Notice & Comment

Donations of Emoluments to the U.S. Treasury—Tax Deductible?

On Wednesday, President-Elect Donald Trump, through his legal advisors, presented his plan to address potential conflicts of interests created by his continued ownership in the Trump Organization. As part of his plan, the President (referred to this way for ease of exposition) has promised to transfer profits derived some foreign government transactions to the United States Treasury, even though he probably correctly denies that the foreign Emoluments Clause applies to those profits. The first question that comes to mind about the President’s plan relates, of course, to its U.S. federal income tax consequences.

Under one possible line of analysis, any profits derived from foreign government transactions will be income to the President. See, among other potentially applicable tax provisions, Sections 61, 162, 702, and 1366. Under this approach, though the President will include the relevant amounts in income, the related transfer to the U.S. Treasury would generally establish an offsetting deduction of an equal amount. See Section 170(c)(1) (allowing charitable deduction for contributions or gifts made to the United States). In many cases, the inclusion of income and the offsetting deduction will be a wash, at least for income tax purposes.  But see Kay Bell, “Is Batman cheating on his taxes?” (July 12, 2012) (describing some AGI-related limitations on charitable deductions).

Under another possible line of analysis, the transferred profits will not appear on the President’s tax returns. Nor would any deduction appear. Instead, the earning of the profits and their transfer would simply be ignored for income tax purposes.

Determinations under the Emoluments Clause will likely influence which line of analysis applies, although there is no direct authority on the question. If the transferred profits are emoluments, then no income or deduction should arise. At least some interpretations of the Emoluments Clause indicate that an emolument transferred by a foreign government to a U.S. Officer actually reflects a transfer to the United States as a whole.  See Comptroller General Opinion B-19362, 1979 WL 11736 (Dec. 4, 1979 (“[E]moluments received by [the U.S. Officer] are received on behalf of the United States.”). Under this view, if the U.S. Officer wants to accept an emolument, he must ask Congress for permission to keep it. Cf. also Zephyr Teachout, Gifts, Offices, and Corruption, 107 Nw. U.L. Rev. Colloquy 30, 42 (2012) (describing how Presidents Martin Van Buren and Andrew Tyler each received gifts from a foreign power and requested further direction from Congress regarding their sale or disposal); Seth Barrett Tillman, The Original Public Meaning of the Foreign Emoluments Clause: A Reply to Professor Zephyr Teachout, 107 Nw. U.L. Rev. Colloquy 180 (2013) (“Andrew Jackson received a gold medal from the South American revolutionary Simón Bolívar, President of Columbia. In 1830, Jackson submitted it to congressional control.”).  Applying this approach, the President will never own the profits derived from foreign government transaction, and the receipt and transfer of them should not generate any tax consequences. 

If President Trump retains a prohibited emolument and does not transfer it to the Treasury, then, under the so-called “claim of right” doctrine, he likely should include the emolument in income, even if the amount technically belongs to the United States as a whole. Cf. James v. United States, 366 U.S. 213 (1961) (requiring income inclusion of ill-gotten gains, even though the law might compel their later return).

However, if President Trump correctly determines that the profits from foreign government transactions are not emoluments, then the profits should be included in income. After all, they are his to keep. And when he voluntarily transfers them to the U.S. Treasury, a deduction would generally be available under Section 170, subject to various technical limits.

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This post was last updated on 1/20/2017.

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