Big Potential Cronyism at the IRS

Here’s a government example of what could happen when — as the expression goes — a crooked fox is tasked with guarding the hen house.

Last week, the Trump administration announced that it intends to make David Kautter as acting commissioner of the IRS on November 12, when the current director’s term ends. The IRS’s job is enforcing the tax code. Traditionally, IRS directors picked by presidents of both parties have had experience at the IRS, which would give them the necessary expertise to lead the agency.

Kauter has zero experience at the IRS and in tax enforcement. Instead, his experience is as the director of “National Tax” at E&Y, the huge accounting firm formerly known as Ernest & Young. Kauter’s work there was in developing tax avoidance schemes, minimizing clients’ tax liability. This division of EY was so vigilant at its efforts in avoiding taxes that it eventually had to pay $123 million to the government in order to avoid criminal prosecution.

This selection should concern people for a number of reasons. First, President Trump has claimed that his tax returns are being audited. If this is true, he is in effect being allowed to pick his own auditor, with no congressional oversight. Trump has virtually made a sport of flaunting the conflict of interest laws and norms that have governed the behavior of past presidents, but this is getting sufficiently extreme that it should even bother some Republicans.

Apart from Trump personally there is also the question of how prominent Republican donors will be treated by the acting IRS commissioner. One donor in particular stands out in this respect. The ultra-conservative billionaire, Robert Mercer, is in a dispute with the IRS potentially involving more than $7 billion in back taxes and penalties, stemming from the tax treatment of his hedge fund Renaissance Technologies LLC. Favorable treatment from Kauter can mean a huge windfall for Mr. Mercer, much of which is likely to come back to the Republican party in future contributions.

Mercer’s case might be an extreme one, but there is a real risk that many other politically connected rich people will be allowed to avoid much or all of their tax liability. For the rich, paying taxes could become a voluntary contribution to the government rather than something they are required to do under threat of punishment.

That is a really huge deal. We can apply any tax rate we want to the rich, but it doesn’t matter if no one is enforcing it. And that it is a real risk we face with allowing the Kauter appointment to go through.

There is no reason that Trump can’t do what other presidents have done, nominate a commissioner and have them go through the Senate approval process. The alternative is to make a joke of the tax code at the expense of the people who can’t afford expensive tax lawyers. This is a case of really swamping the drain, big-time.