Blurred Lines? Treasury’s Kautter Named Acting IRS Commissioner

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By Allyson Versprille

President Donald Trump announced Oct. 26 that David Kautter, Treasury assistant secretary for tax policy, will also be acting IRS commissioner starting Nov. 13, after Commissioner John Koskinen’s term ends. But some former officials say the double assignment could blur the lines between two roles with very distinct duties.

“I think there probably are times when it might create a bit of a conflict,” said Lisa Zarlenga, a partner and co-chair of the tax group at Steptoe & Johnson LLP and former tax legislative counsel at the Treasury Department. “When calls need to be made, you defer to the Treasury assistant secretary on policy calls and you defer to the commissioner on operational” and tax administration calls.

Mark Mazur, the assistant secretary for tax policy before Kautter, who now is director of the Urban-Brookings Tax Policy Center, said in an interview with Bloomberg Tax: “If you’re the IRS commissioner, you think of how to administer the estate tax. You don’t think of whether there should be an estate tax.”

Former Internal Revenue Service commissioner Lawrence Gibbs, now a senior counsel with Miller & Chevalier Chartered, said having the same person in the two roles simultaneously is unprecedented in his 50 years in the tax community. Gibbs—a close friend of Kautter—said the president’s action is “certainly a surprising decision” but a good one nonetheless.

Gibbs said he expects Democrats on Capitol Hill to argue it’s too difficult for Kautter to wear two hats and that he will bring politics into the IRS. While “the IRS commissioner’s job is, and should be, apolitical,” Kautter is nimble enough to keep his roles separate, and wouldn’t want to do otherwise, he said.

Eric Solomon, a former assistant secretary for tax policy, also said he expects that Kautter will keep his two roles separate.

His appointment “resolves an issue that many were thinking about,” which was “how the IRS would make the transition in light of the imminent departure of Commissioner Koskinen,” said Solomon, a principal in Ernst & Young LLP’s National Tax Department, where Kautter once worked.

Treasury and the IRS didn’t respond to requests for comment.

Spread Thin

Several former officials told Bloomberg Tax that Kautter is likely to be spread thin serving in both his new and existing roles.

Former IRS deputy chief counsel Gary Wilcox, now a partner with Mayer Brown LLP, said asking one person to do completely different roles creates “a somewhat unimaginable responsibility.”

“You’ve got two full-time jobs that he’s being asked to take on here,” and neither one is easy, said Gregory F. Jenner, who has served as both acting assistant secretary for tax policy and deputy assistant secretary for tax policy.

As Kautter splits time between Treasury and the IRS, Solomon said he expects the deputy assistant secretaries in Treasury’s Office of Tax Policy and the deputy commissioners at the IRS to “take up some of the slack.” An Oct. 26 news release from Treasury specified that “Deputy Commissioners Kirsten Wielobob and Jeff Tribiano will continue to run the day-to-day operations of the IRS.”

‘Fresh Start’

Jenner, a partner at Stoel Rives LLP, said he is concerned that the IRS will suffer because Kautter’s duties at Treasury working on tax reform will likely consume most of his time and effort. In addition, Kautter’s appointment to the IRS position may prevent the agency’s views from being fully and independently represented, he said. The IRS “has its own interests, its own needs, its own viewpoint, which are not necessarily in line with what Treasury and the Office of Tax Policy needs and wants,” he said.

Jenner also questioned why an existing career IRS employee—such as one of the deputy commissioners—wasn’t named acting commissioner. “One could speculate that they’re not a political appointee and therefore, as a consequence, there’s a concern that a career IRS official isn’t politically sensitive or politically attuned.”

House Ways and Means Committee Chairman Kevin Brady (R-Texas) said Kautter’s appointment will be a “fresh start” for the IRS. It’s “long past overdue that they really open their books so we really understand the challenges that agency is in,” he said. “They have really good people, but they have really poor leadership.”

At several points during his term as commissioner, House Republicans have tried to impeach Koskinen, claiming he failed to cooperate with the investigation into the alleged targeting of conservative groups for additional scrutiny when they applied for tax-exempt status.

Effect on Tax Reform

Former officials had mixed views on how the interim appointment will impact tax reform.

The heavy lift for Treasury is going to be immediately after a tax reform bill is enacted, Zarlenga said. “Once it’s enacted, they’ll have to write a bunch of guidance to interpret transitional rules,” among other things, she said.

While Congress is pushing to pass a tax reform bill by the end of the year, “I think there’s a pretty good chance that it goes into the first quarter of next year, and that would bump up against filing season,” she said. “I think filing season does take up a lot of attention from the commissioner and so obviously he’s going to have to prioritize filing season when it comes around.”

Gibbs sees Kautter’s appointment as positive for the very same reason. “If tax reform were to be enacted late this year or early next year with provisions that are retroactively effective to an earlier date in 2017, next year’s tax filing season could be difficult and full of risk for taxpayers, IRS, Treasury, and the politicians at both ends of Pennsylvania Avenue,” he said.

“As partisan as Congress has become, if there is a difficult filing season next year, I believe it would be better to have Dave Kautter acting as the IRS Commissioner to deal with the likely political fallout rather than subject an IRS career civil servant"—such as one of the deputy commissioners—"to the vicissitudes of the blowback that is likely to come from the Congress in such event,” Gibbs said in an email.

Mazur said another potential upside to Kautter’s serving as acting IRS commissioner is that he “will be very aware of tax administration issues and will be in a position to ensure that administrability is part of the conversation on tax reform.”

Short-Term Assignment

Nearly everyone who spoke to Bloomberg Tax said they expect Kautter’s role as acting commissioner to be temporary.

But “the unanswered question is how far along the administration is in finding a new commissioner,” Solomon said. “That’s a very important part of the calculus.”

Kautter will serve in the acting role until the administration finds a permanent replacement and that person is confirmed, Zarlenga said. That could be a challenge because the confirmation process isn’t always easy or quick, she said.

Kautter’s time as acting commissioner will be restricted by the Federal Vacancies Reform Act of 1998, which sets a 210-day limit on the terms of certain government officials serving in an acting capacity.

With assistance from Alison Bennett and Colleen Murphy in Washington.

To contact the reporter on this story: Allyson Versprille in Washington at aversprille@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

For More Information

Treasury's news release is at http://src.bna.com/tJB.

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