NEW YORK — During a 2016 presidential debate when Hillary Clinton criticized Donald Trump for paying almost no federal taxes, his response was simple.
“That makes me smart,” Trump declared.
Following that reasoning, Trump appears even more clever today.
The Internal Revenue Service announced Tuesday it would abandon all ongoing investigations into Trump regarding potential tax compliance issues to resolve a legal dispute the president filed over leaked tax documents. This settlement potentially covers a lengthy audit examining tax strategies Trump allegedly employed that could have resulted in roughly $100 million in penalties if violations were discovered.
Trump has consistently maintained his innocence and criticized the IRS investigation as having political motives, though he hasn’t offered evidence to support this claim.
Since IRS audit information remains confidential, determining the validity of either party’s position is impossible. However, tax professionals describe the resolution of the president’s case against the federal tax agency as highly irregular.
Trump filed suit against the IRS, creating an extraordinary situation where he challenged an agency under executive branch oversight — an uncommon action that may be without precedent, according to experts. The agency then made another unusual decision by granting him protection from future investigations.
The settlement resolving Trump’s $10 billion legal action concerning the 2018 disclosure of his tax documents to The New York Times includes language stating the U.S. government is “forever barred and precluded” from investigating or pursuing Trump, his sons, and the Trump Organization regarding current tax filings, based on a single-page document made public Tuesday. This provision was quietly incorporated into an initial agreement creating a $1.8 billion compensation fund for individuals Trump believes faced improper government scrutiny.
Tax professionals express amazement at the comprehensive protection this immunity provides the president and suggest it may damage public trust in tax system equity.
“This is an unprecedented remedy,” stated former IRS Commissioner Daniel Werfel, emphasizing that Trump should receive identical treatment as other Americans. “People expect the same tax rules and enforcement framework to apply to everybody.”
The IRS investigation focused on potential double-counting of tax reductions by Trump, based on a 2024 investigation by The New York Times and ProPublica — particularly whether he applied identical losses from his Chicago tower development to reduce taxes multiple times in subsequent filings, which violates tax regulations.
The investigation indicated Trump might owe over $100 million, including financial penalties, if the audit concluded against him.
The Justice Department has now decided to “wipe his slate clean,” according to tax specialist Brandon DeBot, who characterized this as an “extraordinary action” given its implications for the nation.
“The president and his affiliates might not pay the taxes they should,” DeBot explained, serving as policy director at New York University’s Tax Law Center. “This is giving the president and his affiliates completely different set of rules than everyday taxpayers.”
The protection proves particularly valuable for Trump. His business empire encompasses hundreds of individual entities, creating complex tax documentation. He’s also known for aggressive tax reduction strategies that some professionals view suspiciously — and in at least one instance was later deemed improper.
Following the financial collapse of his Atlantic City gambling establishments amid substantial debt during the mid-1990s, Trump reported approximately $1 billion in losses to reduce his tax obligations, despite creditors having canceled hundreds of millions in outstanding debt. Trump maintained the debt wasn’t technically canceled since he had traded ownership stakes in the failed casino operations for debt relief — a tax strategy Congress subsequently prohibited as an abusive loophole.
Using this method along with additional tax shelters and write-offs, Trump paid only $750 in federal taxes during 2016 and 2017, and nothing in 2020, according to a congressional review following his initial presidency.
While suggesting he might now make his tax returns public, Trump has previously declined, claiming ongoing IRS audits prevent disclosure — though no legal requirement prohibits such release. Previous presidents have voluntarily shared this information for decades, and all have undergone tax audits as standard IRS procedure.
This audit requirement started in the late 1970s during post-Watergate reforms targeting presidential misconduct after Richard Nixon was discovered claiming questionable deductions — including donating his personal documents — resulting in significant underpayments. During one presidential year, he paid merely hundreds of dollars.
When questioned about his tax strategies, Nixon famously responded, “I am not a crook.” He subsequently accepted the IRS conclusions and paid hundreds of thousands in additional taxes.
Trump’s IRS agreement addresses only current audits, not future reviews, meaning the president and his family remain subject to potential scrutiny for any alleged violations in upcoming tax filings.
Portions of the settlement face legal challenges.
Law enforcement officers who protected the U.S. Capitol from Trump’s supporters on January 6, 2021, are contesting the compensation fund. They’ve filed suit to prevent anyone — including the rioters — from receiving payments.
Legal experts anticipate the tax immunity will also face court challenges.
“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,” New York University’s DeBot observed, noting that providing extensive immunity “stretches beyond what DOJ actually has authority to do.”
