Trump’s Fictitious Fiduciary Duties

The New York Times reports that Donald Trump declared a $916 million loss on his 1995 income tax returns — a loss that he presumably could have carried forward for several years (or even decades) to erase future taxes. The Trump campaign issued the following statement in response:

Mr. Trump is a highly-skilled businessman who has a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required. . . . Mr. Trump knows the tax code far better than anyone who has ever run for President and he is the only one that knows how to fix it.

In a tax law trivia contest among past and present presidential candidates, I would bet on Bill Bradley over Donald Trump — and probably on Mitt Romney over Donald Trump too. (And Donald Trump’s ostensibly encyclopedic knowledge of the tax code evidently isn’t matched by his grammatical acumen: it’s “highly skilled businessman,” not “highly-skilled businessman.”) But let’s set aside the tax knowledge question (and the hyphenation quibble) for now and ask instead: Does Donald Trump have a “fiduciary responsibility to his business, his family, and his employees to pay no more tax than legally required”?

Of course not. First, any obligation that Donald Trump might have to minimize his companies’ taxes would not translate into an obligation to minimize his personal taxes. And it’s his personal income tax returns for 1995 that the Times published, not the returns filed by any of his business enterprises.

Second, a fiduciary duty is a duty of an agent to a principal — e.g., a duty of a company’s officers to its shareholders. Insofar as Donald Trump is the 100% owner of an enterprise, discussion of fiduciary responsibility is irrelevant: Donald Trump has no fiduciary responsibility to himself.

Third, even insofar as Donald Trump is not the sole owner of Trump-run enterprises, his “fiduciary responsibility” claim is misplaced. Trump’s enterprises generally are incorporated in Delaware, and the Delaware Chancery Court has held that there is no “broadly applicable fiduciary duty to minimize taxes.”

Fourth, Trump’s claim that he has a fiduciary responsibility to his employees to minimize taxes is novel. Employers generally have no fiduciary duties to their employees. (Matthew Bodie argues in a forthcoming Georgetown Law Journal article that this ought to change, but he acknowledges that “current law does not consider employers to be fiduciaries of their employees.”)

Perhaps Trump is using the term “fiduciary responsibility” in a non-legal sense (though I’m not sure what sense that would be). Insofar as his statement is a statement about the law, however, the statement is false. Whether or not Donald Trump broke the law by paying too little in tax, he certainly would not have violated fiduciary duty law by paying more.