated than those of his predecessors. He didn't sell off his businesses and investments before taking office.

President Obama's tax returns reflected his income -- presidential salary and book sales. Mr. Trump's returns include the income, deductions and losses from all of his businesses.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

October 01, 2020 12:29 ET (16:29 GMT)

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