Trump Appointees, Ethics, and a Tax Break.

My law practice involves conflicts of interest. No, not because I allow them; instead, it’s on account of the fact that I do and have done legal ethics matters for almost 30 years, representing attorneys in discipline and professionalism matters, and suing and represent them in legal malpractice cases.

Federal government appointments and I don’t mix, but the principles associated with attorney conflicts and governmental conflicts differ not at all. Doing someone else’s bidding mandates that you focus only on that “client,” whether it’s an individual, a corporation, or the United States of America. With that in mind, I’ve been following with interest the staffing of the Trump Administration.

The people Donald Trump has chosen to help him are, in a word, rich. And, of course, because we’re talking about Mr. Trump, a word won’t do; instead, we need 140 characters:

They’re rich, hugely successful, everyone’s a winner, the very best people, they’ll Make America Great Again by listening to me. No losers!

So what about these rich people and conflicts of interest? Well there’s a regulation. 5 C.F.R. § 2634. Executive Branch Financial Disclosure, Qualified Trusts, and Certificates of Divestiture. Subpart J addresses Certificates of Divestiture and, as you’ll see in a moment, sometimes rich people should be quiet about the awful, dreadful regulatory system.

Section 2634 mandates that certain prospective executive branch employees disclose their assets. And, if the prospective employee’s holdings will create a conflict of interest, as it relates to the prospective employee’s job, the Office of Government Ethics can order her or him to sell the assets. “Sell,” you say. “An outrage.”

Not so much, actually, for if the OGE orders a sale, Subpart J kicks in. The prospective employee can request a Certificate of Divestiture. Assuming it’s granted—and it will be, if OGE orders a sale of assets—the prospective employee can avoid any capital gains tax on the appreciated value of the assets, so long as she or her reinvests the sale proceeds in obligations of the United States (T-bills, etc.), diversified mutual funds, or diversified unit investment trusts. “Gobblydegook,” you say. Let’s make it simple and real. Sell your holdings in Exxon, Chairman and CEO Rex Tillerson, and put the proceeds into something you don’t control. Voila, you avoid any capital gains tax on the Exxon stock appreciation.

In law school my tax professor, Arthur Andrews, drummed into our heads the fact that no one can avoid taxes. “Deferral only,” said he. Now, Professor Andrews was the best teacher I had, in college or law school, hands down. Alas, on this topic he was wrong. Under present tax law, if Mr. Tillerson sells Exxon stock and buys T-bills and holds them until he dies, he will never pay taxes on the capital gain. (He’s big rich, so he won’t need to sell the T-bills to pay the mortgage or buy a car.) Yes, his estate might have to pay a tax—it hits less than a fraction of 1% of the 2-3 million estates which come to pass each year in America as people die—but sophisticated tax planners can make much of that tax go away.

Bottom line: Mr. Trump’s choices to lead the several governmental agencies and departments will, when they are appointed, get a huge tax break. How huge? Collectively, a billion dollars or more, and more is the better choice!

Does the tax break make sense? Sure, for we don’t want personal financial interests to affect policy matters. And we don’t want successful people to avoid government service because they will suffer a significant—and, likely, unplanned—tax event. That said, did these regulations ever contemplate that, with a regime change, several billionaires might unload their holdings, tax free? No!

Now, at Mark Rubin Writes we deal in facts. But … if we dealt in the alt world of “prove it’s not true,” we’d ask ourselves this question: “With a spread in the billions, has President-elect Trump gotten kickbacks from any of his nominees—a share of their expected tax savings—in return for their nominations? Prove it’s not true, please!