In 2016, during a contentious presidential debate, Donald Trump famously declared, “That makes me smart,” when confronted by Hillary Clinton about his minimal federal tax payments. Today, the former president’s financial situation appears even more ‘savvy’ following a surprising turn of events involving the Internal Revenue Service.
Recently, the IRS agreed to discontinue all ongoing investigations into Trump’s tax contributions. This decision came as part of a settlement for a lawsuit filed by Trump regarding the unauthorized disclosure of his tax returns. This could potentially include a long-standing audit concerning a strategy Trump reportedly employed years ago to reduce his tax obligations. This particular audit, if it had proceeded and found irregularities, might have resulted in an estimated $100 million penalty.
Trump has consistently asserted his innocence, labeling the IRS investigation as politically motivated, though he has not provided evidence to support this claim. The specifics of IRS audits are not made public, making it difficult to assess the merits of either side’s arguments. However, experts note that the manner in which the former president’s case against the IRS was resolved deviates significantly from standard practice.
According to experts, Trump’s decision to sue the IRS—an agency within the executive branch he once led—was an uncommon, possibly unprecedented, move. The agency’s subsequent agreement to grant him immunity is equally unusual.
The immunity agreement, part of a settlement resolving Trump’s $10 billion lawsuit over the 2018 leak of his tax returns to The New York Times, states that the U.S. government is “forever barred and precluded” from scrutinizing or prosecuting Trump, his sons, and the Trump Organization’s current tax filings. This provision was quietly appended to an initial settlement that established a $1.8 billion fund to compensate individuals whom Trump believes were improperly investigated by the government.
Tax specialists are alarmed by the extensive protection this immunity affords the former president, suggesting it could erode public confidence in the impartiality of the tax system. Daniel Werfel, a former IRS Commissioner, described it as an “unprecedented remedy,” emphasizing that Trump should be subject to the same rules as any other American taxpayer. “People expect the same tax rules and enforcement framework to apply to everybody,” Werfel stated.
The specific IRS inquiry centered on allegations that Trump essentially ‘double-dipped’ in reducing his taxes, as detailed in a 2024 report by The New York Times and ProPublica. The core issue was whether he utilized the same losses from his Chicago skyscraper twice in subsequent filings, a practice generally prohibited. The report indicated that Trump could have faced over $100 million in liabilities, including penalties, had he lost the audit.
Brandon DeBot, policy director at New York University’s Tax Law Center, views the Justice Department’s move to “wipe his slate clean” as an “extraordinary action” that sends a troubling message. “The president and his affiliates might not pay the taxes they should,” DeBot remarked, adding, “This is giving the president and his affiliates completely different set of rules than everyday taxpayers.”
The immunity offers distinct advantages to Trump, whose business empire comprises numerous entities, leading to intricate tax filings. He is also known for aggressive tax-reduction strategies, which some experts deem questionable. For instance, after his Atlantic City casinos faced financial collapse in the mid-1990s, Trump claimed approximately $1 billion in losses to lower his tax bill, despite lenders forgiving hundreds of millions of dollars in debt. Trump argued this debt was never technically forgiven due to an exchange of equity in the bankrupt casino for it—a tax maneuver Congress later outlawed as an abusive loophole. Through this and other tax shelters, Trump reportedly paid only $750 in federal taxes in 2016 and 2017, and zero in 2020, according to a congressional investigation following his first term.
While Trump has hinted at potentially releasing his tax returns now, he previously declined to do so, citing the ongoing IRS audit—a reason not legally mandated. Historically, presidents have voluntarily released their tax returns for decades, and all have had their returns audited as a matter of IRS policy. This policy originated in the late 1970s as a post-Watergate measure against presidential abuses, after Richard Nixon was found to have claimed dubious deductions, including a donation of his personal papers, leading to significant underpayments. During one year of his presidency, he paid only hundreds of dollars. When questioned about his tax strategies, Nixon famously declared, “I am not a crook.” He later accepted the IRS’s findings and paid hundreds of thousands in back taxes.
It’s important to note that Trump’s settlement with the IRS pertains only to existing audits and does not shield him or his family from potential future examinations for alleged abuses in subsequent tax returns. Portions of the settlement are currently facing legal challenges. The compensation fund, for instance, is being contested by police officers who defended the U.S. Capitol on January 6, 2021, and have sued to prevent anyone, including rioters, from receiving payouts. Legal experts anticipate that the tax immunity provision will also face court challenges. NYU’s DeBot commented, “This is the president trying to play every role in the system, acting as plaintiff, defendant, and his own judge and jury to extract extraordinary windfalls,” cautioning that granting such broad immunity “stretches beyond what DOJ actually has authority to do.”
